Question

Since deregulation, the low fare airlines, often termed low-cost-carriers, have captured significant market share from the more established network carriers in the U.S. and Europe. Discuss some economic aspects that have led to the success of low fare airlines.

Answer 1

Discuss some economic aspects that have led to the success of low fare airlines.

• The concept of a low cost airline was started in the seventies by the American domestic carrier Southwest with the sole objective of offering cheap airfares to the consumers.
• Thus already established airlines lost their market share to these low cost carrier providers
• Series of innovations, proliferations and consolidations allowed low-cost-carriers to survive in the market, forcing big players to adopt this approach
• In Europe, success was attributed to the favourable economic framework that encouraged the low cost airline industry. e.g.  the deregulation allowed airlines of member states to operate domestically within the European Union.
• After deregulation of the Australian domestic market in the early nineties, airlines such as Compass Airlines and compass Mk II started low cost operations