The Future of Low Cost Carriers ABSTRACT

DISSERTATION
The future of low cost carriers

ABSTRACT
Concept of low cost carrier has gained great attention in the present business
environment. It is an air service which generally has lower fares and fewer comforts. It can also
be understood as a carrier with low ticket prices and limited services, irrespective of their
operating models. For this research, Ryanair Ltd Company is selected because it will find out
how the company is managing its business on the basis of such low cost structure. It investigates
the challenges faced by the carrier in meeting the needs of its clients and due to globalization.
Low Cost airlines doing business across the world have designed their business strategies on the
basis of South West’s model. More and more companies had modified the use of this model
along with the increase in the size of the industry.A European market airline such as EasyJet and
Ryanair follows the traditional cost leadership strategy with regard to offering of basic services.
Although it cannot be concluded that they have stepped out from the original strategy. It has
been observed that LCCs have been based out of and operated into secondary airports. Almost all
the airline firms have followed the trend of cost cutting since the introduction of internet ticket
booking. It has limited the involvement of travel agents in distribution of the services.
A significant reduction in the labour cost has also been noticed in the LCCs industry. For
instance activities like ground handling can be outsourced to other firms. There are clear symbols
that many low cost airlines are adopting the strategy of differentiation. European Union is now
started being considered as a single aviation area where domestic LCCs can operate and compete
with each other. The industry is also contributing in increasing the importance of travel and
tourism within the society. People are travelling from one country to another on regular basis.
In Europe the concept of LCCs was initiated in UK and Ireland in 1995. At that time,
companies like EasyJet and Ryanair came into the market. Their success was recognized through
economic framework which encouraged the low cost airline industry. There are several
challenges faced by Low cost airline industry such as survival, low brand image, high
maintenance cost, infrastructure, Dominance from big companies, Air crashes as well as
increasing competition. For the same, firms are required to concentrate on their operations and
consumer perceptions in order to assure their existence in the rapidly changing aviation
environment. Hence it can be a difficult challenge for them.
TABLE OF CONTENTS

Dissertation......................................................................................................................................1
The future of low cost carriers.........................................................................................................1
Chapter 1 – Introduction..................................................................................................................1
1.1 Introduction............................................................................................................................1
1.1 Background of the research...................................................................................................2
1.2 Background of the organization.............................................................................................2
1.3 Rationale of the research.......................................................................................................3
1.4 Aim and objectives of the study............................................................................................3
1.5 Significance of the study.......................................................................................................3
1.6 Structure of the report............................................................................................................4
Chapter 2 Literature Review............................................................................................................5
2.1 Introduction............................................................................................................................5
2.2 Current state of the Low Cost Airline Industry.....................................................................5
2.3 Current effectiveness and efficiency of the low cost airlines................................................6
2.4 Future of Low Cost Airlines..................................................................................................7
2.5 UK-Europe low cost airline industry.....................................................................................8
2.6 Challenges faced by the Low Cost Airlines..........................................................................9
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................12
3.1 Introduction..........................................................................................................................12
3.2 Research Approach..............................................................................................................12
3.3 Research Philosophy............................................................................................................12
3.4 Research Design..................................................................................................................13
3.5 Data Collection....................................................................................................................14
3.6 Sampling..............................................................................................................................15
3.7 Data Analysis.......................................................................................................................15
3.8 Reliability and Validity........................................................................................................16
3.9 Ethical Consideration...........................................................................................................16
CHAPTER – 4 DATA ANALYSIS..............................................................................................18
Introduction................................................................................................................................18
Findings.....................................................................................................................................18
Interpretation..............................................................................................................................23
Chapter 5 Conclusion....................................................................................................................33
References......................................................................................................................................37

CHAPTER 1 – INTRODUCTION
1.1 Introduction
According to Forgas, Moliner and Palau, (2010), Air transport has always been
considered as a very special sector within the international context. It facilitates growth in
economic and social areas. The domestic as well as international tourism is gaining huge
popularity due to air transport. This sector has played a dominant role in the process of
globalization. In the year 2008, US$ 535 billion was generated as compared to US$ 307 in 2001.
This growth has been further driven by practices like market deregulation and open skies
agreement. Deregulation nurtured the growth of LCC (Low Cost Carriers) in the domestic
markets around the world (Kim and Lee, 2011). This concept was started in the seventies by an
American domestic carrier named southwest. It was done with the purpose of offering cheap
airfares for the consumers. This created a scenario where already established flag ship carriers
starting losing their market share in comparison to these LCCs.
Currently, this mode of transport has become very popular for lower to middle income
families. After the deregulation, these carriers have broken the hold of legacy carries on the
aviation industry (Hares, Dickinson and Wilkes, 2010). When it came to flying, only big size
airlines were given the priority but now people have started liking LCCs. It has become a very
preferred choice for short haul travellers. Today, these carriers are facing the same skies and
issues as faced by the big airlines. A list of setbacks has been created which can scare away any
new entrant in the industry (Clausen, Larsen and Rezanova, 2010). In that context, it is essential
to analyse the industry, to understand its strengths, weaknesses, opportunities and threats so that
it can be identified what the future holds for Low Cost Carriers.
The main objective of this research is to predict the survival of low cost airlines and to
discover the future growth options for LCCs. It will also identify the success, failure and survival
factors in the low cost airline industry.
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1.1 Background of the research
Airline industry has witnessed great amount of changes with the passing of time due to its
dynamic nature. The nature of the airline services has also gone into great transformation. Earlier
the air services were meant to be used for upper class consumers only. The people who have high
income structure can afford the services but now the things have become different (Ali, Asim
and Khan, 2012). Concept of low cost carrier has gained great attention in the present business
environment. It is an air service which generally has lower fares and fewer comfort. The revenue
lost in the decreased ticket prices is covered by charging for things like food priority boarding,
baggage, seat allocating etc (Button, 2012).
The term originated in the industry referring to as the airlines which supports lower
operating cost structure. It can also be understood as a carrier with low ticket prices and limited
services, irrespective of their operating models. The employees are paid below the industry
average wage and there are no frill benefits. These type of airlines cannot be confused with
regional airlines that functions with short flights without service (Chiou and Chen, 2010).
However there is much debate going on how significant reduction in prices can be offered by
LCC’s, considering the high costs of flying between several routes. This research study has been
undertaken to identify the challenges that are faced by the low cost airlines in the course of their
survival.
1.2 Background of the organization
Ryanair Ltd is an Irish Los cost airline which is headquartered in Swords, Dublin. It operates
over 300 Boeing 737-800 aircrafts. The brand has been characterized through its rapid expansion
and as a result of the deregulation of the aviation industry in Europe in 1997. Since the
establishment, the company has passed on from a small level to a very high level carriers.
Among all its competitors, Ryanair has got the highest market share (Ryanair, About us, 2016).
For this research, this company is selected because it will find out how the company is managing
its business on the basis of such low cost structure. It investigates the challenges faced by the
carrier in meeting the needs of its clients and due to globalization. The future scenario for the
company will also be scanned and suggestions can be made to bring the improvements.
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1.3 Rationale of the research
There are number of issues which could have influence the effectiveness of Low Cost
Carriers in long haul markets in negative manner. There is much debate going on how significant
reduction in prices can be offered considering the high costs of flying between several routes. If
these carriers plan for the expansion, there is an increasing probability that they will be entering
into a very highly competitive market. In this way it could be difficult for them to achieve such
cost effectiveness within their business operations. There can be so many obstacles to face. So
there is a need to investigate the challenges that are to be faced by the Low Cost Carriers. The
purpose of this report is to analyse the current state and the future of these firms in the aviation
sector. An attempt will be made to find out the measures how these carriers can survive their
survival in the coming years.
1.4 Aim and objectives of the study
The major aim of this research is to predict the survival of Low Cost Carriers (airlines)
and to identify the future growth options. Following objectives have been laid down:
 To examine the brief history related to the low cost airlines
 To investigate the current state and the future prospectus for LCCs
 To identify the market and environmental factors affecting the survival of LCCs
 To investigate the challenges faced by these carriers in the industry
Research Question
Following research questions have been developed for the study:
 How Low Cost Carriers can survive their survival and growth in future?
 What are challenges which can put restrictions on their growth in future?
 What are the success, failure and survival factors for LCCs in airline industry?
1.5 Significance of the study
Every research is performed with a certain significance. The significance plays an essential
role in identifying how the study makes an effective contribution to the field of academics. The
subject of Low Cost Airline has been evaluated by very few researchers. However this study tries
to find out the future scenario for the LCCs within the airline industry. It identifies how the
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companies are maintaining their low operating structure. It is evident that competition from other
big companies also affects the business activities of the LCCs. Hence it can be very interesting to
identify how the companies can surviving their existence in the middle of so much complexities.
Further this research makes an effective contribution to the field of research also. The learners
will be able to gain the learning about different management approaches used in the airline sector
by the companies.
1.6 Structure of the report
The thesis will have the following structure:
 Chapter 1 Introduction – The first chapter indicates the concise purpose and significance
of the research. The rational reflects the issue which is going to be investigated. A brief
introduction is given to the subject, its background, company’s background etc. It holds a
great importance because it is essential that readers must get the overview of the
situation.
 Chapter 2 Literature Review – The chapter is based on the past research findings. Here
efforts are made to establish a link between the existing literature and research. It brings
out all the theoretical concepts, frameworks and models related with the subject.
 Chapter 3 Research Design and Methodology – The chapter states the research tools and
techniques which are used to collect the primary and secondary data. The purpose of
using the data will also be explained. The methodology makes sure that research is being
performed in the right direction.
 Chapter 4 Results and discussion – The chapter takes into consideration the empirical
findings with regard to the subject. A suitable method of data analysis is used to achieve
the proposed aim and objectives of the research.
 Chapter 5 Conclusion – The chapter unfolds the summary of the entire findings. All the
analysed data is interpreted and some valuable outcomes are derived from it.
Conclusion
From the above chapter, it can be summarized that concept of low cost airlines has
become popular. There are number of issues which can influence the effectiveness of Low Cost
Carriers in long haul markets in a negative manner. Hence, this research is making an effort to
analyze the existence and growth of LCCs within the market.
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CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Literature Review is that section which gains the high importance from the readers. It
sum up all the theories and concepts related to the subject. It performs the evaluation of the past
data research findings which have been generated in regard to the subject. It tries to make a link
between the existing research and the past studies. Researcher will try to find out the gapes and
makes proper arrangement to find something new. The major purpose is to link the research
objectives with this chapter so that more appropriate results can be discovered.
According to Torlak, Sevkli and Zaim, (2011), the transformation of the low cost concept
in U.S can only be described as a series of innovations, consolidations and proliferations. It
began when deregulation started in 1970. Under this period many low cost airlines such as
Pacific Southwest, New York Air, Jet America, etc entered into the market. Among them some
survived the competition and other did not. Due to this, major carriers started their own
subsidiaries under the low cost banner for the purpose of regaining the lost market share.
2.2 Current state of the Low Cost Airline Industry
According to Kim and Lee, (2011), All the Low Cost airlines doing business across the
world have designed their business strategies on the basis of South West’s model. More and
more companies had modified the use of this model along with the increase in the size of the
industry. The changes are done to survive the competition in the industry. In the present context
the basis of operations of LCCs still remains the same that is to provide low price services to the
customers. It is done by undercutting the price levels of legacy carriers.
According to Chung and Whang (2011), some companies have modified their strategies
in order to stand out from the competition. One example of such is diversification approach.
Diversification is adopted within the business when an organization make efforts to go out of the
box. It tries to offer something which can make them different within the industry. The reason
behind using this strategy that it assists them in becoming an above average performer as
compared to the others.
According to Forgas, Moliner and Palau, (2010), the differentiation strategy has been
very prominent in the UK aviation market where it has achieved the balance between los cost
model and the full service model. Almost all the low cost carriers have started giving services
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