Dissertation: Analyzing the Future of Low Cost Carriers in Aviation

This dissertation examines the evolving landscape of low-cost carriers (LCCs) in the aviation industry, with a particular focus on Ryanair. It begins by establishing the background and rationale for the research, highlighting the significant changes and challenges within the airline industry, and the rise of LCCs. The study investigates the current state and future prospects of LCCs, including their operational models, cost-cutting strategies, and the impact of globalization and market deregulation. The research addresses the challenges LCCs face, such as competition, brand image, and infrastructure limitations. The dissertation employs a comprehensive research methodology, including literature review, data analysis, and a discussion of findings, to predict the survival and future growth options for LCCs. The findings are then used to provide insights into the factors that influence the success and survival of low-cost airlines in a dynamic and competitive market. The research concludes with a summary of the key findings, interpretations, and recommendations for the future of LCCs, contributing to the understanding of airline management and strategic decision-making in the aviation sector.

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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such as frequent flyer programme, complementary drinks, different class systems, inflight
entertainment and many more.
According to Lei and Papatheodorou, (2010), in the European market airlines 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. However this is not the situation with companies like Ryanair and easyJet. On the other
side this type of traffic movement is also observed within United States. The Southwest is also
offering flights out of the Los Angeles. Further the airline offers connected flights to the other
destinations that is very similar to the legacy carrier.
2.3 Current effectiveness and efficiency of the low cost airlines
According to Ariffin, Salleh and Asbudin, (2010), the main purpose behind launching the
concept of LCCs was to attain the cost cutting so that consumers can be given a low price
service. Earlier the flight services were meant to be used for the upper class consumers only.
Gradually, this concept came into existence and now the air services are affordable by middle
class consumers also.
According to Snaith, (2013), 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. At present majority of the tickets are sold on online
platforms. For instance airlines such as Ryan Air sell 80% of its ticket by using this approach.
Undoubtedly internet selling has emerged as one of the biggest significant operating cost within
the industry. The distribution costs accounts for as much as 17% of an airline’s total operating
costs on average basis.
According to Kim and Lee, (2011), the training and maintenance costs can also be
reduced through the use of similar type of aircraft. It enhance efficient by giving greater amount
of flexibility to the aircraft crew. Fleet utilization can be regarded as the direct measure of
efficiency. It is expected that this is almost 80% higher than the legacy carriers. This high
utilization rates are achievable through quick transformations at the airports. The Low Cost
Airlines mostly covers the short haul routes which are usually less than 4 hours hence several
sectors can be covered in a single day.
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According to Ali, Asim and Khan, (2012), 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. Similarly independent contractors are employed in the aviation sector
hence less training is required. Companies enjoys a good level of loyalty from the employees.
The management in LCCs seems to have created a good atmosphere by focusing on aspects such
as organization culture and human resource management. It can be said that although people are
paid less in the industry but good working culture results in efficiency within the operations.
2.4 Future of Low Cost Airlines
According to Ciliberto and Williams, (2010), in the existing scenario, the industry is
driving towards adopting to changes. There are clear symbols that many low cost airlines are
adopting the strategy of differentiation. It is an approach to drive out any new low cost entrants
to the market. This will also affect the business activities of legacy carriers and their subsidiaries.
However According to Clausen, Larsen and Rezanova, (2010), the subsidiaries are functioning
on the low cost model but if the parent firms cannot keep their labour costs down, it is not
possible that subsidiaries will succeed in driving out the LCCs.
According to Forgas, Moliner and Palau, (2010), Market of LCCs in Europe has reached
to a very higher level. Companies like Ryan air are making the bases in hubs instead of
secondary airports. This indicates that firms are also making the efforts to drive out the new
entrants into the market. European Union is now started being considered as a single aviation
area where domestic LCCs can operate and compete with each other. The operations are being
spread out and this is an indication there is a demand from people to travel from hubs to
secondary airports and vice versa. The ever changing aviation environment is adapting to
different types of changes.
According to Hares, Dickinson and Wilkes (2010), restrictive nature of government will
be a major concern for the airlines. Hence the LCCs industry will take some time to reach the
maturity stage. Emergence of many low cost airlines and subsequent implementation of
subsidiaries is a clear indication that the industry is going towards the low cost revolution. They
are passing beyond the boundaries of the nation.
According to Kim and Lee, (2011), another strategy of introducing a premium class for
the long haul flights has been used by the companies. It is an indication that firms are moving
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away from traditional model of low cost airlines towards the differentiation model. Further 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.
2.5 UK-Europe low cost airline industry
The UK airline industry has been dominated in the recent years due to the rise of low cost
carriers. The market has achieved extreme growth because of the presence of factors such as
lower fares, increased competition and more destinations.
Figure 1: UK-Europe passenger traffic, year-on-year growth 1991-2013
(Source: The future of low-cost airlines and airports, 2015)
According to Yu, (2012), 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.
For instance, According to Kim and Lee, (2011), deregulation provides the opportunity to
airlines of member states to operate domestically within the European Union. Further, low
charges at underused airports increased the number of passengers going into those airports
(Ciliberto and Williams, 2010). The direct sales approach on the basis of internet and call centres
also encouraged the growth of Low Cost Carriers. Liberalization has opened great amount of
business opportunities for these low cost carriers. The industry is growing and firms are
emerging. The use of different strategic business approaches can be seen. The market is growing
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and the number of passengers are also growing day by day. It is widening the range of air
services.
The above chart shows the passenger traffic between UK and Europe between the time
period of 1991 and 2013. It is expected that LCCs would deliver perpetual growth on the entire
market despite of noticing that the growth trend over the past 13 years has actually been
downward. Despite of global crisis such as terrorism, natural calamities, financial downturn etc,
these small size airlines have achieved good amount of growth and development (The future of
low-cost airlines and airports, 2015). The real turning point in the growth was noticed in the
year 1990 when Ryanair was introduced in the industry. From the period of 1997 to 2000, the
average of the growth was 9% per year. Many new flights were added to Europe. It has
stimulated the array of unreserved markets and many growing existing services. However not all
the passengers used to travel on LCCs but their impact was significant (Rafatullah, Sulaiman and
Ahmad, 2010). The financial crisis of 2008 created a significant impact on the air travel in
Europe. Many countries have entered into the phase of recession as the economy was getting
damaged. However before the crisis, UK to Europe growth was already declining. Hence it can
be said that without the recession the market was proceeding towards the growth (Button, 2012).
The business model of LCC offers effective results when the passengers can be influenced to
travel through offering low fare within the market. In this way a new passenger market has been
created as the people who wouldn’t have previously flown due to high prices are now stimulated
to fly.
2.6 Challenges faced by the Low Cost Airlines
Following are the challenges faced by the Low Cost Airlines:
According to Rafatullah, Sulaiman and Ahmad, (2010), it is quite difficult for Low Cost
Airlines to survive in the aviation industry due to presence of bigger brands and large size
airlines. They are required to compete on a large scale but with existing capacities. It is difficult
to establish a presence in front of such big players in the industry.
According to Ali, Asim and Khan, (2012), another issue faced by LCCs is the lack of
brand image among the passengers. The people prefer to travel with a brand instead of such
airlines. It is because there is not such high awareness and people are not familiar with LCCs.
Hence it becomes difficult for them to establish connection with that brand. It is expected that
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