The purpose of this research is to analyse the Future Of The Low Cost Airlines In The Aviation Sector-An industry analysis in global perspective.
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.
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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.
Rationale of the study
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.
Research Aim and Objectives
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
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?
Brief History related to Low Cost Carriers
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.
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.
Australia & New Zealand
According to Forgas, Moliner and Palau, (2010), In the early 90s, after the deregulation of Australian domestic market, airlines such as Compass Airlines and compass Mk II started their low cost operations. Later on, they all were beaten by the financial strength of Qantas group which is a very big airline brand in Australia. After some time the only significant innovation came in form of Virgin blue which is still operating today.
According to Ciliberto and Williams, (2010), In New Zealand, the movement of deregulation came into existence in 1984 but the low cost operations did not started until 1995. However, unlikely to many other countries, it wasn’t in the domestic sector. In response to this, flagship carrier named Air New Zealand started its own subsidiary that is Freedom Air in order to gain a market share in the low cost airline sector (Airport expansion: What happens next? 2015). Unfortunately due to this creation of Freedom Air and pressure from Qantas drove the Kiwi Airlines out of the market. According to Hares, Dickinson and Wilkes, (2010), due to deregulation within the country, the new entrants and large companies with substantial capital are viewing the New Zealand as an attractive market to enter.
According to Clausen, Larsen and Rezanova, (2010), In Asia, it was estimated that complex regulatory conditions will not allow the favourable conditions for low cost airlines to flourish. However factors such as rapid demographic and economic growth, congested airports, underutilized airports and the need for government to promote travel & tourism directed the continent towards low cost concept. Inspiring the success of LCCs in Europe, Malaysian carrier Air Asia started a LCC on the basis of South West model. Many other carriers such as Tiger Airways, Value Air etc are still in operations today (Torlak, Sevkli and Zaim, 2011).
Following are the challenges faced by the Low Cost Airlines:
Survival – 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.
Low brand image – 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 no such high awareness and people are not familiar with LCCs. Hence it becomes difficult for them to establish connection with that brand.
High maintenance costs – According to Hares, Dickinson and Wilkes, (2010), one of the biggest issue faced by the LCCs is the high maintenance costs related to airlines. The costs of operations is very high in the industry. It may be difficult for LCCs to afford such high costs.
Infrastructure – According to Kim and Lee (2011), usually it has been seen that big players operating in the aviation industry are having a very dynamic infrastructure for their flights. This can be difficult to afford by the low costs airlines.
The current report focuses on analysing the survival and future growth options of Low Cost Carriers in the aviation sector (Goddard and Melville, 2004). This section of dissertation deals with outlining the research designs and approaches which will helps in attaining the research aim. It involves the use of theories and concepts which will help in reaching to a strong conclusion.
Research design refers to the overall strategy chosen by the researcher in order to integrate various components of the study in a logical way. This helps the researcher in analysing research problems in logical way thus seeking the effective solution (Kuada, 2012). Present study focuses on exploring the valid reasons and impact of choosing the present topic. Thus, explorative research design will be adopted in order to gain the objective of the research efficiently.
Data Collection methods
This is one of the most significant parts of research analysing and methodology where the researcher seeks effective measures to collect valid and reliable data to gain the proper insight of the topic and issues concerned with the same. Primary and secondary method of data collection is the common measures chosen for the study (Saunders and et. al., 2009). Present study will adopt both primary and secondary source of data collection.
Primary data will be collected from 30 employees of Ryanair airline which is a Low Cost Carrier in Europe. It will be collected through questionnaire technique. It is a semi-structured questionnaire consisting of both open ended as well as close ended questions. It is appropriate because it helps in collecting authentic and adequate volume of data. While on the other side, secondary data will be compiled through books, journals, newspapers, internet etc. Moreover, industry reports and past data of the company will also be collected for analysis.
Sampling is a method in which population of the study gets divided into small number so that data collection can be done in effectual manner. It focuses on selecting a sample from vast population within the market in order to create an effective impact on the study. The validity and reliability of data helps in acquiring effective results for the given study (Kuada, 2012). For the present study non probabilistic sampling will be adopted in order to choose a convenient set of sample. It is appropriate because it helps in collecting the data on the basis of the subject and requirement of the research.
Data analysis adopts qualitative and quantitative techniques to attain the set results. This helps in simplifying the data in the desired format which helps in attaining the aim of the study. The present study will adopt qualitative technique to analyse the data because open ended interview questions will provide the data in form of individual perspectives of the respondents (Saunders and et. al., 2009). This will thus be analysed and represented in thematic form to avail the set objectives for the research. Different themes or patterns will be constructed to structure the research in a well-developed way and to gain effective results.
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Following are the factors that count in the limitation of this study:
- Limited resource availability may restrict the availability of data
- Research will demand high cost which will result in limiting the research prospects within preferred cost
- Limited time frame
- Limited data sample data will result in low data availability
- Ciliberto, F. and Williams, J. W., 2010. Limited access to airport facilities and market power in the airline industry. Journal of Law and Economics.
- Clausen, J., Larsen, A. and Rezanova, N. J., 2010. Disruption management in the airline industry—Concepts, models and methods. Computers & Operations Research.
- Forgas, S., Moliner, M. A. and Palau, R., 2010. Antecedents of airline passenger loyalty: Low-cost versus traditional airlines. Journal of Air Transport Management.
- Goddard, W. and Melville, S., 2004.Research Methodology: An Introduction. Juta and Company Ltd.
- Hares, A., Dickinson, J. and Wilkes, K., 2010. Climate change and the air travel decisions of UK tourists. Journal of Transport Geography.