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The Convergence of Low-Cost and Legacy Airline Operations

In: Airline Efficiency

Author

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  • Kevin E. Henrickson
  • Wesley W. Wilson

Abstract

Following deregulation, the airline industry has dramatically changed. In addition to numerous mergers and bankruptcies, the industry has also seen an influx of small, “low-cost” carriers who offer differentiated competition to the traditional legacy carriers. These low-cost carriers traditionally avoided the hub-and-spoke networks of legacy carriers, offering point-to-point service often on adjacent routes. However, events of the past 10–15 years, including the terrorist attacks of 9/11, rising fuel prices, and economic recessions, have led to a shift in the operations of these airlines. The legacy carriers have unbundled many of their services, most notably through baggage fees, seeking to improve efficiency. Low-cost carriers have expanded services into major airports and have shifted to more direct route level competition with the legacy carriers as they use their cost efficiency advantages to their advantage. In this chapter, we examine airport and route choice decision to serve by legacy and low-cost carriers over time. Our descriptive and econometric models point to convergence of operations in terms of the airports and routes that low-cost and legacy carriers serve, with the implication that the current competitive atmosphere improves efficiency as the distinctions between legacy and low-cost carriers have become less obvious.

Suggested Citation

  • Kevin E. Henrickson & Wesley W. Wilson, 2016. "The Convergence of Low-Cost and Legacy Airline Operations," Advances in Airline Economics, in: Airline Efficiency, volume 5, pages 355-375, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aiaezz:s2212-160920160000005013
    DOI: 10.1108/S2212-160920160000005013
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    Citations

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    Cited by:

    1. Renan P. de Oliveira & Alessandro V. M. Oliveira & Gui Lohmann, 2021. "A Network-Design Analysis of Airline Business Model Adaptation in the Face of Competition and Consolidation," Transportation Science, INFORMS, vol. 55(2), pages 532-548, March.
    2. Bitzan, John & Peoples, James, 2016. "A comparative analysis of cost change for low-cost, full-service, and other carriers in the US airline industry," Research in Transportation Economics, Elsevier, vol. 56(C), pages 25-41.
    3. Ferrer-Rosell, Berta & Coenders, GermÃ, 2017. "Airline type and tourist expenditure: Are full service and low cost carriers converging or diverging?," Journal of Air Transport Management, Elsevier, vol. 63(C), pages 119-125.

    More about this item

    Keywords

    Low cost; legacy; airport; route; convergence; L93; L1; R41; L91;
    All these keywords.

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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