Low-Cost Airlines

MGT 6753 Industry Analysis

Low-Cost Carriers in Europe

Julian Geiger, Michael Schlottke, Marcus Schrade

MGT 6753

Industry Analysis

Low-cost carriers in Europe

Industry Overview

The market for low-cost carriers first emerged in the US with Pacific Southwest Airlines, pioneering the concept in 1949. The European market did not really develop until aviation deregulation came into effect in the 1990’s, making flights affordable for a wider range of customers. Building on the inclining demand for cheap flights mainly by private individuals (average annual growth of 9.4% for leisure travelers between 1996 and 2003 [11], Figure 2), the industry has experienced rapid growth since then. Most notably, Irish airline Ryanair, formed in 1990, and British company EasyJet, formed in 1995, were able to shape the European market (Figure 3). Germanwings and Air Berlin are additional major players in the low-cost carriers (LCC) market throughout Europe.

PEST Analysis

The evolvement of the LCC industry in Europe was only possible through one major political decision in 1997 – the deregulation of the European flight market. Before, the market for flights was largely controlled by the governments of European countries, trying to secure their respective national carrier’s market share. This led to high prices for European flights – airfares were roughly twice as much as those for comparable distances in the U.S. [1]. After lifting most restrictions and enabling European carriers to offer routes between any points in the European Union, fierce market competition developed, leading to a sharp drop in prices. The outreach of cheap airlines is extending continuously. Initially providing competition for traditional, often overpriced and government-subsidized carriers, they are now competing with other forms of ground transportation like busses and trains. In many cases it is cheaper to take a flight as opposed to taking the train, especially for longer distances....