Effects of LCC Entry on Pricing in Aviation
A low-cost carrier (LCC) has been defined, in Chap. 2, as an airline designed to have a competitive advantage in terms of costs over a full-service carrier (FSC). An LCC relies on a very simple firm organization and logistic principles. In Chaps. 5 and 6 we try to explain the airline supply process by analysing the LCC versus the FSC network configuration. In contrast to the hub-and-spoke structure of the FSC, the LCC offers point-to-point connections from secondary airports, i.e. smaller airports — such as London Luton — that are less expensive in terms of landing tax and handling fee than bigger airports such as Heathrow or Manchester. The fleet generally includes one type of aircraft that operates more hours a day than the traditional carriers in order to maximize its utilization on a daily basis. The LCC product is not differentiated and the distribution is as simple as possible, by making use of Internet direct sales and electronic tickets. The resulting cost gap between the low-cost model and the FSC model allows the LCC to set airfares on average much lower than traditional carriers.
KeywordsMarket Structure Incentive Compatibility Constraint Strong Market Business Market Yield Management
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