Industry Analysis Case Study

Cost Advantages of Low Cost Carriers in USA

OR

Abstract:
In the 1970s, the deregulation of the US domestic aviation gave rise to a new kind of airlines - the 'No-frills' or 'Low Cost' carriers. The low cost carriers had an entirely different business model from the regular or the traditional carriers. The first low cost carrier to start operations was Southwest Airlines in 1971. Since the 1970s, the low cost carriers have always clocked profits. Even in the aftermath of the September 11 terrorist attacks in the US, while traditional airlines had together lost $10 billion in 2002, Southwest earned $418 million for its 30th consecutive year. As the traditional airlines suffered from high operational costs for long, they also decided to enter the low cost game to sustain their profits and to regain the market share they had ceded to their low cost counterparts. On April 15th 2003, Delta Airlines launched its low cost arm, 'Song', followed by 'Ted' by United Airlines in late 2003.

Pedagogical Objectives:

• To understand the low-cost carriers’ business model
• To discuss the emerging scenarios in the American airline industry in the light of major carriers’ entry into the low-cost arena.

Keywords : Low cost carriers in USA; Cost structure in aviation industry; Regular carriers in USA; Losses in the US aviation industry; Deregulations in the aviation industry; Hub and spoke system; Market share of low cost carriers; Operating costs in the aviation industry; Industry Analysis Case Study; Business models of low cost carriers; Southwest Airlines; On-line air ticket reservation; Cost cutting measures at Delta Airlines; Cost cutting measures at American Airlines; Song and Delta; Big carriers fighting back