This paper examines the dramatic growth of the low-cost sector of the airline industry in Europe in recent years. Cost differentials with the traditional airlines are examined in terms of operational and product features as well as labour productivity. The use of secondary airports is a key element of the business plan of many low-cost airlines and these are analysed in relation to airport facilities, turnaround times, catchment areas and surface access. Traffic growth at secondary airports is traced following low-cost carrier entry. The demand for low-cost air services is analysed with the use of CAA data. This enables the characteristics of low-cost passengers to be compared with those of traditional airlines and an estimate made of the extent to which demand has been newly generated rather than diverted from existing air services. Low-cost airlines are shown to be most successful on routes with tourism potential, not involving major hub airports. The competitive response of the major airlines is discussed, with particular reference to British Airways' new pricing structure. The extent to which low-cost airlines can maintain their advantages is considered and some cautionary notes are sounded regarding air service provision in markets where the low-cost airlines have driven out traditional services altogether. The future shape of the European air transport market is evaluated, drawing upon the longer-term experience of low-cost airlines in the USA. It is shown that many of the cost advantages in short-haul markets are not easily translated to long-haul services and there is likely to be some convergence of costs within the short-haul market. The scope for low-cost operations with smaller regional aircraft is considered in the light of recent moves by Flybe in the UK and Jet Blue in the US. The conclusion is that low-cost airlines will increase their share of the market, especially in mainland Europe where current penetration is low. The UK and Ireland market may be becoming saturated however and many of the latest new entrants are unlikely to survive. As with Southwest Airlines in the USA, there may be only one low-cost airline in Europe that is successful in the long term. For the covering abstract see ITRD E126595.
Abstract