Some insights into competition between low-cost airlines

Abstract

The phenomenon of the wide world growth in low-cost airlines has resulted in a focus on their pricing strategies, on issues of cost recovery and on their impact on the traffic and market shares of legacy carriers or other low-cost carriers when they are in competition, either directly or at adjacent airports. This paper provides a brief overview of the characteristics of these low-cost carriers as well as their history and geography. It goes on to outline ways in which these carriers compete and manage demand, ranging from price competition to advertising; some of these methods directly reflect their special characteristics. Some empirical evidence is presented which indicates a correlation in fare setting behaviour between competitors and insights are offered on cost recovery. The impact of the start-up of low-cost carriers is also analysed, focusing on their impacts on other low-cost carriers. The case of Ryanair competing with easyJet on London–Venice is examined along with Southwest and Frontier on Denver–Las Vegas.