Low-cost Business Model Research Articles

The competitive landscape of air transport in Europe

Competition between airlines and airports increased significantly since the deregulation of the intra-European air transport market in 1997. The passenger has a wider choice in terms of routings and departure airports than twenty-five years ago and pays a lower price. In this paper we investigate in which parts of Europe airline and airport competition are most intense and how the competitive landscape has changed since the liberalisation of the intra-European market.Competition levels are modelled for all air transport markets available to consumers in each western-European municipality using a Multinomial Logit (MNL) model. This allows us to determine how competitive the air transport product available to consumers in each of those municipalities truly is and how competition levels have changed. As opposed to most other competition studies we take all viable direct and indirect flight alternatives into account, as well as competing alternatives from nearby (adjacent) airports. This makes it the most extensive analysis of competition in the European aviation industry performed to date.As expected the results show that airline competition, allowing for grouping of the airlines belonging to the same alliance together, has in general increased since the liberalisation of the intra-European market. This can mainly be ascribed to the rise of the low cost business model. The spatial analysis however shows an uneven outcome. Changes in airline competition are most pronounced in areas that were previously not well served, such as the more remote regions in the United Kingdom, Spain and Italy. In Germany airline competition is lagging behind due to the strong dominance of the STAR alliance. In large parts of Scandinavia, but also in parts of France and Spain, airline competition is considerably less. These areas are often served only by a handful of airports and/or airlines, limiting airline choice and therefore competition.

The relative significance of product quality attributes driving customer satisfaction within the fast fashion market: a UK perspective

As a result of recent global trends, high street retailers are under increasing pressure to sustain the low cost business model whilst at the same time fulfilling the needs of an increasingly demanding consumer. This paper examines customer expectations of product quality and customer satisfaction drivers in the context of fast fashion using a segmentation analysis approach within the female target group, since this is largest group for purchasing clothing (Zhang et al., 2002). A questionnaire survey, using a quota sample of 500 respondents was implemented both online and offline in the North West of the UK. A descriptive one–way ANOVA and correlation analysis was conducted using SPSS (Mac 20.0) and excel to test hypotheses created from the existing literature. The findings confirm that expectations and satisfaction drivers vary between different types of shoppers on the high–street.

The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe

In a context of limited organic growth, some low-cost airlines have considered business strategies that are changing two key principles of the low-cost airline business model: fare unbundling and point-to-point operations. Using a multivariate analysis we identify the influence of several route characteristics on the share that European pure low-cost and hybrid low-cost carriers have on the routes they operate. Results show that, from a network perspective, the distance between the archetypical low-cost carrier business model and the adapted low-cost carrier business model with a hybrid approach is widening. Differences are also clear between hybrids offering connecting services and hybrids offering fare bundling. The results are also important from an airport policy perspective, since secondary airports and legacy airports in transition could be able to reduce the gap between them and the main hub airports.

Transferring low-cost marketing practices from air to rail services: The Ouigo case

More and more airlines have adopted a low-cost business model and many scholars have studied the characteristics of such marketing strategy. While other transport modes have decided to copy and adopt this strategy, we investigate how they replicate this business model. To do so, we in-depth study the operational and marketing characteristics of Ouigo, the new low-cost offer launched by the French rail operator SNCF in 2013. Based on interviews and secondary data (press articles, reports, etc.), we analyze how the rail operator has adapted the low-cost model used by airlines to the high-speed rail industry. We first begin by explaining why rail operators need to implement low-cost strategies and we analyze the characteristics of these low-cost strategies in the air industry. Then, we examine how the key success factors of low-cost carriers have been replicated and adjusted to the rail setting: simplified price policy, increased number of seats per train, use of secondary train stations, exclusive online distribution, e-ticketing, development of ancillary revenues, etc. Finally, a deeper analysis shows that commercial features (e.g. pricing policy) tend to be adapted more easily than technical ones (e.g. network structure) which are more constrained by the industry characteristics. We conclude by giving directions for future improvements for low-cost rail business models.

Massive Open Online Courses: disruptive innovations or disturbing inventions?

According to Christensen and Horn, Massive Open Online Courses (MOOCs) are serving non-consumers. Although they are limited in the services they provide compared with traditional colleges, they offer free and accessible education to a broader audience, who cannot afford the traditional provision. However, this is a characteristic of online distance learning in its broadest sense, as can be read in the reports of UNESCO. For MOOCs to be disruptive, they have to: open up markets by competing with the existing firms using low-cost business models; improve beyond the level of the original competitors, taking price differences into account; and improve quality and replace the established firms. In this article, we are going to look at whether MOOCs are really disruptive innovations, or educational innovations that disturb the present state without driving out old educational business models. Based on the three characteristics of Christensen and Horn, our conclusion will be that the latter is the case. This does not mean that traditional education can ignore MOOCs, open educational resources and other forms of online distance learning, but that it will not be a direct competitor for degree-searching students.

Editorial: special issue on Service-Based Electronic Commerce Systems

The increasing popularity of service-based applications accounts for the growth of e-commerce, as e-commerce systems are maintained by service providers themselves. Further, service-based e-commerce systems provide a flexible, low-cost business model to enable customers to focus more on their core business. The business can easily meet the fluctuating demands of business transactions through this model. Emerging electronic commerce systems are expected to be available anytime, anywhere, and using different official or personal computing devices. Service-based ecommerce systems will have businesses as customers using an on-demand model. Differing from traditional electronic commerce, the timely reporting and resolution of customer issues resulting in enhanced customer service and ubiquitous usage are the advantages of service-based e-commerce systems. This special issue aims to expose the readership to the latest research results on service-based electronic commerce systems, including the key technologies, such as enhancing the scalability, reliability, operational portability, security, integration and performance of the services. The special issue is composed of 3 refereed papers covering such topics as smartphone-based

DEVELOPMENT OF BUSINESS MODELS OF LOW-COST AIRLINES

The global economic crisis that affects all industries, including the aviation industry, has forced airlines to adjust their business models to existing market conditions. Low-cost airlines, which till the onset of economic crises in most cases followed the base low-cost business model, have adapted their business model in such a way that they have implemented segments of traditional airlines business models and thus created a hybrid between traditional and low-cost business models. This paper analyses to which extent low-cost airlines adjust their business model to the hybrid business model.

The Evolution of the European Low-cost Airlines‘Business Models. Ryanair Case Study

The purposes of the paper are to explain the evolution of the low-cost airlines in Europe, considering the factors that have encouraged their spatial and temporal spread, and to identify the types of the low-cost business models they have generated. This exploratory research was conducted using two methods. An analysis of the secondary data offered by the specialized literature was followed by primary data collection through a structured interview with Ryanair representatives. The findings of the study conducted on Ryanair were sent to the company, fact that allowed us to include, in the conclusions‘part, some recommendations for the airline.

On the optimal distribution of traffic of network airlines

Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. However, in this paper we show that they may also have incentives to divert traffic away from their hubs. More precisely, we examine how the optimal distribution of traffic of network carriers can be affected by the two major recent innovations in the airline industry: the regional jet technology and the low-cost business model. On the one hand, we show that a network airline may find it profitable to serve thin point-to-point routes with regional jets when the distance between endpoints is sufficiently short and there is a high proportion of business travelers. On the other hand, we observe that a network airline may be interested in serving thin point-to-point routes by means of a low-cost subsidiary when the distance between endpoints is longer and there is a high proportion of leisure travelers. We conclude that network airlines are using those innovations to provide services on thin routes out of the hubs.

Air services on thin routes: Regional versus low-cost airlines

An examination of the impact in the US and EU markets of two major innovations in the provision of air services on thin routes – regional jet technology and the low-cost business model – reveals significant differences. In the US, regional airlines monopolize a high proportion of thin routes, whereas low-cost carriers are dominant on these routes in Europe. Our results have different implications for business and leisure travelers, given that regional services provide a higher frequency of flights (at the expense of higher fares), while low-cost services offer lower fares (at the expense of lower flight frequencies).

Low cost carriers going hybrid: Evidence from Europe

This paper reports the findings of a survey on European airlines often categorized as low-cost carriers to see to which extent they have changed their business model towards a hybrid strategy, adopting features of full service network airlines. Data is provided on relative frequencies of attributes of the low-cost business model retained and modified respectively. The survey concludes that short-haul airline business models in Europe converge. A large percentage of low-cost carriers has evolved into hybrid carriers which blend low-cost traits with those of full service network carriers.

DISCUSSION OF: An Empirical Investigation of the Relationship between Profitability Persistence and Firms' Choice of Business Model: Evidence from the U.S. Airline Industry

T he Collins et al. (2011) study (hereafter, CRC) examines how the competitive strategies of airlines impact the persistence of their operating earnings. The study then investigates if the persistence of earnings components, such as unit prices, costs, and productivity changes, also varies by competitive strategy. The study uses 590 observations of quarterly financial performance from 14 airline companies, over the period 1996 to 2008, to examine the impact of different competitive strategies on the persistence of profit margins and asset turnover. Two airlines’ competitive strategies are identified: network carriers and low-cost providers. The paper documents that network airlines (differentiators) have more persistent operating profit margins than low-cost carriers. Little difference is noted for total asset turnover across business models. The study also demonstrates that partitioning the change in profit margin into growth, price-recovery, and productivity components more fully explains future profit margins than current profit margin alone. The paper is a nice blend of the literatures in industrial economics and both financial and management accounting. There are two strings in the paper that are interesting to management and management accountants. One is how a firm’s competitive strategy impacts the persistence of profit margins and asset turnover ratios, which are the two key components of return on assets using the DuPont formula. The other interesting issue is the examination of how volume, price, and productivity components of profit margin changes impact earnings persistence differently across competitive strategies. As this latter part of the paper uses traditional variance analysis and productivity measures, it is particularly interesting to management accountants. Below, I discuss these two inter-related issues.

White Paper Report of the 2010 RAD-AID Conference on International Radiology for Developing Countries: Identifying Sustainable Strategies for Imaging Services in the Developing World

The 2010 RAD-AID Conference on International Radiology for Developing Countries was a multidisciplinary meeting to discuss data, experiences, and models pertaining to radiology in the developing world, where widespread shortages of imaging services reduce health care quality. The theme of this year's conference was sustainability, with a focus on establishing and maintaining imaging services in resource-limited regions. Conference presenters and participants identified 4 important components of sustainability: (1) sustainable financing models for radiology development, (2) integration of radiology and public health, (3) sustainable clinical models and technology solutions for resource-limited regions, and (4) education and training of both developing and developed world health care personnel.

PETAWRAP: the Indian grilled wraps

Subject area Entrepreneurship; Business Strategy; Business Environment courses. Study level/applicability This case is appropriate for use in Masters in Business Administration (MBA) programs as well as advanced undergraduate courses. The case provides an apt simulation of the emerging Indian fast food companies in the competitive dynamics of Indian business environment. Case overview Rakesh an MBA graduate from the University of Hartford, Connecticut, after four years of corporate experience, made a decision to start a business of his own. Thus, was born Infusions Foods Pvt Ltd (IFPL) an entrepreneurial venture of Rakesh Raghunathan. IFPL launched its fast food chain of grilled wraps under the brand name of PETAWRAP. The brand was positioned to target the recent consumer behavior shift of Indian consumers which was towards healthy, nutritious food combined with the concept of necessity-based eating out.IFPL had successfully opened six company owned outlets by March 2011. Their strategy for success was built on the age-old four-point formula of a good-quality product, at value for money prices, delivered efficiently to the customers. The absence of “a hygienic branded product” in this Indian fast food industry contributed to the initial success of their company. Rakesh believed that key to building the brand image depended on quality in terms of operations standardization and product quality. Expected learning outcomes The case is structured to achieve the following pedagogical objectives: To identify the forces on which of an entrepreneurial opportunity is dependent; To analyze the changes in competitive dynamics of Indian fast food industry and identify the factors that lead to the emergence and acceptance of PetaWrap; To understand the challenges of building a brand in low-cost business model and the economics of cost incurred; To evaluate the business strategy and the business model adopted by the company for expansion. Supplementary materials Teaching notes

Technology, Business Models and Network Structure in the Airline Industry

Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. This has allowed them to take advantage of economies of traffic density, the existence of which is beyond dispute in the airline industry. Less attention has been devoted to airlines' decisions on thin point-to-point routes, which can be served using different aircraft technologies and different business models. This paper examines, both theoretically and empirically, the impact on airlines' networks of the two major innovations in the airline industry of the last two decades: regional jet technology, and the low-cost business model. We show that, under certain circumstances, direct services on thin point-to-point routes can be viable, and that as a result airlinesmay be interested in diverting passengers away from the hub.

The Viability of Long-Haul, Low Cost Business Models

Recent events have confirmed the concerns that many within the aviation industry have held about the viability of the low cost business model for long-haul operations. This paper begins by reviewing the operating cost differences between low cost carriers (LCC) and legacy airlines in different regions of the world. This is followed by a summary of the various cost advantages of low cost carriers operating in short-haul markets. The main focus of the work, however, is a cost simulation involving the use of a Boeing 767-300 by both a LCC and a legacy carrier under varying operating assumptions. The research demonstrates that in none of the cases cited is the LCC cost advantage greater than 10%.

Modelo de servicios microfinancieros propuesto para resolver el problema de la falta de acceso a los servicios financieros en los países en desarrollo

This research paper discusses how to solve the problem of the vast majority of the population in developing countries that lack access to financial services. The proposed solution takes the hypothesis that the lack of access to financial services is mainly due to a supply problem. The business models used by financial institutions operating in developing countries are inadequate and inefficient because they do not allow serving low-income segments in a profitable manner. To address this supply problem it is necessary to develop low-cost business models for the distribution of microfinance services adapted to serve segments of low-income population profitably.

Some limitations to the success of the Low-Cost Carrier business model in India

Despite the growth in market share of Indian Low-Cost Carriers (LCCs), there are certain factors inhibiting the success of the LCC business model in India. This paper argues that the success of the LCC business model in India is limited by three exogenous factors – the lack of the concept of secondary airports, the route dispersal guidelines, and the excessively high costs of Aircraft Turbine Fuel (ATF). These factors are unique to India and a direct result of the flawed policies is adopted by the government. These policies also indicate the extent to which air transport in India is still regulated.

Oman Air

This case study describes the journey of Oman Air, the flag carrier of the Sultanate of Oman from operating losses to profitability. The main concern of Oman Air's top management now is to consolidate these gains and to ensure sustained profitability and growth over the long term. The airline has faced challenges from existing and emerging competitors operating on both full-service and low-cost business models. In addition, the recent strategic decision of the Government of Oman to pull out of the much larger Gulf Air made Oman Air the only national airline of Oman. Oman Air now needs to reposition itself from a major regional airline to a full-fledged international airline to service the long-haul markets.

IT enhanced project information management in construction: Pathways to improved performance and strategic competitiveness

Continuous process improvement via the strategic implementation of innovative information and communication technologies is essential for the long-term survival of construction firms. Some have successfully grasped the opportunities enabled by IT enhanced information management systems to develop new low-cost business models. However, not all proactive construction businesses have been satisfied with their IT investments, largely due to their limited ability to evaluate the degree of IT-induced valued added to operational and business performance. This article builds upon recently published work by the author, by empirically investigating the link between ‘Construct IT’ Balanced Scorecard (BSC) perspectives, utilizing structural equation modeling. Moreover, the validity of developed path equations for predicting IT-induced business performance and strategic competitiveness is reinforced through benchmarking studies, conducted on two large infrastructure projects constructed in Australia, where innovative web-based collaboration platforms were implemented.