How have low cost airlines affected the development of the aviation Research Paper

How have low cost airlines affected the development of the aviation industry - Research Paper Example The seemingly bright future of these carriers poses interesting questions in regards to what effect they have and will have on the whole aviation industry. America’s Southwest Airlines and Europe’s Ryanair both offer the best examples of low cost carriers that have transformed the airline industry in the regions they operate. This paper will analyse the effects that the low cost airlines have on the development of the aviation industry. The Southwest Effect Short Background In the American aviation industry Southwest is the fastest growing airline having been established back in 1971 with just 3 aircrafts. Today is has about 540 aircrafts (all of which are Boeing 737s) which form the most modern flee in the world. This airline has an unbeaten profit record in the American industry of 17 consecutive years when considering all the quarters of every financial year till 2008 first quarterly report (Southwest 2011). Southwest also boasts of a customer base of more than 85 mi llion per year which is more than that of Delta, American and United airlines. It is notably in the high-end competition due to its low fares, quality of customer service and on-time arrivals. Its major and direct competitors are JetBlue, Air Trans and others like Delta. Due to its low cost model of operations the airline spends 50 to 70 percent less than the major carriers in the same market (Stevenson 2008). This hugely explains the low fares, high quality of service, huge fleet of modern aircrafts and long profitability streak. In essence the Southwest Effect is described using three principles. These principles translate to the major impacts that low cost airlines have on the industry. The first is that with the presence of Southwest Airlines in a market, passenger numbers will increase. This is dictated by the fact that the airline brings in competition especially in ticket prices thereby attracting more customers. The second is that competing airports to those that Southwest o perates in witness a decrease in passenger traffic (Nigel, David & George 2003). The third is that Southwest brings in more competition in a market or route which forces competing airlines to lower their fares in order to remain competitive in their segment. On many occasions when an airline starts serving a new route it begins by offering low fares to attract customers. After some time these airlines adjust their fares upwards to level up with competitors’. However, this is not the case with Southwest Airlines which starts by offering low fares and maintains them as such (Doring 2009). This is a major pricing behaviour depicted by Southwest in comparison with its airlines. When Southwest enters a new route it not only results in lower fares from competitors but also increased Passenger per Day Each Way (PDEW). The following graph shows how fares generally decreased as passenger traffic increased between some of the most active years in the American airline industry; Fares an d passenger traffic (Robinson, 2009) The graph below shows the percentage of change in the market that Southwest operates which shows that almost all reduced their fares for both leisure and business travels. Percentage of change in the market that Southwest operates (Robinson, 2009) Deregulation The airline industry in the United States received a complete turnaround soon after the low cost airlines started emerging.