Bite-size Case Study

How LCC entry at Richmond impacted price, growth and the local economy

Published on July 31, 2016 Originally recorded 2009   4 min
0:03
Competition in the airline industry has been transformed by Low Cost Carriers. Low Cost Carriers are significantly different than traditional carriers in many ways. Some of the most important ways that they differ from traditional carriers include their differing business models, along with their lower operating costs, lower fares, and they're also growing at a faster rate than traditional carriers.
0:27
The low cost carrier business model focuses on providing low airfares. In order to keep fares low, operating costs must also be kept low. In order to do this, low cost carriers often operate only one type of airplane which is usually a very fuel efficient aircraft. They will also fly to uncongested or secondary airports in metropolitan areas. This allows the low cost carrier to have quick turnarounds, cut back on delays, and also save money. Low cost carriers often unbundle services which allows customers to pay for the services that they wish to use such as in-flight meals. Low cost carriers often use a point to point flights system which offers direct nonstop routes to avoid the cost of providing services for connecting passengers. Additionally, low cost carriers often outsource areas that can be done more efficiently by third parties. An example of this would be ticketing or aircraft handling. Low cost carriers have significantly lower operating costs than traditional carriers.
1:22
This graphic demonstrates the range of cost per available sea kilometer for network airlines compared to low cost carriers. This is split up for the United States, for Europe, and for Asia. What you can see from this graphic is that, in the United States, the gap between low cost carriers and traditional carriers is the smallest. This is because traditional carriers have worked very hard to reduce their operating costs in order to compete with low cost carriers. However, in Europe and Asia, you can see that the gap still remains much larger. When a low cost carrier enters the market, passenger volumes increase.
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How LCC entry at Richmond impacted price, growth and the local economy

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