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What legacy carriers failed to understand in the past is the combined efforts by low cost carriers to introduce cheap tickets and short flights. However, from an economic point of view, this can be explained using economics of scale, many cheap, short flights incur less costs than a few costly, long flights. Therefore, the logic behind the low cost airline strategy is to cut operational costs and increase service revenue (Huse and Evangelho, 2007).
With the current economic downturn, the strategy utilized by low cost airlines is finally beginning to take shape, the executive decisions to hem down costs by engaging in short haul flights are reducing costs by a big margin, resulting in the ultimate profitability of the industry. In the current market, the influx in online booking and the increase in the services offered by an airline have completely changed the airline industry; services like high-seat density, package delivery, flight insurance and baggage charges have served to increase the revenues for low cost airlines. The graph below shows the change in economic niche of legacy carriers and an example of a low cost carrier, Southwest airlines (Adapted from Neal and Kassens-Noor, 2010).
This discussion has focused on the cost cutting factors and success of low cost airlines in the industry. Due to this success, some legacy carriers are trying to get in the low cost industry market (Bowerman, 2011). However, the question is; will the market serve both the low cost carriers and revamped legacy airlines? The answer to this question is no, as discussed in the following analysis.
The assumption that all carriers will achieve profits if they engage in low cost business is based on the economic principle of ceterus paribus, meaning all things equal (Miller, 2005). However, in the airline industry, not all things are equal, because for the low cost industry to survive there must be legacy carriers against
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