The Entry of Low-Cost Airlines into the Market for Long-Haul Flights

Table of Contents

1. Introduction

2. Characteristics of LCCs

2.1 Route network and additional services

2.2 Distribution channels & pricing

2.3 Operational aspects

2.4 Strategic positioning

3. Characteristics of the long-haul market

3.1 General structure and incumbent players

3.2 Requirements

3.2.1 ‘Feeding’ and ‘de-feeding’

3.2.2 International code-share alliances

3.3 Entry Barriers

3.3.1 Theoretical background

3.3.2 Entry barriers to the long-haul market

4. Entering the long-haul market

4.1 The transferability of the low-cost model from short-haul to long-haul

4.1.1 Transferable characteristics of the business model

4.1.2 Required adjustments

4.1.3 Conclusion: The low-cost long-haul business model

4.2 Judo economics as an auspicious framework for entry

4.2.1 Overall Framework

4.2.2 Capacity limitations: Theoretical background and transferability to this topic

4.2.3 Quantitative model for the ‘movement step’ of the Judo strategy

4.3 Practical implications for the entry

4.3.1 Overcoming barriers of entry

4.3.2 The Judo entry

5. Empirical evidence: Norwegian Airlines

6. Conclusion

7. List of references

Research Objectives and Core Themes

This thesis examines the economic feasibility and strategic implementation of low-cost carrier (LCC) entry into the European long-haul market. It investigates whether established short-haul business models can be adapted to long-haul routes, identifies potential entry barriers, and utilizes "Judo economics" as a framework to propose an auspicious entry strategy that minimizes the risk of aggressive competitive reactions from incumbent full-service carriers (FSCs).

• Analysis of the adaptability of the LCC business model to long-haul operations.
• Evaluation of structural and strategic entry barriers in the long-haul airline market.
• Development of a game-theoretic "Judo strategy" to facilitate successful market entry.
• Empirical case study of Norwegian Airlines' entry into the long-haul market.
• Assessment of capacity limitations as a credible signal to incumbent players.

Excerpt from the Book

Summary of Chapters

1. Introduction: Presents the revolution of European aviation by LCCs and sets the research focus on the expansion into long-haul markets, outlining the key challenges and thesis objectives.

2. Characteristics of LCCs: Details the operational and strategic pillars of the traditional LCC model, including point-to-point networks, ancillary revenue generation, and cost-leadership strategies.

3. Characteristics of the long-haul market: Examines the regulatory environment, the role of incumbent flag carriers, the necessity of hub-and-spoke networks, and the prevalence of entry barriers like code-share alliances.

4. Entering the long-haul market: Evaluates the transferability of the LCC model, develops a game-theoretic model based on Judo economics, and proposes practical strategies for overcoming entry barriers.

5. Empirical evidence: Norwegian Airlines: Applies the theoretical findings of the previous chapters to the real-world example of Norwegian Airlines' strategic entry into long-haul operations.

6. Conclusion: Synthesizes the main research results, confirming the potential for LCC success in the long-haul sector if a limited entry strategy is adopted and managed correctly.

Keywords

Low-Cost Carriers, LCC, Full Service Carriers, FSC, Long-Haul Market, Judo Economics, Entry Barriers, Game Theory, Airline Strategy, Market Entry, Capacity Limitation, Competitive Interaction, Norwegian Airlines, Business Model, Ancillary Revenue.

Frequently Asked Questions

What is the core focus of this research paper?

The paper explores the economic viability and optimal entry strategies for European low-cost carriers (LCCs) aiming to enter the long-haul flight market, which is currently dominated by full-service carriers.

Which key themes are analyzed in the work?

Key themes include the differences between short-haul and long-haul market requirements, the transferability of cost-saving models, the identification of entry barriers, and the application of Judo economics as a strategic framework.

What is the primary objective or research question?

The main goal is to determine an "auspicious" entry mode for LCCs into long-haul routes that balances the need for market entry with the requirement to avoid aggressive retaliation from established incumbents.

What scientific methodology is applied?

The research uses a combination of literature analysis regarding economic theory and a self-developed game-theoretic, two-staged decision model to derive optimal entry strategies.

What is covered in the main section of the thesis?

The main section evaluates structural and strategic entry barriers, discusses the transferability of the LCC business model, and mathematically models the competitive interaction between a new entrant and an incumbent firm.

Which keywords best characterize this work?

The work is characterized by terms such as Low-Cost Carriers, Judo Economics, Long-Haul Market, Entry Barriers, and Competitive Interaction.

How does the "Judo strategy" help a new airline entrant?

The Judo strategy suggests that a small entrant should enter with a limited number of routes (small entry) to signal non-aggression, thereby avoiding a costly competitive response from the larger, stronger incumbent.

Why is Norwegian Airlines used as a case study?

Norwegian Airlines serves as a primary example because it is the first European LCC that successfully implemented long-haul operations, and its strategy mirrors the theoretical "Judo entry" described in the paper.

What role do "feeding" and "de-feeding" play in long-haul success?

These terms describe the need to transport passengers to and from the origin and destination hubs, a critical requirement for filling large long-haul aircraft that point-to-point LCCs must address.

How do frequent flyer programs act as entry barriers?

Frequent flyer programs create high switching costs for loyal passengers, making it difficult for new entrants to attract existing customers from established FSCs who rely on these loyalty incentives.