The literature review researches and analyzes the history of low cost airlines in Europe and its impact on customer satisfaction. This literature review also sheds light on the rapid rise of low cost airlines in Europe and the various framework and impacts of the rise. This provides an opportunity to analyze the acceptance and rejection of low cost airlines by the European population. In addition to, the impact of low cost airlines on the economy of the country is also analyzed in order to determine the practicality of the idea that is sold to the customers.
The early seventies saw the emergence of the concept of low cost airline by the American domestic carrier in the Southwest. The sole objective of the concept was to offer cheap airlines facilities to the customers. The rise of low cost airlines imposed potential threats to the already existing and traditional airlines’ industry. This is because the traditional and legacy airlines lost a considerable amount of market share and customers to the newly formed low cost airlines services. As commented by Graham (2013), this was because the low cost airline services had the ability to charge a lower price over traditional full cost airlines. However, as argued by Dobson and Piga (2013), the low cost airlines compromised the services provided to the customers that were taken care of by the traditional airlines.
North America, Europe, Australia/New Zealand and Asia were some of the countries that initiated and implemented the concept of low cost airline facilities to the customers.
The period of 1970 to early 200 can be considered as the period of innovations for North America, as this period saw the transformation of low cost airlines in the United States. During this period, a number of low cost airlines entered the US market including Jet America, New York and Pacific Southwest. However, some of the low cost airlines survived while rest failed to sustain in the market. Reports suggest that the entry of low cost airlines enforced the traditional airlines to create low cost subsidiaries under their banner to regain the lost position and share in the market (Doganis 2013).
The UK and Ireland originated the concept of low cost airline based on the Southwest model of EasyJet and Ryanair in 1995. The use of Southwest model ensured the success of the low cost airline and posed potential benefits in the European economy. The concept of low cost airline provided an opportunity to the airline industry to allow domestic operations within the European Union. In addition to, the concept of low cost airlines also saw the extensive use of underused airports in Europe thereby, maximizing the direct sales of the airports (Dobruszkes 2013).
The tough regulations and strict government control highlighted the unfavorable conditions of the concept of low cost airlines in the Asian market. However, on the contrary, rapid economic and demographic changes along with congested airports and underused airports favored the concept of low cost airlines. In addition to, the urge to promote tourism in the Asian market also favored the rapid growth of low cost airline facilities in the Asia market. Reports suggest that by seeing the success of easyJet and Ryanair, the Malaysian airlines initiated the low cost domestic operation in 2001. In addition to, the Asian airlines such as Tiger Airways and ValuAir also started the facility of low cost airline facility for the Asian market (Yee Liau and Pei Tan 2014).
In spite of deregulation movement in New Zealand started in 1984, low cost airline operations did not start until 1995. New Zealand did not provide low cost airline facilities domestically but offered short halts. As a result, Air New Zealand created own subsidiary Freedom air for gaining back the market in the low cost airline operation. Kiwi Airlines was out coasted from the market due to the successful collaboration of Qantas and Air Freedom. However, the concept of low cost airlines posed an attractive market for the new entrants of low cost airlines in the New Zealand market (Gross and Luck 2016).
After the Australian domestic market saw the deregulation of the airline industry, the airline companies such as Compass Airlines and Compass Mk II started providing low cost airline services. However, due to the financial strength of the Qantas Group, the Qantas absorbed both Compass Airlines and Compass Mk II. Only Virgin Blue continues to provide the innovative low cost airline facilities until the date (Escobar-Rodriguez and Carvajal-Trujillo 2014).
The main difference between the traditional airlines and the low cost airlines are divided into three major groups, namely overhead savings, service savings and operational savings. As commented by Lohmann and Koo (2013), the concept of low cost airlines emphasizes on short hauls, that is, generally less than 1500 km. Thus, it is essential for the low cost airline facilities to achieve the operating costs. The low cost operating cost can be achieved by ensuring the individual passenger required, having the maximum of seats and make them occupied and make the maximum number of flights. As a result, the low cost airlines are able to gain a competitive advantage by ensuring greater productivity. This can also be achieved by making less use of congested airports and more use of underused airports and not offering other than point-to-point service.
However, as argued by Burghouwt (2016), the compromised quality of service provided by the low cost airlines affects the decision of the customers of using the service. But, keeping in mind the the comfort of traveling and less time, the customers tend to prefer availing low cost airline services. The two major advantages secondary airports have over larger airports include minimized charge, less busy and minimized delay of flights due to lack of congestion. Additionally, low cost airlines operate a single fleet type, as they have a single type of aircraft, cabin crew and pilots. On the other hand, distribution is another aspect where low cost airline has an upper hand over the traditional airlines. This can be done by selling to the customers directly via call centers and internet and avoiding ticket selling via travel agents.
The low cost airline or carrier segment started to develop in the European Union after the deregulation of of the commercial air market in 1990’s. According to De Neufville (2016), the low cost airlines of the European Union remains the most dominated and activated aviation sector with an estimated 250 million passenger trips each year. Europe is followed by Asia with an estimated 117 million passenger trips per year and North America with and an estimated 173 million passenger trips per year. Thus, it can be said that the tremendous growth of the low cost carriers in the European market over the past 15 years represents 26% of Europe’s market share thereby, providing providing potential benefits to the customers. The benefits provided to the customers of the low cost carriers include reduced airfare and more choices for domestic or regional destinations. The low cost carrier services have provided the opportunity for independent travel to the customers thereby, affecting the tourism sector.
However, as argued by Clewlow, Sussman and Balakrishnan (2014), the evolution of low cost carrier services is under continuous criticism due to issues such as working condition of the employees, transparency, consumer rights protection and fair competition to the other carriers. Due to the continuous debate, the European Commission has identified some of the key points that highlight a major update on the European regulation on the obligations of the airlines and rights of the consumers. In addition to, in April 2014, new guidelines were adopted stating that the legislator ensured that the European state aim towards publicly financing the airports. For example, Brussels relaxes crackdown on the regional airport sweeteners and promoting low cost airline facilities than high-speed rail in the European Union.
South West model was the most preferred model used by the low cost carrier or airline services. Nevertheless, with the changing demand of the market and the aviation industry, most of the low cost carriers or airlines have modified the South West model accordingly thereby, gaining competitive advantage. As commented by David Mc (2013), low cost leadership position strategy is mainly followed by the low cost carrier or airlines that determine the success of the industry. The aim of the low cost leader is to minimize the cost to the lowest in comparison to the competitors in the similar industry. In addition to the low cost model, highlights that cost and price are unequal. The major characteristics of the low cost model include cost cutting in terms of fares, network, fleet, distribution, airport, sector length and human resources or staffs (Chatterjee 2013).
Majority of the low cost airline industry followed the Southwest model initially but has changed or modified the model in order to sustain in the competitive market. As commented by Kim and Mauborgne (2014), the concept behind low cost carrier or airlines services aims towards reducing the cost and provide the best services or products to the customers at the lowest price. The low cost airlines can achieve the current effectiveness and efficiency through the distribution, fleet standardization and utilization, sector length and human resources.
Majority of the airlines’ industry follow and implement internet ticket booking system that was introduced by South West model in 1996. This has resulted in limiting and restricting the use or involvement of travel agents in order to book tickets for both domestic and international flights. As a result, 50%-80% of the ticket booking is done through internet facilities thereby, increasing direct sales of tickets for the airline companies. As commented by Belobaba, Odoni and Barnhart (2015), internet ticket selling is one of major and biggest cost saving strategy the airline industry has adopted over the past decade. Thus, the airline industry has been able to save as much as 17% of the total operating cost in terms of distribution.
Fleet utilization and fleet standardization highlight the use of the similar type of aircraft thereby, helping to reduce the maintenance and training cost. As a result, the low cost carrier is able to increase the efficiency by ensuring greater flexibility for the crew of the aircraft. As mentioned by Borenstein and Rose (2014), direct measuring of efficiency can be achieved by fleet utilization thereby, summing up to almost 80% more than the traditional carriers do. Quick turnarounds at the airports give rise to higher fleet utilization thereby, maximizing the number of sectors each aircraft can operate.
As low cost carriers or airlines fly short hauls, that is, less than 4 hours, many sectors can be covered in a single day.
As ground handling can be outsourced to other companies, low cost carrier can reduce the labor cost. As a result, independent contractors are recruited with minimal training thereby, saving the labor cost. The management of the low cost carrier has been successful in building the “us against the other mentality” thereby, ensuring employee loyalty towards the company. Thus, in spite of being paid less than the traditional airlines, the employees of the low cost carrier or airlines might ensure cooperation that is more efficient (Akamavi et al. 2015).
In the past 20 years, the low cost carrier or airlines facility has emerged as a popular alternative to the traditional airlines. As commented by Guttentag (2015), the model used by the low cost airlines emphasizes on operational practices and businesses that aim towards minimizing the cost of the airlines. These highlights the use of secondary airports, charging for services such as checked-in baggage, seat reservation and mitigating the offering of frills on the flight. The low cost carrier or airline services run on the concept of flying short hauls and return to the base at night. This provides an opportunity to avoid hangarage and additional costs. However, as argued by Shaw (2016), the low cost carriers or airlines are gradually changing to long haul flights in minimized fare thereby, attracting the customers. The low cost carrier or airlines offer the number of seats compared to the traditional airlines as well as sues single type of aircraft thereby, helping to reduce the maintenance, overhaul and repair cost and enhancing the flexibility of the crew.
As commented by Bilotkach, Gaggero and Piga (2015), the low cost carriers or airlines are seen to fly from major airports and experimenting with the connections for better aviation experience. Low cost carrier or airlines is one of the fastest growing market segment that has resulted in the loss of market for the traditional airlines. A whopping growth 61% has been noticed from 2007 to 2016 for the low cost carrier, that is, 5,200 to 8,400 flights per day whereas the traditional flights were down by 10%, that is, 16,300 flights to 14,700 flights per day (Barry, Hogan and Torres 2013).
Reports suggest that the low cost carrier flights increased to 30% in 2016 whereas it was only 19% in 2007. However, the traditional flights encountered a major declination from 59% in 2007 to 53% in 2016.
The above highlights the five European countries using the most low cost carrier services where Spain is the only country where LCC is more preferred than traditional carrier services. In the rest of the countries, though LCC services have increased drastically, traditional airline services still have the majority.
Based on the current situation and demand of the market, the low cost carriers or airlines have moved away or modified the existing South West model. This is the result of direct freedom of operation and deregulation and its impact on the nature of the low cost market. Reports suggest that JetBlue and Southwest in the United States are adapting differentiation strategy (Besta and Hoefler 2014). This is because adapting differentiation strategy is a valid and significant step by the low cost carriers or airlines of the United States in order to prevent further new low cost entrant in the US market. The adaptation of the differentiation strategy will affect the traditional carriers and the subsidiaries because in spite of undertaking the low cost model, the traditional airlines and the subsidiary are unable to cut down the labor cost. However, as argued by Iatrou and Oretti (2016), it is unlikely that the subsidiary is able to succeed in reducing the low cost airlines.
In addition to, recent changes have been encountered in the European market though the level of changes is not as far as the market of the United States. It has been seen that EasyJet and Ryan air are building secondary hubs and airports in the European market. This strategy is undertaken in order to keep away the new low cost carrier or airline entrants in the European market. This is because Europe is considered as the single aviation area that allows the domestic or regional lost cost carriers or airlines to compete and operate with each other. The increased operation of the secondary airports highlights the increased demand of the people of Europe for traveling (Holloway 2017).
As mentioned by Kadambi et al. (2013), conspiring the restrictive nature of the government, few more years are still required for the low cost carrier or airline of the Asian market to reach maturity.
Considering the recent developments of the European market, the possible future outcomes of the low cost carrier or airline industry and customer satisfaction will test the different scenarios. As commented by Williams (2017), successful mergers and acquisitions will dominate the larger European network airlines. This is because the traditional airlines will form subsidiary and venture to form low cost carrier or airline services for the European market. This will lead the smaller network carriers to identify niche market thereby, the potential risk being absorbed by the dominant airline network. However, as argued by Barros and Couto (2013), the possible future outcome of low cost airline highlights that the minimal hauls in the secondary hubs will be adopted by the dominant airlines. Partners and franchised services will make this step successful. For example, during long hauls, the business class travelers will put higher value. However, on the contrary, this will result in the disappearance of short hauls, as the business class will be unwilling to pay. In addition to, increased technological advancements for facilitating web conferences for the business class travelers along with reducing the time of leisure trips are some of the possible future outcomes of the low cost carriers or airlines services.
It has been said that the low cost carriers will face difficulties with respect to short haul routes that will enforce them to concentrate on long hauls. As a result, the service partners will provide the short haul services. Based on the increased demand of the low cost carrier or airlines, over half of the European Union traffic will be serviced by the low cost carriers. The major reason for this step is lack of profit during the short hauls. The prediction has been made stating that the short haul service will be eradicated, as fewer people are willing to pay for it thereby, saving travel and money for the low cost carriers or airlines (Major et al. 2014).
It is crucial for the business organizations to ensure customer satisfaction, as this provides an opportunity for the business organizations to meet or surpass the expectation of the customers. As commented by Hill and Alexander (2017), customer satisfaction is important as this provides an opportunity for for the business owners or the marketers with a metric that can be used for managing and enhancing their current business status. However, as criticized by Hill and Brierley (2017), customer satisfaction acts as the leading indicator of the customer repurchase intentions and loyalty. As a result, the business organizations can easily determine their customer percentage of loyal customers. On the other hand, customer satisfaction acts as the point of differentiation because in the highly competitive market, business organizations that survive the cutthroat situations are able to ensure customer satisfaction as the key strategy for the business. In addition to, customer satisfaction is also important as this helps in reducing customer chum by increasing the lifetime value of the customers. This assures the business organizations that the customers will repurchase from the respective organizations in spite of the available alternatives in the market (Okumus and Genc 2013).
The business organizations need to identify and understand the factors that help in satisfying the customers in order to gain competitive advantage and survive the tough market competition. As commented by Min, Lim and Magnini (2015), quality is the most important factor that determines the level of customer satisfaction. The customers expect to purchase the top quality product if they are paying the required price for the particular product. Thus, it is essential for the business organizations to ensure the high quality of the product in order to ensure customer satisfaction. However, as criticized by Chavan and Ahmad (2013), effective after sales service helps in ensuring customer satisfaction. Effective and efficient after sales service makes the customers feel valued and important for the business organizations and tend to return to the same organizations for purchasing the product. In addition to, prompt reply from the business organizations also helps in achieving customer satisfaction. Thus, the business organizations need to identify and analyze the present needs and demands of the target customers and aim towards fulfilling them in terms of the products or services thereby, ensuring customer satisfaction (Radojevic, Stanisic and Stanic 2015).
The concept of SERVQUAL model of is to measure the quality of service provided by the business organizations. According to this model, the employees are responsible for creating reliable customer base by building sufficient trust within the existing and the new customers (Ali and Raza 2017). Thus, the employees of the business organizations need to ensure that the information provided by them to the customers’ is authentic thereby, reducing the gap between the actual value and the perceived value. The key factors of the SERVQUAL model include tangibles, reliability, responsiveness, assurance and empathy.
Tangibles: Tangibles are the physical products or services provided by the business organizations that are necessary for building good brand image in the eye of the customers.
Reliability: The business organizations need to ensure reliability by fulfilling the need of the customers thereby, building faith on the brand.
Responsiveness: The employees need to interact with the customers in simple language so that they are able to understand each other.
Assurance: Security, competency, credibility and courtesy highlights the meaning of assurance in achieving customer satisfaction.
Empathy: The care provided by the employees to the target customers in order to make the customers satisfied and happy.
Figure 4: SERVQUAL model of customer satisfaction
The evaluation of the customers in terms of the product or services used by them determines the customer satisfaction of the low cost carriers. As mentioned by David Mc (2013), the quality of service is important in both public and private sectors. The concept of low cost carrier or airline services highlights the opportunity of traveling in low cost or prices. Due to low cost carrier or airline services, the customers are able to travel within the country at comparatively lower prices. As a result, the customers are happy and satisfied, as they are able to travel in less money. However, as argued by Leong et al. (2015), the facilities of low cost carrier or airlines tend to satisfy the customers, as they are able to travel in less time. Availing high-speed train or cars takes huge amount of time for the customers who travel frequently within the country. Thus, low cost carrier or airline services provide an opportunity for them to travel in less time within the country thereby, saving them lot of time.
With the benefits come the potential challenges of low cost carrier or airline facilities on customer satisfaction. According to Wittman (2014), the customers have to pay more for extra facilities such as meals and drinks in the flights. This tends to hamper the level of customer satisfaction, as they feel that the airlines can pay the minimal facilities in terms of food and drinks to them during their flight. However, as argued by Namukasa (2013), service is a major challenge for the low cost carrier or airline facilities. At certain instances, the customers remain dissatisfied due to low quality service they receive in the low cost carrier or airlines.
Conclusion
In this literature review, it can be concluded, low cost carrier or airline service has emerged as the most dominant and activated sector in the aviation industry. The concept of low cost carrier services originated in the United States but later spread to countries such as Europe, Australia/New Zealand and Asia. The emergence of low cost carrier or airlines services has increased over the past two decades and has surpassed the traditional airlines’ services successfully. The low cost carrier has followed South West model but has modified the model over the years for gaining competitive advantage. It can also be seen that low cost carrier or airline services are able to satisfy the customers, as they are able to fly domestic in less time and money. However, lack of leisure services by the low cost carriers often contradicts the level of customer satisfaction.
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