Global Airline Industry

Recently in the airline industry there has a huge effect by Low Cost Carriers to Network Carriers either in the strategies or competition. This essay is talking about the difference between the customer products offered by Network Carriers and Low Cost Carriers and how these models are being driven by market trends and global competition. It will focus on the business models nowadays in the airline industry and differences between Network Carriers and Low Cost Carriers. Network Carriers have comprehensive and differentiated offer while Low Cost Carriers have selective and simple offer. Also Network Carriers address several customer segments while Low Cost Carriers address only one customer segment. The challenges faced by Network Carriers and Low Cost Carriers and their responds will be the other focus in this essay. It will cause the result for innovating the business models of both Low Cost Carriers and Network Carriers.

There have some differences between Network Carriers and Low Cost Carriers which include fare, amenities, network and the airport that they chose. Bieger et al. (2002 in Graf, 2005) suggest that there have eight dimensions of a business model. These are product/service concept, communication concept, revenue concept, growth concept, competence configuration, organizational form, cooperation concept and coordination concept. Only base on the product concept, there are several differences between Low Cost Carriers and Network Carriers. First, Network Carriers has a high number of daily flights and destinations than Low Cost Carriers. Normally Low Cost Carriers only has limited number of daily flights that can offer to customer. Second, Network Carriers has several products for numerous customers’ segments. For example Network Carriers has first class, business class and economic class while Low Cost Carriers only has one transport class to choose. The obvious different between these two carriers is the in-flight services. For Network Carriers, the service amenities include baggage transfer, seat assignment, seat comfort, free catering, etc. While Low Cost Carriers only provide the no-frills service. That means other than the air ticket fee, all the other services that customer want to have had to pay extra fee. As a result ticket price will be the most consideration for customer’s choice. Lawton (2002) pointed out that the average ticket fee of Low Cost Carriers were some 40–60% lower than their Network Carriers competitors. Another different is about the Network. Network Carriers provide a global network with connection while Low Cost Carriers mainly focus on point-to-point relations. It can also affect the customer’s choice about which carriers they want to fly on. Base on the models of Low Cost Carriers (Ryanair and Air Asia) and Network Carriers (Aer Lingus and Malaysia Airline), O’Connell and Williams (2005) stated that passengers’ choice for Low Cost Carriers mainly base on fares and for Network Carriers mainly base on reliability. This can shows that Low Cost Carriers are appealing to price-sensitive passengers while Network Carriers are appealing to service-orientated passengers. Airport also is one of the competitions between Network Carriers and Low Cost Carriers. Barrett (2004) stated that Low Cost Carriers have good growth records, prospects and the market rates, their profitability and promised growth in passenger numbers are impressive to airports compare with Network Carriers.