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Unlike
the more mature aviation markets, our work suggests that LCCs could
end up dominating the short-haul in some of the developing markets
of Asia, Africa and Eastern Europe. New LCC entrants are taking the
lion's share of pax growth in some of these rapidly growing markets,
leaving incumbents wondering what to do.
Establishing an arm's length LCC is one option, particularly if
price sensitive customer segments dominate parts of the market and
costs are too high to transform to compete profitably. An
"arms-length" LCC can be used to share in the growth of the market,
while exerting pressure on the existing business to transform itself
to a lower cost base. If "low fare" demand ends up dominating the
market, the LCC and legacy airline may eventually merge into one,
once the legacy carrier has achieved sufficiently low costs.
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