The spirit of Sparta conquers the skies

Riedel, Henrik G. A. H (2003-12)

Thesis (MBA)--Stellenbosch University, 2003.

Thesis

ENGLISH ABSTRACT: The emergence of low cost airlines (LCAs) has attracted attention from passengers, competitors, the public, and researchers alike. It seems prodigious that LCAs prosper in today's time of economic downturn and are therefore able to counter the industry's trend. lATA's member airlines have accumulated losses of $31 billion since the beginning of the new millennium. Furthermore, industry icons such as American Airlines and British Airways are fighting for survival while some, namely Air Canada, are on the edge of bankruptcy: a fate which others, like Sabena, have not been able to escape. However, the low cost business model has triumphantly entered the aviation market since the deregulation of the markets in the U.S. in 1978. Low cost airlines like Southwest Airlines and Ryanair not only achieve double-digit profit margins, but also have the highest market capitalisation of the industry. This thesis examines the reason for the success of LCAs in the U.S. and EU. LCAs operate with a much lower cost base than most carriers, especially the major hut-and-spoke (H&S) airlines. The low cost business model aims at increasing both aircraft and staff productivity. It also simplifies the sequence of operations workflow and pricing structure. The thesis gives special consideration to the cost structure of LCAs. The advantages of LCAs lie within the areas such as labour, seat density, and distribution. The second objective of this thesis is to evaluate the development of LCAs and consider the implications for the European transport industry. Whereas American LCAs have operated for more than twenty-five years, the boom of their European counterparts did not commence until the end of the 1990s. Ryanair and easyJet have growth rates of more than thirty percent. The author agrees with the expectations of aviation experts that LCAs will grow until they serve approximately a quarter of the market; hence, the business model of low cost is sustainable. However, only three to four low cost airlines will survive the fierce competition in Europe.

AFRIKAANSE OPSOMMING: Die dringendheid van lae koste lugrederye (LKL'e) het die aandag getrek van passasiers, mededingers, die publiek en navorsers. Dit is vreemd dat LKL'e floreer in die huidige ekonomiese afswaai en gevolglik die tendens van die industrie teenwerk. Lugrederye, wat lid is van "lATA" , het sedert die begin van die eeu verliese gelei van 31 biljoen dollar. Daar teenoor is industriele ikone soos die Amerikaanse en Britse lugdienste (American Airlines and British Airways) besig om te veg vir oorlewing, terwyl ander soos die Kanadese lugdiens (Air Canada) op die grens van bankrotskap is: 'n ramp wat sommige soos Sabena nie kon vryspring nie. Sedert die deregulering van die lugvaart in die VSA in 1978 het die lae koste besigheidsmodel egter die mark triomfanlik betree. Lae koste lugrederye soos SuidWes lugdiens en Ryanair ervaar nie alleen dubbel-syfer wins-marges nie, maar het ook die hoogste mark-kapitalisasie in die industrie. Hierdie verhandeling ondersoek die redes vir die sukses van LKL'e in die V.SA en E.U. LKL'e werk teen 'n baie laer koste basis as die meeste vervoerders, veral die belangrikste "hub-and-spoke" lugrederye. Die doel van die lae koste besigheidsmodel is om beide die vliegtuie en die personeel se produktiwiteit te verhoog. Dit vereenvoudig ook die volgorde van prosedures, werkvloei en prysstruktuur. Hierdie verhandeling gee spesiale aandag aan die kostestruktuur van LKL'e. Die voordele van LKL'e lê op die gebied van arbeid, sitplekplasing en verspreiding. Die tweede doel van hierdie verhandeling is om die ontwikkeling van LKL'e te evalueer en te kyk na die invloed op die Europese vervoer-industrie. Die Amerikaanse LKL'e word reeds vir meer as vyf-en-twintig jaar bedryf terwyl hulle Europese eweknie nie 'n opswaai voor die einde van die 1990's ervaar het nie. Ryanair en easy Jet het 'n groei getoon van meer as 30%. Die argument is dat volgens lugvaartkundiges die LKL'e sal groei totdat dit ongeveer 'n kwart van die mark bedien; daarom sal die lae koste model die beste oorleef. Nogtans sal slegs drie of vier van die lae koste lugrederye egter die hewige kompetisie in Europa oorleef.

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