The impact of low-cost carrier on traditional airline' fares on intercontinental routes

Abstract

Norwegian Airlines was one of the first airlines in the world that introduced the low cost business model for long haul flights. Low airfares this airline managed to offer for its intercontinental flights have seriously jeopardized the traditional carriers forcing them to start applying different counter strategies in order to reduce the pressure of competition. Empirical results obtained by applying regression analysis for the route from London to New York show that presence of the low cost carrier, Norwegian Airlines, exerts small, yet statistically significant influence upon reduction of airfares by British Airways which was for many years the dominant airline on this route. Moreover, the results of the model underline the importance of applying the 'seat capacity increase' strategy in British Airways' economy class, which proved to be an efficient business tool bringing good results with relatively low investments in a short period of time.

Keywords

• competition
• new generation of aircrafts
• long-haul low cost business model