THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS *

Transcription

1 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS * Alexandru Ioan Cuza University of Iaşi, Romania; dlaura_es@yahoo.com Abstract: The two economic and financial crises from the beginning of the XXIst century have significantly influenced the global airlines market. The purpose of the present paper is to identify the evolution of the European and American low-cost airlines (LCCs) between 2000 and 2011, underling the impact of the 2001 and 2007 crises on their economic performances. Moreover, we correlate the ability of LCCs to withstand and effectively respond to the economic downturns to the specific elements of their strategies. In order to achieve these objectives we have conducted a complex analysis of the secondary data included in various international statistical reports, air transport journals, Official Airlines Guide databases and in the operators publications. The conclusions of the paper underline that while the 2001 events influenced more the American LCCs, the 2007 crisis affected both European and American LCCs. Yet, the negative consequences of these crises were less felt by the biggest LCCs from the two continents. Key words: economic crisis, European low-cost airlines, American low-cost operators, business strategy, business environment. 1. Introduction The two major economic crises from the beginning of the XXIst century have spread out almost all over the world and had significant consequences both at micro and macroeconomic level. Between the transport sector and the economic activity seems to be a strong, positive correlation: any increase of the production and trade will inevitably generate a greater need for transport; a decrease of the same parameters will lead to a descendent demand for transport. In this context, a particular attention should be given to the airline industry, which has proven to be very sensitive to the economic cycles. For the air transport sector, the impact of these crises consists in a decrease of the demand (less transported passengers and goods), an important reduction of the supply (through bankruptcies and reduction of the frequency), a changed transport flows (through mergers of routes and loops), lower profits of the airlines * The International Conference on Economics and Administration, Faculty of Business and Administration, University of Bucharest, Romania ICEA FAA Bucharest, 8-9 th June 2012

2 116 2 and, last but not least, in a process of changing strategies. Yet, there were airlines, both traditional and low-cost, which felt less the crises influence than the others. Moreover, the impact of the 2001 crisis was at a smaller scale and with less dramatic consequences on the airlines market than the one from A very important aspect that should be mentioned is that, before the events of September 2001, both the European and American airlines markets were confronting with serious problems, determined by various factors. First of all, the rapid growth of the low-cost operators was generating a strong downward pressure on the fares of the legacy carriers. Meanwhile, the fuel price and the labor costs were rising (between October 1998 and October 2000 the fuel price doubled and the industry-leading labor agreements generated a great increase in the incomes level). Moreover, a slowing down of the economic growth in some developed economies, such as those of Germany and USA, generated a decrease in the demand of the airlines services. It was noticed that, during the economic downturns, the decreased demand generates a revenue crisis which is usually followed by a cost and profit crisis, fueled by massive overcapacities. Therefore, those airlines that do not respond quickly by reducing the capacities and taking consolidating actions may experience huge losses. It should be mentioned that, during an economic downturn, it was observed that many of the airlines clients, especially the leisure travelers, are widely changing their buying criteria, preferring a lower price and reduced comfort over extensive connectivity and seamless travel. At the beginning of the 21st century, it was noticed that, in USA, the business travelers weren t also willing to pay the fares tolerated in the late 1990s. Indeed, starting with , both corporate and individual travelers were asking for lower prices, high frequencies and simpler, more efficient services. All these aspects mentioned above were only partly and separately discussed in the specialized literature. This is why, in the present paper, we intend to offer a global picture of the impact of the two crises from the beginning of the 21st century both on the European and American low-cost airlines. In order to fulfill this objective, we have structured the paper in three main parts: a brief literature review on the debated topic is followed by a deep analysis of the American and European low-cost airlines market in the context of the two crises. 2. Literature review The bursting of the dot.com bubble in 2000 caused a three years economic downturn, with an initial reduction of global air traffic demand, especially in premium class products, and a pressure for competitive pricing (Franke, John, 2011). The events of September 2001 amplified the crisis from the airlines industry due to the fact that the traffic significantly decreased in many key

3 3 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS markets, especially in the North America. According to Cobbs&Wolf (2004), the revenue passenger-miles (RPM), calculated by multiplying the total number of passengers carried by the number of miles flown, dramatically diminished between 2001 and 2004 in USA and, during this period, the American airline industry did not experience a corresponding drop in available seat-miles (ASM), calculated by taking the total number of seat multiplied by the total number of miles flown. This demonstrates, once again, that the 2001 events determined a great part of the airline consumers become highly price sensitive. As a response to the clients needs, many low-cost carriers, beginning with Southwest Airlines, started to offer online reservations, in order to reduce their costs. The airline industry previously relied on business travelers for price discrimination but, with the ease of internet booking virtually, most of the consumers have become price sensitive (Balcombe, Fraser, Harris, 2009). The rise in price sensitivity has been compounded by the lack of product differentiation in the airline industry. Consumers are more willing to purchase tickets based solely on price because most of them have no brand loyalty (Gursoy, Chen, Kim, 2005). The only remaining form of brand loyalty is through passenger reward programs which have to offer generous compensation to maintain consumer loyalty. Consumers have little brand loyalty to low cost carriers such as Southwest Airlines, but since they consistently offer the lowest fares, price sensitive consumers repeatedly chose them (Cunning, Young, Lee, 2004). However, in the context of the 2001 economic downturn, many new low-cost airlines of the USA market have failed to establish their place in the industry. Moreover, many traditional operators have registered important profit loss after 2001 or, worse than that, were on the verge of bankruptcy. Meanwhile, the large low-cost carriers, especially from Europe (such as Ryanair and easyjet), took advantage of the unfavorable global situation by offering more services at low prices, in this way increasing their profits (Mason, Alamdari, 2007). For example, in order to enhance its reputation among consumers and to reduce the costs, Ryanair launched in 2000 a site through which it was possible to make the reservations and purchase the tickets online. This method had the expected success, in the first quarter of the year 2000, the company registering about reservations per week (Calder, 2010). Actually, in 2002 and 2003, Ryanair and easyjet won around 22 million new passengers. The challenges brought by the 2001 crisis have forced the largest legacy carriers from Asia, Europe, and the US to rethink their traditional business models. Under the pressure of the low-cost operators, which determined passengers to become more price sensitive, the legacy carriers have taken at least three measures to regain a competitive position (Franke, 2007): Substantial cost cuts;

4 118 4 Mergers and acquisitions, in order to consolidate the capacities and increase the market power (some examples are: Air France/KLM or Lufthansa/Swiss); Rethinking the operational platforms, in order to allow the airlines to better serve the needs of specific customer segments (for example, the regional and low-cost platforms of SAS or Lufthansa, in Europe, or the low-cost subsidiaries of Delta or United Airlines, in USA). By early 2006, the airlines industry seemed to have recovered after the substantial financial losses from 2001 to 2005, both European and US legacy operators starting to increase their profits. A significant impact on this positive trend had the consistent GDP growth, registered in many developed economies, as well as the emergence of Brazil, Russia, India, and China (the BRIC group of nations), as significant economic players. Even if the 2001 crisis has been a taught lesson for the airlines managers, the global economic and financial situation of had a significant impact for all the operators. Although dropping demand had been expected as part of a cyclical downturn for some time, the crisis came more quickly and struck more deeply than most experts had anticipated (Franke, John, 2011). A report of the International Air Transport Association (IATA, 2010) underlined the fact that in 2009 there was a 6.1% drop in the overall air traffic, which represents the worst decline since the World War II. Although the airlines have reacted quickly and adjusted their capacities and cost levels, the profits recovery has been very slow for many airlines. Yet, the low-cost carriers were less affected by the crisis, mainly because their low fares were again a compelling argument for many travelers. In this context, Macário (2009) considers that the dynamics of the downturn have enlarged the gap between successful and less successful airlines business models. Furthermore, the occurrence of new models may be accelerated. Just like after 2001 events, when the economic downturn offered the low-cost airlines the opportunity to expand their services on continental routes in Europe and the USA, the recent crisis may give birth to a new industry framework, this time with focus on intercontinental traffic (Macário, Reis, Marques, 2009). Regarding the way and the time horizon in which the airlines could surpass the present crisis, Franke and John (2011) shape three scenarios, presented in Figure 1. The first scenario presents a standard U-shape crisis, the lowest level of the demand and profits being achieved in In the late 2009 and the beginning of 2010, the consumers seem to have regained confidence and the industry returns to the long-term growth trend, in the end of Starting with this point, it is assumed that the airline sector will recover very soon.

5 5 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS Figure 1. Possible shapes of the economic and aviation cycle Source: Franke, M., John, F. (2011) What comes next after recession? - Airline industry scenarios and potential end games, Journal of Air Transport Management, no. 17, p Extended U-Shape crisis presents a volatile demand and poor profits until the end of In this scenario it is believed that a comprehensive recovery occurs no earlier than the end of 2010 or, more likely, at the beginning of Long-term L-shape crisis shows that there is a gap between the economy s and the aviation s recovery. In the airline industry, the positive trend will be achieved only in the end of 2011 or at the beginning of The main causes for this type of scenario may be a persistent slump in private consumption and a structural loss of premium demand. In our opinion, most of the European and American low-cost airlines are experiencing a crisis between normal and extended U-shape scenario, but we can assume that the first one applies better to the case of the European low-cost operators, the second one corresponds to the American low-cost carriers and to some of the biggest European legacy airlines and the long-term L-shape scenario includes the rest of the legacy airlines (American and European). 3. The Evolution of the American Low-Cost Airlines Industry in the Context of the Two Crises from the Beginning of the 21st Century The 2001 crisis has directly hit the American economy and, particularly, the USA airlines industry. Some of the reasons that generated a decline in the demand of the airlines services in North America are: more consumers became unwilling to fly because of an increased fear of flying, the increased security measures that have made traveling by air more time-consuming and far less

6 120 6 convenient than before the terrorist attacks and, last but not least, the general augmentation of the prices. In this context, during the period that followed the financial crisis from the September 2001, the image of the low-cost operators has significantly improved, especially because they were able to gain profits even when the market was unstable. Indeed, after the 2001 events, the low-cost carriers had many opportunities: they were in the position to go on the offensive and aggressively exploit the changed industry climate by renegotiating labor contracts, by negotiating lower prices for new airplanes in what had suddenly become a buyer s market for new aircraft and by pursuing aggressive pricing strategies to increase their market share relative to legacy carriers. There were companies that took advantages from these opportunities, such as Southwest Airlines, in the case of which the previous positive management employee relations allowed the company to negotiate with its labor force to lower costs and, therefore, to increase its market share, or JetBlue, which started its operations in 2000 and, two years later has shown sizeable profit margins and high load factors. Yet, some of the low-cost airlines, especially the smallest ones or the newest one, could not survive the economic downturn. Actually, only four North-American low-cost companies have registered a profit increase in 2001: Southwest Airlines, JetBlue, West Jet and Air Train (IATA, ). The results of a survey conducted by the company Standard & Poor s Industry in 2005 show that Southwest has succeeded to be a dominant airline during this tumultuous period for several reasons. First of all, its low price strategy allowed it to maintain and expand its market share. Secondly, previous positive management employee relations allowed Southwest to negotiate with its labor force to lower the costs. In contrast to non-union competitor JetBlue Airways, Southwest has maintained its profitability and low-fare, low-cost business model while being heavily unionized. Thirdly, Southwest has extensive price hedging of fuel that they gained through oil futures. This has allowed Southwest to avoid the increased cost of oil that has devastated many other airlines. Furthermore, in 2004, Southwest began its first domestic codesharing arrangement by negotiating a deal with ATA. According to a Strategic Report published in 2006 by Bundgaard, Bejjani and Helmer, operating profit of Southwest Airlines was about 700 million dollars in 2001, 500 million USD in 2002, 400 million USD in 2003, 650 million USD in 2004 and 800 million USD in Actually, the company was the only airline of the ten largest U.S. carriers to report a profit in The 2001 events demonstrated that in America, the low-cost carriers were more resilient than the legacy operators in times of economic crisis. The low-cost airlines resistance proved to be the result of the three management dimensions: adopting a viable strategic position, leveraging organizational capabilities and reconceiving the value equation. To all these we can add the

7 7 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS unique operational features that low-cost airlines have: pricing structure, fleet composition, route structure, choice of airports, distribution and productivity. It is noticeable that the low-cost airlines sector has gradually developed after the 2001 economic downturn and in 2003 these companies had almost 25% from the internal market of the USA, considering the number of the transported passengers (Air Guide Online, 2004). Although the rest of 75% belonged to the traditional operators, various studies show the fact that three quarters from the passengers transported by these companies were not satisfied with the ratio price paid-quality received (Lewis, 2003). Starting with 2005 most of the American airlines, low-cost and legacy, seemed to have recovered from the crisis, registering positive trends of their revenues and profits. However, this favorable situation didn t last for long, because the 2007 economic and financial downturn hit again the airlines industry, this time in a harsher way. The crisis involved job reductions and alterations of the work conditions. For example, between May 2008 and May 2009, thousands of jobs were cut in the case of several of the major legacy US airlines, such as United Airlines, American Airlines, Northwest Airlines, Delta Airlines, US Airways and Continental Airlines (International Labor Organization, 2011). Aside from job losses, the employees of the legacy operators have been affected by the reduced working time. The low-cost airlines were also the victims of the 2007 crisis, especially the smallest ones. In many of these cases the employees were forced to work at a reduced salary, or even for free for a period of time. There were also cases in which the US low-cost airlines could not continue the operations and filed for bankruptcy: for example ATA Airlines and Frontier Airlines, both of them in April Shortly after ATA Airlines filed for bankruptcy, it was acquired by Southwest Airlines which, subsequently, has also acquired AirTran Airways in 2011, by purchasing all of the outstanding common stock, corporate identity and operating assets of AirTran Holdings. This aspect demonstrates once again that, even during this recent crisis the larger low-cost American carriers were less influenced by the economic unfavorable situation. These operators have continued to grow during this difficult period because their no frills business model focuses on controlling costs. Taking the example of Southwest, according to the company s statistics, in 2010 its net income was about 459 million USD, the airline has transported 88 million passengers and the average passenger load factor was 79,3% (Southwest Airlines, 2010). Southwest targets routes with high consumer demand and the advanced experience of its personnel allow the company to quickly turnaround aircraft and keep their planes in the air more hours per day than its rivals. Southwest has experienced remarkable growth in the airline industry by steadily taking market share from large legacy airlines. At the

8 122 8 beginning of April 2012, Southwest Airlines operated scheduled services to 97 destinations in 42 states (Southwest Airlines, 2012). In the case of JetBlue, the last financial report shows that the company has generated consistent unit revenue growth throughout the years by managing its network and balancing the seasonality created by its highly leisure focused business. The airline complemented its leisure travel markets with higher yielding business markets and capitalized on key growth regions, primarily Boston and the Caribbean, which has resulted in increased capacity. Under these circumstances, the company s operating revenues increased with 19% (meaning 725 million USD) in 2011 compared to 2010, primarily due to a 20% augmentation in passenger revenues. However, due to the increase of the costs registered in 2011, JetBlue reported a net income of 86 million USD in 2011, compared to the net income of 97 million USD in 2010, while the operating income was in 2011 of 322 million USD, meaning a decrease of 11 million USD compared to 2010 (JetBlue, 2011). Considering all the aspects mentioned before, we could say that the evolution of the American low-cost airlines between 2000 and 2011 was marked by four main attitudes of these operators: if after the 2001 crises the general attitude was of surviving, in 2004, when the impact of the economic downturn was less strongly felt, the low-cost airlines market started to adapt to the new environment but, only in 2006 we may speak about a recovery. Unfortunately, the 2007 crisis forced the low-cost operators rethink again their business strategies. 4. The Impact of the Two Crises from the Beginning of the 21st Century s on the European Low-Cost Airlines Market The low-cost airline sector in Europe has experienced a substantial growth since two major companies have started operating as low-cost carriers: Ryanair in 1991 and easyjet in The 2001 terrorist attacks have dramatically changed the structure of the UK airline industry: while British Airways maintained shorthaul business fares and reduced capacity for leisure travelers, easyjet and Ryanair decreased their tariffs and built capacity. The other low-cost carriers from the continental Europe were rapidly following the same trend of high market growth. A study conducted by Credit Suisse First Boston revealed the fact that in 2004 the low-cost carriers accounted for 20% of European airlines passengers, and 43% of the domestic UK market (Travel Weekly, 2004).

9 9 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS Table 1 The Largest European Low-Cost Carriers in 2004, by share of the low-cost airlines ASK Airline % ASK Ryanair 26 easyjet 24 Air Berlin 14 Volare Airlines 6 bmibaby 4 Germanwings 4 Hapag-Lloyd Express 3 Virgin Express 3 Flybe 3 Norwegian Air Shuttle 3 Source: Adapted from Official Airlines Guide (2004), OAG Report on European Low-Cost Carriers, In 2004, in a top 10 largest European low-cost carriers in terms of ASK, EasyJet and Ryanair were on the two first positions (see Table 1). At a short distance behind them there was Air Berlin that still operates a considerable number of charter/leisure flights, which are also included in the table. Moreover, in the same year (2004), Ryanair was the company that led the top of the global net profits. Recording a net profit of 334 million dollars, in 2004 Ryanair had 32% of the total net gains achieved by all low-cost carriers in that year (Air Transport World, 2005). In the same classification, easyjet occupied the fifth position, with 74.4 million USD. The adhesion of the states from Central and Eastern Europe to EU involved the correlation of their legislation to the Community s and the extension of the open skies agreement. Full membership of the single European aviation market has led to the proliferation of air services. The agreement allows any airline from the EU carry passengers and freight within the Community and benefit, in each of these countries, of the same rights as those of the local companies. Therefore, it has led to the establishment of new low-cost routes served not only by the existing operators, but also by the new market entrants. By the summer of 2004 the low-cost carriers sector had grown in number to around 50 airlines, according to the European Low Fares Airline Association (ELFAA) (Airline Business, 2004). In figure 2 it can be seen the percentage of the seats provided by the low-cost carriers on the domestic and intra-european Union routes, at the end of However, aside from easyjet, Ryanair and Air Berlin, most of the low-cost airlines were generating only very marginal levels of profit.

10 Figure 2. Percentage of the seats provided by the low-cost carriers on domestic and intra-eu routes, at the end of 2004 Source: Compiled from Official Airline Guide (2005) In Europe, the market share held in 2007 by the low-cost airlines reached a new record of 19.5% of all the flights, in the first half of the year registering a growth of 2.5% compared to the amount held in 2006, during the same period of time (Eurocontrol, 2007). Under these circumstances, the low-cost carriers were responsible for 69% of all the additional flights recorded. Considering all the information mentioned above, we may say that, by early 2007, the European low-cost airlines industry seemed to have successfully surpassed the 2001 events, most of these carriers registering important profits increase. By the end of 2007, the economic-financial crisis that started in USA has rapidly extended all over the world, having significant impact on both low-cost and traditional carriers. Yet, in Europe, the negative consequences were smaller in the case of the low-cost airlines, which seemed to have increased their market share vis-à-vis the traditional carriers and charter companies. However, in order to cope with the unfavorable global situation, both legacy and low-cost carriers have implemented some strategic measures. The value of the airlines shares fell in 2008 and the managers were forced to take vital strategic decisions regarding the way in which to reshape their companies and adapt to current business climate. Many low-cost companies have adopted a cost-cutting program through a personnel reduction and a diminishing of the capacity. This time, the strategies of lowering costs did not necessarily implied lower tariffs, especially in the case of the small carriers. For example, Finnair is to cut the size of its narrow-body fleet by 4 A320s aircraft in autumn 2012 as part of its savings program of 140 million EUR that has to be achieved by 2014 (Eurocontrol, 2011). There were also cases in which

11 11 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS the European low-cost airlines, in order to survive the crises, have sold a part of the company s shares. It is the case of Air Baltic, formerly owned by Baltic Aviation Systems. For this company, the Latvian government has increased its shares up to 99.8%. Subsequently, the government agreed to a capital increase to allow fleet modernization and network adjustment of its flag carrier (World Airline News, 2011). Meanwhile, the largest low-cost operators such as Ryanair, easyjet or Air Berlin have adopted an investment strategy, based on creation of new routes, new branches, located in different countries, or on additional flights for the existing destinations. Due to the great number of the subsidiaries spread out all over the European Union (there were 20 in 2007), the International Air Transporters Association (IATA) conferred Ryanair the title of the largest airline in the world, in Since then, the number of the subsidiaries increased each year. Analyzing the data offered by the airlines statistics, referring to their evolution between 2007 and 2011, we can notice a positive trend for the largest European low-cost carriers. As it also happened after the 2001 crisis, Ryanair took advantages of the nowadays unfavorable economic and financial situation by offering services at a lower price, in order to increase its market share. Indeed, the company had the expected results: the number of the transported passengers grew with 14% between 2008 and 2009 and with 10% between 2009 and 2010, while the revenues followed the same trend. The positive evolution was also maintained in the 2011 financial year, when the company had an 11% growth in traffic, to 73.5 million passengers, and an almost 15% increase of profits to around 360 million (Eurocontrol, 2011). As in the case of Ryanair, it is noticeable that Norwegian Air Shuttle has constantly increased its passengers and, consequently, the revenues, after the emergence of the nowadays crisis: between 2008 and 2010 the number of the company s passengers augmented with an annual average of 15% (Norwegian Air Shuttle, 2011). Tui Travel has also announced a record high profit for the financial year 2011, which shows an increase of 18% compared to the previous reported year. These results are attributable to its strong online sales and to the demand for the exclusive resorts served by the company (Eurocontrol, 2011). The information offered by easyjet in its Annual Reports reflects that, in the first two years after the beginning of the 2007 crisis, the company was negatively influenced by the economic downturn. So, even if in 2008 its revenues have grown with 31,5% and in 2009 with 12,9%, the profit has decreased with almost 45% and, respectively, 50% compared to previous years (2007 and, respectively, 2008). This negative evolutions were soon surpassed, for the 2010 financial year the company reporting an 11,5% increase in revenues and an 181,5% increase in the profits, compared to In 2011, the revenues increased with 16,1%, while the profits rose with 31,5%, compared to previous year.

12 Conclusions and implications The impact of two major economic crises from the beginning of the 21st century on the airlines industry consisted in a decrease of the demand, an important reduction of the supply, a changed transport flows, lower profits of the airlines and in a process of changing strategies. Yet, there were airlines, both traditional and low-cost, which felt less the crises influence than the others. Moreover, the impact of the 2001 crisis was at a smaller scale and with less dramatic consequences on the airlines market than the one of In the context of the 2001 economic downturn, in the USA market many new low-cost airlines have failed to establish their place in the industry and several traditional operators have registered important profit loss or were on the verge of bankruptcy. Actually, only four North-American low-cost companies have registered a profit increase in 2001: Southwest Airlines, JetBlue, West Jet and Air Train. However, the economic downturn from the beginning of the 21st century demonstrated that in America the low-cost carriers were more resilient than the legacy operators in times of economic crisis. Meanwhile, the large low-cost carriers from Europe (such as Ryanair and easyjet) took advantage of the unfavorable global situation by offering more services at low prices, in this way increasing their profits. The adhesion of the states from Central and Eastern Europe to EU led to the establishment of new low-cost routes served not only by the existing operators, but also by the new market entrants. However, aside from easyjet, Ryanair and Air Berlin, most of the low-cost airlines were generating only very marginal levels of profit. By early 2006 the airlines industry seemed to have recovered after the 2001 events, both European and US low-cost and legacy operators starting to increase their profits. This positive trend didn t last for a long period of time because the global economic and financial situation from had a significant impact for all the airlines from the two continents. Although the operators have reacted quickly and adjusted their capacities and cost levels, the profits recovery has been very slow for many airlines. Yet, the low-cost carriers were less affected by the crisis, mainly because their low fares were again a compelling argument for many travelers. In the US economy, especially the smallest low-cost airlines were the victims of the 2007 crisis, the largest ones being less influenced by the economic unfavorable situation and continuing to increase their revenues. In Europe, both legacy and low-cost carriers felt the impact of the crisis. Therefore, in order to cope with the unfavorable global situation, they have implemented some strategic measures. Many low-cost companies, especially the small ones, have adopted a cost-cutting program through a personnel reduction and a diminishing of the capacity. Meanwhile, the largest low-cost operators, such as Ryanair, easyjet or Air Berlin have adopted an investment

13 13 THE EVOLUTION OF THE LOW-COST AIRLINES BETWEEN 2000 AND COMPARATIVE ANALYSIS ACROSS AMERICAN AND EUROPEAN LOW-COST OPERATORS strategy, based on creation of new routes, new branches, located in different countries, or on additional flights for the existing destinations. Therefore, we could say that, again, the largest European low-cost carriers weren t too much affected by the economic crisis. In a future research, it would be interesting to analyze the evolution of both American and European low-cost airlines market, in order to determine if the positive trend of the largest operators is sustainable for long term and if the economic crises have changed the consumers preferences and they will choose to travel more with the low-cost carriers than with the legacy ones. References: Airline Business, (2004): Cost Conscious, Airline Business 11, Air Transport World, (2005): World s Top 9 LCCs Net Profit 2004, Air Transport World 42(7), K. Balcombe, I. Fraser and L. Harris, (2009): Consumer willingness to pay for in-flight service and comfort levels: a choice experiment, Journal of Air Transport Management 15(5), T. Bundgaard, J., Bejjani and E. Helmer, Strategic Report for Southwest Airlines, 2006, Accessed October 2008, edu/jlikens/seniorseminars/ pandora /reports/southwest.pdf. Simon Calder, (2010): No Frills: The Truth Behind the Low-Cost Revolution in the Skies (London: Virgin Books). Richard Cobbs and Alex Wolf, Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices (paper presented at Northwestern University in March 2004). Jim Corridore, (2005): Airlines, Standard & Poor s Industry Surveys, November 24. L. F. Cunning, C. E. Young and M. Lee, (2004): Perceptions of airline service quality: pre and post 9/11, Public Works Management & Policy 9(1), Laura Diaconu, (2011): A Comparative Study Regarding the Evolution of the European Legacy and Low-Cost Airlines in the Context of the XXIst Century s Crisis, Revista Economică 2(55), Annual Report and Accounts , 2012, Accessed March 2012, Eurocontrol, Low-Cost Carrier Market Update, 2007, Accessed October 2008, datejune07_v01.pdf. Eurocontrol, Industry Monitor, Eurocontrol 136 (2011), Accessed March 2012, eurocontrol-industry-monitor-issue-136.pdf. M. Franke, (2007): Innovation: The winning formula to regain profitability in aviation?, Journal of Air Transport Management 13, M. Franke and F. John, (2011): What comes next after recession? Airline industry scenarios and potential end games, Journal of Air Transport Management 17,

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