Airlines Within Airlines: an Analysis of Us Network Airline Responses to Low Cost Carriers


Journal of Air Transport Management 11 (2005) 303–312

Airlines within airlines: An analysis of US network
airline responses to Low Cost Carriers
Peter MorrellÃ
Air Transport Group, Cranfield University, Beds MK43 0AL, UK

The establishment of Low Cost Carrier offshoots by network carriers has three possible objectives: to spin off profitable
businesses; to see off low cost competition in key markets; and to establish a test-bed for adapting low cost business processes to
their mainline operations. It is argued that US network carrier offshoots have failed on all three counts. The significant cost
differences between network and Low Cost Carriers are identified, and it is shown that network carriers have made little inroads into
closing this gap, whether or not they set up Low Cost Carrier offshoots. Some reasons for the failure of the offshoots are proposed
by examining operating differences: mixed fleets, keeping interlining and two class cabins and the lack of progress on reducing
labour costs. Labour Union restrictions and the lack of separation from the main airline were crucial.
r 2005 Elsevier Ltd. All rights reserved.
Keywords: Responses to low cost airlines; Productivity; Airline costs

1. Background
The network model for scheduled airline service has
delivered market growth and in good years modest
profits, increased productivity and declining average
fares over the past 20 or more years. Even prior to the
events and aftermath of September 11, 2001, however,
its efficacy was becoming increasingly questioned. Some
commentators have suggested that hubs would be bypassed, and point-to-point operations take a much
greater share of the market. Alternatively, can the
network or legacy1 carriers reduce labour costs sufficiently in the longer term to meet the new competition?
First in North America, and more recently in Europe,
low cost point-to-point airlines have offered low...