The Feasibility of Low Cost Carrier in Iran

Abstract

Competition between low cost carriers in rapid expansion and full-service network carriers has recently become one of the most relevant issues of the airline industry. The present paper addresses this matter by analysing the entry of the low cost Gol Airlines, in the Brazilian domestic market, in 2001. A route-choice model is estimated by making use of a flexible post-entry equilibrium profits equation and accounting for endogeneity of the main variables. Results indicated the relevance of market size and rival's route presence as underlying determinants of profitability. Furthermore, the consistency of Gol's decision making with the pattern of entry classically established by Southwest Airlines for the low cost carrier segment - short-haul and high-density markets - is investigated; evidence is found that although Gol initiated operations by reproducing the standards of Southwest, she quickly diversified her portfolio of routes and, at the margin, became more in accordance with JetBlue Airways's entry pattern, focusing mainly on longer-haul markets, although with some relevant country- specific idiosyncrasies.

Table of Contents

Abstract2

Chapter 1: Introduction6

Background6

Possibilities of growing low fare carriers in Iran18

Low Cost Airline Competition in Iran19

Statement of the Problem20

Research Questions20

Research Objective21

Significance of Study22

The Researchers22

The Future Researchers22

Aviation Professional23

The Readers23

Scope and Limitations of the Study23

Chapter 2: Literature Review25

Low Cost Airline Competition in Europe28

Impact of low cost carriers on network carriers30

Low Cost Airline Competition in the Middle East Region32

Benefits of Partial Deregulation35

Industry Problems after Deregulation48

Health of the Industry48

Remaining Domestic Economic Controls49

Reservation Systems51

Problems with Political Control of the Grid52

Airports52

Air Traffic Control53

Airport Access55

Remaining International and Economic Rules International Competition55

National Ownership56

Additional Problems Resulting from the 9/11 Response57

Marketing issues for network carriers and low cost airlines58

Major Carrier: American Airlines68

Low-Cost Carrier: Southwest Airlines74

Low-Cost Carrier: JetBlue Airways77

Importance of Concentration & Low-Cost Carriers79

Chapter 3: Methodology89

Research Design89

Data Collection Method89

Keywords90

Reliability90

Validity91

Ethical Concerns92

Chapter 4: Results and Findings94

Chapter 5: Conclusion112

References116

Chapter 1: Introduction

Background

A low-cost carrier (LCC), better known as low-cost airline is an airline that offers generally low fares or discounted fare scheme in exchange for eliminating many traditional passenger services. It is a concept first introduced in United States by Pacific Southwest Airlines founded by Kenny Friedkin in 1949. The term low-cost carrier or no-frills carrier within the airline industry refers to airlines with a lower operating cost structure than the major airlines. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.

The low cost carrier business model spread into Europe in the early 1990s and received positive response. The rise of low-cost carriers in Europe left its mark on the European airline industry. Because of the success of this business model, low-cost carriers extend their networks and grow extensively, while competition with other carriers keeps increasing. In the near future, low-cost carriers will probably merge with other carriers or participate in alliances, trying to survive in this clashing of carriers.

Before 2000 there were only a couple of low-cost carriers ...