Impact of the adherence to the original low-cost model on the profitability of low-cost airlines

Undoubtedly, low-cost operation has been a very successful business model in the airline industry. Over the past 5 years, there has been a widespread departure from the original low-cost model introduced by Southwest Airlines. The low-cost carriers tended to follow a differentiation strategy as opposed to cost leadership on which the original low-cost model was based. The objective of this paper is to assess the degree by which the original low-cost model has been modified over the years, and to ascertain whether the degree of adherence to the original model has any impact on the profit level of low-cost airlines. The performance and business models of ten longer-established US and European low-cost carriers are analysed and evaluated against the original model of Southwest Airlines. Analysis indicates that although an increasing number of 'hybrid' low-cost models are achieving low operating costs, offering low fares and returning attractive operating profit margins, there is a case for recommending adherence to the original model to ensure greater profitability.