ABSTRACT
In this paper, the sources of competitive advantage of low-cost carriers such as Southwest, Ryanair and easyJet are identified. Many have looked to these carriers’ operational efficiency as their source of advantage, but the choice of business model with point-to-point service provides the strategic advantage and the operational effectiveness complements this choice. The vertical relationships between processes are based on the simplicity of service. This leads to simplicity of processes and simplicity of organization. These points are illustrated with a discussion of Southwest and how it organizes its ‘turns’ for flights. The ‘team’ organization and the simplicity of information flows result in greater relational coordination. This contrasts as we show with airlines such as Ryanair that seek lower costs through lower prices. We argue the Southwest model is not generic and duplication is difficult because of the system coordination whereas the Ryanair model can be more easily duplicated. This results in first mover advantages for carriers such as Ryanair and their willingness to engage in long-term contracting for key assets, such as airport access. These differences in achieving operational efficiency have different implications for airports, which include bargaining power and risk exposure. An airport with a dominant single low-cost carrier is subject to more risk and low bargaining power.
