Why LCCs lose their competitive advantage in the long run?

Low cost carrier model of flying is almost four decades old. It is a fact that this model has been quite successful worldwide and many LCC carriers have been instrumental in making many people realize the dream of air travel. The chief offering due to which they have been able to do it is that of the cheap air tickets, both on the domestic sector and on the international sectors covering the neighboring destinations. It has also been seen that over a period of time, the LCCs began to lose their competitive advantage as they begin to explore high prices at some point of time in future.

Let us first understand the business cycle of the LCCs. They make an entry into the established markets with their low cost air tickets which soon makes them earn respectable revenues as customers begin to turn to them due to the cheap international flights tickets or cheap air tickets for the domestic sector. As a matter of strategy and also as a measure of expansion, these airlines soon prefer to enter the market segment of the tier II and III cities and pent up the latent demand for aviation. During the course of all this happening, there is the entry of competitors with well benchmarked offerings to the customers. Further, there is also the exit of full service carriers as well as other LCCs which signals a rapidly maturing market.

It is this factor of rapidly maturing market and the inability to find new markets for expansion, which makes the LCCs begin to price their tickets higher in order to capture those travelers who are using the full service carriers, or at least, to earn higher revenues. This is perhaps the most important reason which compels the LCCs to deviate from the basic building blocks of its business model. Looking for new markets could mean that the airlines have to do away with their no-frills approach and might have to provide more facilities for longer durations of travel. Further, there could be some other reasons such as increase the prices of inputs, the higher disposable incomes of the people, etc which can indicate the LCC that the prices of the cheap air tickets needs to be increased. 

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