. There are, in addition, reasons to suspect that the model as we have seen it in the past, willneed to change to succeed in a dynamic market and, in the short term, to function well in thedepressed macro-economic environments of 2009.We begin by exploring the criteria against which success should be measured, and the nature of the market environment in which low cost carriers have emerged, and then move on to see howthey have faired in the Spencerian (Spencer, 1874 to 1896) world of Lamarckian evolution inwhich they operate.THE CONCEPT OF SUCCESSTo assess the achievement of any business model one needs criterion to set it against; essentiallysome form of matrix and a benchmark. Success in business can be assessed on severaldimensions. In terms of the business community it may relate to profits, the standard neo-classicalrent seeking criteria, but business success may also be seen in relation to market share or in termsof sales revenues (Baumol, 1962). Internally, the management of a firm may also see success isthe context of performing well in a number of defined areas (Williamson, 1975), or it may morebroadly ‘satisfice’ (Simon, 1959) and think in terms meeting a much wider range of objectives –sales, profits, market share, labor force retention, share price, etc. From the perspective of anti-trust authorities, success is the absence of the exercise of market power, either in terms of extracting economic rents from consumers or through the enjoyment of X-inefficiency
. From atechnology perspective, success is normally associated with new or innovative processes thatovercome some barrier to production and thus reduces costs significantly, allowing economicdevelopment (Rostow, 1960).From a social perspective, the issue is one of social welfare maximization that is often articulatedin the transport context as meeting some standard of mobility or accessibility whichever is thepolitical fashion of the day. The recent interest in the environment often sees industrial success assomething consistent with sustainable development. Finally, I suppose in macro economicclimate of 2008, success in business would be the creation or retention of jobs.These criteria are overlaid with temporal considerations. Success, when achieved, may be long-term or transitory. The Pony Express had some successes in the mid-19
century in the UnitedStates, and may indeed be considered the forerunner of modern express delivery, but it onlylasted for 19 months. One would, I think, question if it really can be considered a successfulbusiness model as we would normally think of the term. IThe business rather found a temporalniche market for a very specialized service. Other business models, such as those associated withthe mass production models initiated by Fiat and subsequently developed by Henry Ford haveproved to be more enduring.Here we treat the low cost airline model as an attempt to circumvent a particular market problem;namely the historically low operating margins in the scheduled airline market. This problem, andits root cause is discussed below, but in summary since the gradual liberalization of scheduledairlines around the world there has been a singular difficulty in carriers maintaining operatingmargins above zero, and certainly at a level found in most other sectors of the economy. A variety
Southwest Airlines, for example, now carriers a significant number of interlining passengers and has anumber of clearly definable hubs in its network.
Market power per se is not normally an issue, but rather it is whether firms abuse it.