The European airline industry: Law and economics of low cost carriers

This article offers an analysis of the European airline industry in order to understand the new dynamics of the competitive field. The liberalization process did not lead the entrance of competitors similar to incumbents, but a new organizational model has been developed, the one of low cost carriers. The incumbents' reaction to the liberalization process coupled with the entrance of low cost companies into the sector are hence considered. Two theories are analysed: the contestable markets theory, to understand the theoretical vision that has influenced the liberalization process, and the core theory, a modern approach to the concept of destructive competition that, according to some authors, is a recurring problem in the sector. While numerous barriers to entry still exist, the paper examines how the organizational model of low cost companies has helped new entrants to overtake these obstacles. By the same token, the application of the core theory does not seem to justify strategic alliances taking place in these years. The competitive framework is definitely clearer if we analyse sector changes in a different way, from the point of view of low cost companies considered as new market actors. © 2007 Springer Science+Business Media, LLC.