When Low-Cost Competitors Show Up, Airlines’ Performance Worsens

Business Research 

August 14, 2014
Research Finding : 
When Low-Cost Competitors Show Up, Airlines’ Performance Worsens

Observations : 
Established airlines might be expected to improve their on-time performance to protect their market share when low-cost competitors enter their markets, but the opposite happens . 

For example, within the first year after Southwest’s entry, the proportion of incumbent airlines’ flights arriving at least 15 minutes late rose an average of 3.2 percentage points. 

Possible Reason : 
The performance decline may be a result of airlines’ cost-cutting in response to the new threat, the researchers say.

Conclusion : 
Compete , on your own value proposition. Don't play the game on competitor's strong points ! 

SOURCE: Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance . Courtesy:  Research by Jeffrey T. Prince and Daniel H. Simon of Indiana University  & HBR .