**1. Introduction**

Low-cost carriers (LCCs) are a phenomenon that provided various people around the world access to air transportation with low prices, whereas in the past, aviation was known by its exclusivity for richer people and business travel. The airline industry has seen a big growth in its totality.

The number of passengers carried in 2017 grew by 7.2%, whereas the revenue passenger kilometers (RPKs) on scheduled tra ffic in 2017 grew by 7.9%. Also, freight transport by air grew in 2017. The freight tonne kilometers (FTKs) on scheduled flights grew 9.5% [1].

The growth of the industry is ongoing since the last decline in 2009, with the number of passenger kilometers now approaching 8000 billion, whereas it used to be around 4500 billion in 2009 [2]. Besides the decline of 2009 and during other kinds of crises a ffecting the airline industry, it appears that the industry is growing exponentially in its overall trend after the end of World War II [1]. However, deregulations and freedom agreements are what caused the industry's growth in the first place. The Chicago Convention of 1944 led to a set of "freedoms" that are universal across the globe for providing international air travel. The first five freedoms are universal across the globe. The further four freedoms are provided only in special agreements [3]. Examples of deregulations and liberalization are the USA's Deregulation Act of 1978, the Open Skies Treaty between the European Union (EU), and the Single Skies of the EU that allowed competition to grow. It drove down prices and allowed (new) airlines to operate the routes they want.

So-called low-cost carriers with their total share of 30% of carried passengers on scheduled flights caused a big portion of this growth in the airline industry. Their growth in 2017 was 11.4%, which is about 1.5 times the size of the growth of the total number of passengers [1,4,5].

The growth of this type of airline is remarkable and getting attention around the world. Southwest Airlines in the United States of America (USA) and Ryanair in Europe are the most well-known LCCs around the world. Their ability to grow has di fferent reasons while operating a similar business model. Whereas Southwest mainly operates in the USA, which gave the airline the advantage of a big country with lots of destinations within this country, Ryanair just started to grow after the deregulation of the British Islands and later the EU [4]. However, growth is, like in many cases, not without issues.

The purpose of this article is to identify significant factors that influence the development of LCCs in Europe in 2018, combined with the current status of the airlines. This research aims to find the issues and risks airlines face, to find out which airline currently has the best business model for being profitable and able to grow, and can, for this reason, be an example for LCC development in the environment of 2018 in Europe. It is a novelty since it describes the issues that airlines face in 2017 and 2018, and how they compared in 2018. Hence, some airlines changed their model or went through changes. Also, it limits the article to the issues of this current period and will not describe the e ffects of the economic crisis of 2008 or the terrorist attacks of 11 September 2001; e.g., LCCs have the most e ffect on the prices and di fferent types of LCC that have been developed. The tasks done during this research are literature research on definitions, business models, development, and issues of LCCs, specifically in Europe, to gather data from airlines about successfulness and what typical characteristics of LCCs have or do not have. The statistical model, technique for order of preference by similarity to the ideal (TOPSIS), is used to compare the selected airlines with each other and to rank these airlines according to best performing on business success factors and meeting the most LCC requirements. Methods used in the research are literature analysis, information comparison, grouping, visualization by Ishikawa's fishbone diagram, and TOPSIS calculation.

#### **2. Low-Cost Carrier Definitions and Concepts**

Low-cost carriers are, in many cases, defined by what they o ffer. Di fferent names are also not uncommon, where names such as low-fare airlines [5], discount carriers [6], "price fighters" [7] and no-frills airlines [8] are used. However, the most generally accepted name is low-cost carrier [2], since it is the given name by the main organizations in the airline industry. The most common definition is "an air carrier that has a relatively low-cost structure in comparison with other comparable carriers and o ffers low fares or rates" [2]. Another one is, "Although marginally di fferent, most researchers define LCCs as carriers which, through a variety of operational processes, have achieved a cost advantage over full-service carriers (FSCs)" [9].

The definition of the International Aviation Organization (2004) is similar to the one of Schlumberger and Weisskopf (2014) but is not pointing to other types of airlines.

Airlines make their own strategic and operational choices based on what they want to achieve. Low-cost carriers aim to have the lowest costs so that they can provide the lowest fares when the customer only pays for the basic product, which is transportation. All the other "frill" services, like the provided food or allowed checked-in luggage, must be paid for now [10]. According to Dennis (2007), this can speed up the turn-around of aircraft at airports, since aircraft do not need to be cleaned and catered at every airport. This will allow airlines to use their aircraft for more flights per day. As mentioned in the definitions above, it is to achieve a customer's preference for them because of the cost advantage. However, every LCC makes its own decisions. However, there are some models of low-cost carriers to distinguish. In the first place, there are the "pure LCCs," sometimes also referred to as ultra-low-cost carriers (ULCCs) [11]. This type of airline has to meet certain requirements in the research. These are:


Doganis (2009) [12] named point-to-point connections, uniform fleet, use of secondary airports, direct sales of tickets, one-way fares, and no-frills in services as typical characteristics. Klophaus, Conrady, and Fichert split fare categories in their requirements mentioned above, Besides the criteria mentioned above, the success of the airline can be assessed by some more, such as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin of the airline and load factor [13]. Airlines tend to have their growth ratio over the year in their annual reports [14].

Klophaus, Conrady, and Fichert (2012) also distinguished models of LCCs in their report, where they placed the LCCs in categories based on the number of criteria they met. These are:


Given the rapid changes that the airline industry is going through, such as the earlier mentioned rapid growth, aircraft, and business development, the ideas of Klophaus, Conrady, and Fichert (2012) [13] are not completely relevant anymore for the situation in 2018. Some of the assessed airlines are not existing anymore or changed their business model. Recently, the Latvian airBaltic announced a switch over to a full Airbus A220-300 series fleet of at least fifty aircraft with options for 30 more aircraft [15]. But for example, as Klophaus, Conrady, and Fichert (2012) mentioned, this aircraft-type did not even exist. Additionally, the profitability and growth of the airlines in the research of Klophaus, Conrady, and Fichert (2012) are not taken into account since their focus was on characteristics.

The definitions and concepts are described above. However, airlines make their own decisions regarding their strategy and fleet. Some of these strategic decisions influence eventual sensitivity for some of the issues the airline industry can face, such as high oil prices. An assessment of meeting LCC criteria and successfulness of the airline (in EBITDA margin, growth, fleet size, and aircraft on order number of destinations) is done. Before this assessment, authors described the issues that airlines faced over the last year so that later authors could evaluate different strategies by the success and the possible effects of the issues in the industry.

#### **3. Issues Faced by Low-Cost Carriers from 2017 until December 2018**

The LCCs have been growing fast in Europe, and the whole airline industry has grown too. Besides growth and positive developments, there are also risks in the industry. It is important to identify the issues that can become risks to airline sustainability. In this research that is chosen for the years 2017 and 2018, the authors could identify the most recent issues. It is also a limitation so

that "former" issues, such as e ffects of economic crises or terrorist attacks, are not taken into account, as mentioned in the introduction. This analysis was conducted by literature research that was later summarized and structured by using the method of the Ishikawa diagram [16].

LCCs faced issues in these years. Most notably have been the strikes at Ryanair, where pilots are striving to have a better salary, good base locations, and working hours. It caused cancellations and lots of damage to the reputation of the airline. Ryanair keeps on growing but gave a profit warning to its shareholders [17]. Ryanair started giving in to the desires of some of the labor unions. Ryanair's problems seem to stay by just the company itself [18]. It is one of the examples why it is important to point out briefly what the issues were, and the reasons for the issues.

Monarch, Air Berlin, and Primera Air went to bankruptcy recently [19]. Primera Air, as the most recently fallen airline, filed for bankruptcy, while it just started operating new aircraft and new routes. However, the airline was not prepared to withstand the losses it made. New aircraft deliveries caused the airline to lease other aircraft, but since they promised their low prices, it go<sup>t</sup> into trouble. The leasing costs of the other aircraft were very high, most likely since the airline had to do it in the middle of the summer [20].

Air Berlin lost its main investor and was doomed to file for bankruptcy. Air Berlin tried to brand itself as LCC, but it was more an FSC with a few LCC characteristics [11]. After years of losses, Etihad stopped investing in the airline, which meant that Air Berlin had to carry the losses by itself [21].

Another factor that can be an issue in the future is the limited capacity available. The capacity is that some of the airports are getting close to their maximum capacity, like Amsterdam Schiphol Airport [22]. Given that the airports are located close to the cities in most cases, space to expand can be limited. This means that a slot on these airports is getting more expensive by the lack of supply. However, the demand for air transportation of passengers is increasing, since globalization is still ongoing. Growth within the air freight market is also noticeable. This will tighten the airports even more in their number of slots [23].

One other issue, which is universal for all the airline industry, is the oil price. Fuel is the highest cost for an airline, followed by personnel cost. However, the airlines found a way to limit the fluctuation by hedging the costs. The real issue is the hedging itself. Due to the continuous fluctuation of the oil price, it can be that the hedged price for the fuel can lead up to higher costs than necessary when the prices go down [24]. However, LCCs seem to be less a ffected due to their younger, more e fficient fleet than FSCs [25].

Flight taxes can put a hold on growth and low prices. Ryanair is known for its really low prices from around 10 €. This situation is becoming more di fficult when a country implements a flight tax with a fixed number of euros. Some countries implemented flight taxes based on distance. This tax affects tra ffic patterns, where airlines need to adjust. For an airline, taxes can be a reason why some destinations are not interesting to fly to [26].

The described issues above seem to be coming from di fferent categories, which may be grouped into personnel, machines, material, and environment, according to Ishikawa's original fishbone diagram [16]. In this research, the Ishikawa diagram is used as a tool to map the issues of the airline industry into the factors that a ffect the airline industry. Ryanair went into a labor dispute with its pilots, which led to strikes (personnel). After a short life as an LCC, Primera Air filed for bankruptcy since the supplier of aircraft, Airbus, was late with their delivery (machines). Primera Air already planned forward on having these aircraft, so they had to find replacement lease aircraft to carry out their promised services. This led to their fate of filing for bankruptcy. It shows how di fficult it can be to enter the market and to maintain the position. Air Berlin had to file for bankruptcy after the stop of investments from Etihad Airways (material), and airlines had to deal with higher fuel prices (material). Slot problems are mainly due to a lack of capacity at airports or limitations in slots (environment). The causes led to the development issues are summarized by the following diagram (Figure 1), according to the model of Ishikawa [16].

**Figure 1.** Ishikawa diagram of the airline development issues. Source: compiled by authors based on issues described in the article.

In Figure 1, it is visible that there are four different types of (development) air transport issues that can be encountered by low-cost carriers within the period from 2017 and 2018, and can lead to development issues. There is, for example, a period of economic growth, where the countries in the EU had an average growth of 2.8% [27]. However, this means that airlines need to be able to grow in a time when there is economic growth [28]. An assessment of airlines is based on the need for airlines performance analysis following the LCC criteria. The airlines all can face some of the issues mentioned above, in the future, or face these issues already; for that reason, it is necessary to see how their business model has succeeded. In order to analyze the successfulness of the business model, it is necessary to research which characteristics of LCCs the airlines meet.
