Objective description The main objective of this thesis is to identify country-specific factors affecting the low-cost carrier market in Russia in order to develop managerial implications for new market entrants. This paper focuses on describing the main country-specific factors affecting the low-cost carrier market in Russia.
Literature review
- Low-cost concept
- Low-cost carrier concept
- Principles of LCC. Internal factors
- External factors
- Implications from the literature review
Serious savings in every aspect of the airline's operation is not the only point of the low-cost carrier's policy. High load factors are an inherent part of low-cost carrier activity (Chan and Wright 1990).
Methods
The strategy, methods and instruments
Case study research
The case study is appropriate in those situations where contemporary events are being investigated, but when behavioral events cannot be controlled. The case study includes many of the same techniques and methods as e.g. a story, but it also includes other sources of evidence that are not normally used in the story (Systematic interview and direct observation). Again, despite the similarity between case studies and history, the case study contains unique advantages: it deals with a wide range of evidence (documents, interviews and observations) beyond what can be found in the historical study and could be more useful.
It is also possible to use two or more strategies in any study (for example, a survey can be used within a case study or vice versa. Perhaps one of the biggest concerns is the lack of rigor in case study research. To summarized and defined what a case study is, let's turn to a popular definition.
However, confusion arises over the distinction between qualitative data, inductive logic, and general case study research.
Research design
Another weakness is that building a theory based on case studies can lead to narrow and idiosyncratic theory. There is a risk that the theory describes a highly idiosyncratic phenomenon or that the theorist is unable to raise the level of generality of the theory (Eisenhardt 1989)”. Study proposal: Defined country-specific factors have a direct influence on the low-cost airline market in Russia. The first part is devoted to identifying the country-specific factors influencing the sector using secondary data.
External factors research involves exploration of the macro external environment and all market participants. This entails understanding which factors from the above list influence the market for low cost airlines in Russia and are country specific. Secondary data used in this part of the study consists of company reports, industry reports by institution and statistical or consulting firms, interviews with industry experts published in public sources.
Semi-structured interviews are based on a questionnaire devoted to potential factors identified through a literature review and taking into account the information collected in the first part of the research.
Empirical research
World Market overview
The peculiarity of the demand for oil is that the demand for crude oil in the short term is not elastic: the price increase has little effect on the demand, because oil is an important source of energy and cannot be replaced by some other resources in the areas where it is most widely used ( the fuel for most modes of transport, petrochemicals). The Kingdom of Saudi Arabia is for the second year in a real "oil war" against the United States - or rather against the American oil companies involved in the development of shale deposits (Conca 2014). Despite Russia's unfavorable position against the background of lower crude oil prices, Russian companies did not reduce their level of oil extraction (Rosstat 2016).
The notable fact here is that the share of seats offered by budget airlines in the total amount of seats offered in the European market has increased from 6% to 38% for the same period of time (IATA 2015b). For the past 8 years EasyJet, one of the largest budget carriers based in England, has shown steady growth in both passenger numbers and revenue. Ryanair carried 82 million passengers in 2014, which is more than the entire airline industry in Russia in the same year.
It is a mature and very sustainable company that has been operating in the US market and its surrounding areas since 1971.
Russian market overview
The company's revenues have grown at a CAGR of 10% since 2005 and totaled more than $18 billion in 2014 (Southwest Airlines 2014). For the entire history of the company, Vieling gained its revenue with a CAGR of 20% and passenger traffic with a CAGR of 18%. This was the most significant drop in real income of the population in the period since 1999.
The increase in price can also be explained by the monopolistic characteristics of the Russian market. However, experts in the industry mention that typically 50-80% of the first passengers on the route from a low-cost airline - new travelers. The difference in costs varies depending on the special equipment of the airport and the amount of consumption of services.
However, some industry experts (Oleg Panteleev, Industry Bureau AviaPort; Irina Frolova, Transaero) noted that regulating these taxes could lead to a reduction in investment in infrastructure development (Mamonova 2014; Belousov 2014).
Internal factors
On August 3, 2014, Dobrolyot officially announced that due to EU sanctions "under unprecedented pressure from European suppliers", the company was "forced to stop flights and ticket sales." The press release explained that a number of European parties had canceled the aircraft lease agreement, aircraft maintenance and insurance, and the provision of aeronautical information. According to the number of passengers transported in 2009, it took the 13th place in the country (1.02 million passengers). Due to the lack of readiness of the Russian market with traditional models of aggressive low-cost airlines, Sky Express combines the features of low-cost airlines and traditional airlines.
As airlines have relatively large amounts of fixed costs (for example lease payments), it is necessary to fully utilize the fleet. Pobeda even organized business trips for airport representatives to the best European low-cost airports with the aim of showing them how it is possible to improve the quality of airport services. New fleets lead to the reduced number of breakdowns which in turn reduces the time spent on the ground and lower costs.
Pobeda is part of the Aeroflot group and therefore has access to the cheaper fuel (Labykin 2013).
Expert interviews
In the current economic downturn, a low-cost airline can attract new customers from both segments. Some people also consider budget airlines with delays and destinations, but that is not true. It is a very big obstacle for new entrants as it requires huge investments.
Experts have mentioned that this is more of a "political project", an initiative of the Russian president, and that is why it has received great benefits. Experts again mentioned that it is more of a "political project", an initiative of the Russian president, which is why it has great advantages. We can expect the emergence of new low-cost carriers only when the economy recovers.
Due to the high barriers to entry, new low-cost airlines should preferably be established as part of an existing company under a new brand or based on an existing company.
Discussion
These legal restrictions significantly hinder the development of the budget airline market, including additional investments, higher operating costs and lost revenue. Strategy elaboration is crucial and should cover all internal factors with the aim of covering cost optimization and improvement of asset optimization, but it should be adjusted according to country specific factors. How can new entrants take advantage of defined country-specific factors in formulating entry strategy.
There are three variable and three non-variable factors from the defined list of country-specific factors. The defined country-specific factors mentioned above determine new rules of how LCCs should behave in the market. Industry experts have stated that the population is not well informed about the benefits of low-cost carriers.
Finally, strategy development is crucial and should cover all internal factors for cost optimization and asset optimization improvement, but it should be adjusted according to country-specific factors.
Managerial implication
Suggestions for further research
This paper focuses on the study of country-specific factors affecting the low-cost carrier market in Russia. The current situation is not very favorable for the development of the low-cost carrier market in Russia. The current economic situation, combined with restrictive legal frameworks and immature infrastructure, significantly hinders the growth of the industry.
The factors revealed make it quite difficult to be a profitable low-cost company and still set low prices to attract customers. However, the industry is developing, and with the appearance of Pobeda, the first steps have been taken to improve the situation. In particular, Pobeda enabled the adoption of some laws that relax the limits for the activities of low-cost carriers.
Profitability maximization and asset effectiveness are the two main principles of the classic low-cost model that must be considered in every aspect of the activity.
The Airport Fitness Program: A new approach and technique to ensure your airport's sustainable growth." Journal of Airport Management 10 (1). Tariffs (Collections) for Services at the Airports of the Russian Federation.” Accessed April 20, 2016, http://www.aviaport.ru/directory/airports/taxes/. Up in the Sky: How Airlines Can Improve Performance by Engaging Their Employees.” Journal of Periodontal &.
Pochemu В России Не Лоукостеры Не Лоукостеры." Forbes, November 10, 2011, http://www.forbes.ru/sobytiya-column/rynki/76174-pochemu-v-rossii-ne-letayut- loukostery. Performance Improvement Opportunities within the US Airline Industry.” International Journal of Productivity and Performance Management. 19 The relationship between airline cabin service and national culture: a cabin crew perspective. Management of Tourism and Hospitality Services: Theory and International Applications.
The grounding of the first corporate victim of EU sanctions, a Russian airline.” The Globe and Mail, 4 Aug. 2014 http://www.theglobeandmail.com/report-on-.
