Abstract

This study examines the narrowing differentiation between legacy airlines and low-cost carriers in the United States by exploring the competitive strategies each group borrows from one another. Specifically, this work examines the implementation of a new type of economy fare by Delta Air Lines, called basic economy, and evaluates how the fare has impacted a key metric of airline performance: domestic operating revenues.

In the first part of this thesis, an explanation of the history behind airline marketing efforts as well as what constitutes a low-cost carrier and a legacy carrier is provided. A brief description of game theory is included as well.

In the second part of this thesis, domestic operating revenues were gathered from the Bureau of Transport Statistics for each of the legacy carriers in the United States: Delta Air Lines, United Airlines, and American Airlines. Since only Delta had implemented a basic economy fare at the time of this research, Delta was used as the test variable while American Airlines and United Airlines were used as control variables. A regression was then performed on the data to analyze the significance of the results and account for seasonality.

The data indicated that there was a strong correlation between Delta Air Lines’s growth in revenues and the introduction of its basic economy fare. Delta strongly outperformed its legacy airline competitors in domestic operating revenue growth during this time period. Now, American and United are following Delta’s lead and introducing their own versions of a basic economy class.

Semester/Year of Award

Spring 2017

Mentor

Frank O'Connor

Department/Professional Affiliation

Government and Economics

Access Options

Open Access Thesis

Degree Name

Honors Scholars

Department

Applied Engineering and Technology

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