The LCC business model has been reshaping the US airline industry for the past twenty years. This paper
provides evidence that along certain dimensions, a process of convergence has been taking place between the
competing LCC and FSC business models. For example, the FSCs have been able to cut employee compensation
through drastic restructuring efforts facilitated by bankruptcy protection, while the LCCs have been incurring
increased legacy labor costs. At the same time, the airports served by the two groups of carriers are becoming more
similar in size, while the LCCs’ fares exhibit more dispersion as a result of the adoption of yield management
practices specific to the FSCs. On the other hand, no such convergence is observed for the more essential features
that distinguish the two models. The employees of the LCCs are increasingly more productive than those of the
FSCs. Also, there is no indication that the LCCs are ready to abandon their focus on non-stop service, and their
reliance on homogenous fleets. Since these differences stem mainly from the fundamentally contrasting network
structures, it is unlikely that they will disappear in the near future. Most importantly the remaining differences
between the two models are reflected in a still widening unit cost gap. This suggests that the industry has not yet
reached equilibrium and significant resource allocation issues remain to be resolved.