pricing dynamics and the cost heterogeneity in the industry showed that the industry had not reached the long run
competitive equilibrium. More adjustments in the cost structure, prices and other features of the business models
were expected. Graf (2005) documented the failed attempts by the FSCs to establish low cost spin-offs to compete
with the LCCs and concluded that the two models are incompatible within the same airline grouping. Bogulaski, Ito
and Lee (2004) provided evidence that during the 1990s, a shift took place in the expansion pattern of Southwest
Airlines’ route system. While Franke (2005) predicted the need for a substantial restructuring of the FSC model, the
prevailing view was that an equilibrium would be reached with both models in existence, complementing each other,
or that a hybrid model would result. For example, Alderighi, Cento, Nijkamp, and Rietveld (2005) employ a gametheoretical
framework to show that for large markets, the only possible equilibria are consistent with the coexistence
of the point-to-point and the hub-and-spoke models specific to the LCCs and the FSCs respectively.