In the early days, there
were no dramatic changes. There was some additional competition on individual routes,
mainly the high density ones. During the first five years there was good productivity growth,
though it was not spectacular. There was not much change in flexible fares, and there were
some increases in the higher fares. Some lower fares were offered, but significantly, many
more seats at lower fares were made available. There was not much change in the structure
of the airline industry- initially, consolidation had been expected. There were a few mergers
and some new alliances were established, but there was no shakeout. Some of the new
alliances had stringent conditions put on them, since they had the potential to be anti
competitive.
The big changes came with the development of the Low Cost Carriers (LCCs). Some of
these began earlier, but it was not until about five years ago that they began to have much of
an impact. Some of these have now become quite large airlines, with market capitalisation
greater than those of the established flag carriers. They continue to grow fast. Now that they
have extensive networks, they are beginning to have an impact on the incumbents. They
offer low fares (sometimes very low fares) and the incumbents have been forced to respond.
Sometimes this has taken the form of offering comparably low fares on a restricted basis. In
a few cases, the incumbent airlines have established LCCs of their own. This strategy does
not seem to have been very successful, and the LCC subsidiaries have been sold off. The
major carriers are concerned about competition from the LCCs, and they have had difficulties