| Summary: | After the deregulation of the airline industry in the 1980s and 1990s, airlines competed based on two distinct business models, the low-cost carrier and full-service carrier model. Today, a clear differentiation between the two business models is no longer possible, as airlines have departed from these traditional models. Although this convergence trend is gaining increasing attention in literature, its impact on airline profitability remains mostly unstudied. To fill this gap, I develop a framework to measure and clearly distinguish between the business models. Using data on 10 low-cost carriers from the United States and Europe in the period from 2007 to 2016, I assess the effect of business model changes on profitability and further highlight the business model convergence trend. I find that the convergence of business models in the airline industry is evident, despite the fact that quite often adhering to the traditional low-cost business model proves to be beneficial in several aspects. In some cases, however, departing from the original model can also lead to a performance increase.
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