Both legacy and new entrants, tend to operate using top-down channels of communication consisting of top management, middle management, and operating management. Unlike legacy carriers, new-entrant air carriers have an advantage over legacy carriers when it comes to keeping costs down, efficiency up, and communication flowing. John Wensveen (2011) claims that “One way of doing this is through the establishment of a lean organizational structure where the right people are hired to do the right job” (p. 223). The new carriers are therefore able to form a solid organizational structure that best conforms to the organization. Since most carriers operate an objective system of management, employees at all levels have tangible goals and responsibilities to achieving them.
Legacy carriers have an advantage since they operate long serving fleet and can easily withdraw these aircrafts as they have already achieved returns on the money they have invested (Morrell, 2011, p. 14). Unlike new entrants that have entry challenges and no leverage over their plan of operation, the legacy carriers developed the strategy of low pricing through reducing amenities and compensating the cuts with the help of keen staff (Barney and Hesterley, 2010).
New entrants face challenging entry barriers in the airline industry where Gerardi and Shapiro presume that the new competitor “will have little effect on consumers purchasing tickets in the upper tail of an incumbent’s price distribution” (Gerardi and Shapiro, 2009, p.3). Accordingly, in time an increase in the competition for one specific route may lower price distribution. This will result in price war that eventually affects the profit margin of the entrant.
Another disadvantage of new entrants is that the company may tend to lay emphasis upon growth at the expense of profits amid new regulations that can have effect on the profit margin. On the other hand, new entrants have no direct marketing experience of solving problems with major advertising and promotion budgets, which they have to attain, taking the targeted market share even in the expected competition with unsecure budget. Since they are new in the market, adequate capital is needed to cover the expenses of initial business operations.