Background: Since the airline deregulation was completed in 1997, a new business model has emerged in the European civil aviation industry. It has caused a shift in the way people travel within Europe. The airlines operating under this new business model known as point-to-point, have created a new outlet for commercial passenger travel and raised concerns for established flag carriers.

Problem: This study is of great importance due to the fact that people are traveling more frequently and wish to do so quicker and more efficiently. With so many options to choose from and cost being an important decision maker for both companies and consumers, a study of this industry in terms of competition, price and service quality is of great impor-tance.

Purpose: The purpose of this thesis is to investigate and describe whether or not changes in the competitive landscape of the European civil aviation industry are related to the movement of economy class prices. The thesis also looks at whether or not changes in the competitive landscape are related to changes in service quality in the same industry. Both flag-carriers and low-cost carriers in terms of their business models will be investigated.

Method: The method chosen for this study was of an integrated approach based solely on secondary data due to the sheer size and scope of this industry. This study investigated the two major business models of this industry through routes to the major cities and capitals of Western Europe from Stockholm Arlanda airport and Stockholm Skavsta airport. A literature study coupled with a comparative analysis has also been done.

Conclusions: Dramatic change is occurring in the industry. Competition is increasing not only between companies but between two competing business models. Increased competition is leading to better on-time performance but lower in-flight and ground service quality. Aggregate price level has risen for flag carries with the opposite happening for low-cost carriers. The increased competition is threatening the ill-performing flag carriers and will most likely transform the industry.