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Airline Business Models and
 Competitive Strategies – virtual
 simulation course
 Preview lesson: Scheduled airlines vs. low cost,
 low fare airlines

Created in
partnership
with                               IATA Copyright © 2012
Lesson overview
           Airline competitive advantage
           Comparing airline business models
           Low cost, low fare airline market growth
           Why bundle services?
           What’s next?




IATA Copyright © 2012                        Airline Business Models and Competitive Strategies
Airline competitive advantage
                                   STRATEGIC ADVANTAGE
                                    Perceived              Low cost
                                   uniqueness              position

                  Industry-wide
                                  Differentiation     Overall cost
                STRATEGIC                             leadership
                 TARGET
                    Particular                  Focus
                  segment only
                                                                     Source: Porter

IATA Copyright © 2012                               Airline Business Models and Competitive Strategies
Airline competitive advantage
          Exercise: put these airlines into the correct category

                                              STRATEGIC ADVANTAGE
                                               Perceived                  Low cost
                                              uniqueness                  position

                              Industry-wide
                             STRATEGIC
                              TARGET
                               Particular
                             segment only



IATA Copyright © 2012                             Airline Business Models and Competitive Strategies
Airline competitive advantage
                                STRATEGIC ADVANTAGE
                                 Perceived        Low cost
                                uniqueness        position

                Industry-wide

              STRATEGIC
               TARGET
                 Particular
               segment only


IATA Copyright © 2012                        Airline Business Models and Competitive Strategies
Airline business models: products
             Scheduled airline              Low cost-low fare
             model                          airline model
             Multiple, differentiated      Short average flight
             products (to mitigate risk)    lengths, high frequency
             Wide route networks           Bundled/unbundled
             Enhanced airport facilities   services
             Alliances, mergers and        Congested hub airports
             takeovers                      avoided
                                            Low fares, fewer traditional
                                            passenger services

IATA Copyright © 2012                              Airline Business Models and Competitive Strategies
HIGH
          Pattern of Alliance
          Cooperation Merger-like integration
                                                                      Revenue, cost and
                                                                      benefit sharing joint
                        Expanded cooperation to
                                                                      venture
                        develop joint network
                                                  Direct coordination (incl. prices,
          Limited cooperation                     routes, scheduling, facilities)
          on specific routes           Code sharing
                                 FFP and Lounge Access
                         Interlining
         LOW                                Source: Airline industry presentation, DOT

IATA Copyright © 2012                                    Airline Business Models and Competitive Strategies
Bundling services
          Balancing service level with customer demand
                                              PASSENGER TYPE
                                         Business In-between    Leisure
                        Traditional:
                      Travel Agencies,
            CHANNEL




                        corporate, IB        Bundle

                                                        Unbundle
                       New: Website,
                          portal
                                           High    Medium         Low
                                              SERVICE / CHOICE              Source: Clickair

IATA Copyright © 2012                                     Airline Business Models and Competitive Strategies
Airline business models: finance
             Scheduled airline        Low cost-low fare
             model                    airline model
             High production costs   Low overhead costs
             High competition        (outsourcing)
             Low yield effect        Low yield, high volume
                                      concept
             Revenue management
             techniques employed      Lean business processes
                                      in the product set-up




IATA Copyright © 2012                       Airline Business Models and Competitive Strategies
Airline business models: marketing
             Scheduled airline          Low cost-low fare
             model                      airline model
             Brand building            “Outsourced” marketing
             Frequent flyer programs   through airports
             Traditional channels      Internet based

             CRM




IATA Copyright © 2012                         Airline Business Models and Competitive Strategies
Airline business models: distribution
             Scheduled airline         Low cost-low fare
             model                     airline model
             Chartered seats are      Low distribution costs
             usually returned to the   Ticketless travel
             operator
                                       Can bypass GDS through
             Global distribution      internet distribution
             systems are widely used
             (Amadeus, Sabre, etc.)    Higher yield pax focus
                                       through interline
                                       agreements and GDS


IATA Copyright © 2012                        Airline Business Models and Competitive Strategies
Low cost, low fare model growth
           LCLF airlines continue to gain market share

           Fares and cost structures throughout the industry
            are under pressure to compete
           European LCLF networks are expanding (more
            regional airports)
           Many new LCLF airlines are entering the market



IATA Copyright © 2012               12      Airline Business Models and Competitive Strategies
Projected airline traffic growth
                        PASSENGER TRAFFIC IN EUROPE
                            AND NORTH AMERICA
                              (IN MILLION PAX)




                                                                         Sources: AEA,
                                                                         Ryanair, easyJet

IATA Copyright © 2012                                 Airline Business Models and Competitive Strategies
What next?
            The low cost, low fare business model has shaken
             the airline industry
            Some LCLF carriers are now targeting a new
             market segment, high-yield business passengers

             What can scheduled airlines do to renew
                  their competitive advantage?
                        Are the scheduled and LCLF business models as
                                  differentiated as they seem?

IATA Copyright © 2012                                  Airline Business Models and Competitive Strategies
Find out more about this course at:
www.iata.org/airline-business-simulation

For other Airline Management courses, visit:
www.iata.org/training-airline-management

                                             IATA Copyright © 2012
                          15          Airline Business Models and Competitive Strategies

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Airline Business Models and Competitive Strategies - virtual simulation course

  • 1. Airline Business Models and Competitive Strategies – virtual simulation course Preview lesson: Scheduled airlines vs. low cost, low fare airlines Created in partnership with IATA Copyright © 2012
  • 2. Lesson overview  Airline competitive advantage  Comparing airline business models  Low cost, low fare airline market growth  Why bundle services?  What’s next? IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 3. Airline competitive advantage STRATEGIC ADVANTAGE Perceived Low cost uniqueness position Industry-wide Differentiation Overall cost STRATEGIC leadership TARGET Particular Focus segment only Source: Porter IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 4. Airline competitive advantage Exercise: put these airlines into the correct category STRATEGIC ADVANTAGE Perceived Low cost uniqueness position Industry-wide STRATEGIC TARGET Particular segment only IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 5. Airline competitive advantage STRATEGIC ADVANTAGE Perceived Low cost uniqueness position Industry-wide STRATEGIC TARGET Particular segment only IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 6. Airline business models: products Scheduled airline Low cost-low fare model airline model Multiple, differentiated Short average flight products (to mitigate risk) lengths, high frequency Wide route networks Bundled/unbundled Enhanced airport facilities services Alliances, mergers and Congested hub airports takeovers avoided Low fares, fewer traditional passenger services IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 7. HIGH Pattern of Alliance Cooperation Merger-like integration Revenue, cost and benefit sharing joint Expanded cooperation to venture develop joint network Direct coordination (incl. prices, Limited cooperation routes, scheduling, facilities) on specific routes Code sharing FFP and Lounge Access Interlining LOW Source: Airline industry presentation, DOT IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 8. Bundling services Balancing service level with customer demand PASSENGER TYPE Business In-between Leisure Traditional: Travel Agencies, CHANNEL corporate, IB Bundle Unbundle New: Website, portal High Medium Low SERVICE / CHOICE Source: Clickair IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 9. Airline business models: finance Scheduled airline Low cost-low fare model airline model High production costs Low overhead costs High competition (outsourcing) Low yield effect Low yield, high volume concept Revenue management techniques employed Lean business processes in the product set-up IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 10. Airline business models: marketing Scheduled airline Low cost-low fare model airline model Brand building “Outsourced” marketing Frequent flyer programs through airports Traditional channels Internet based CRM IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 11. Airline business models: distribution Scheduled airline Low cost-low fare model airline model Chartered seats are Low distribution costs usually returned to the Ticketless travel operator Can bypass GDS through Global distribution internet distribution systems are widely used (Amadeus, Sabre, etc.) Higher yield pax focus through interline agreements and GDS IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 12. Low cost, low fare model growth  LCLF airlines continue to gain market share  Fares and cost structures throughout the industry are under pressure to compete  European LCLF networks are expanding (more regional airports)  Many new LCLF airlines are entering the market IATA Copyright © 2012 12 Airline Business Models and Competitive Strategies
  • 13. Projected airline traffic growth PASSENGER TRAFFIC IN EUROPE AND NORTH AMERICA (IN MILLION PAX) Sources: AEA, Ryanair, easyJet IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 14. What next?  The low cost, low fare business model has shaken the airline industry  Some LCLF carriers are now targeting a new market segment, high-yield business passengers What can scheduled airlines do to renew their competitive advantage? Are the scheduled and LCLF business models as differentiated as they seem? IATA Copyright © 2012 Airline Business Models and Competitive Strategies
  • 15. Find out more about this course at: www.iata.org/airline-business-simulation For other Airline Management courses, visit: www.iata.org/training-airline-management IATA Copyright © 2012 15 Airline Business Models and Competitive Strategies