Creating architectural advantage in the airline industry: Strategic options for airlines to migrate value

Abstract

Despite their central role in the industry, airlines have been consistently unable to earn their capital costs. The academic literature has noted the airlines’ limited success in capturing value, offered plausible explanations for it, but has been remarkably silent regarding strategic options for airlines to change their situation. The present paper addresses this gap by analysing the vertical embeddedness of airlines into the industry structure and focusing on the dynamics of the interfaces with adjacent industry segments. Using secondary data from industry reports and primary data from semi-structured interviews with industry experts, our analysis aims at identifying the main drivers and strategic options for value migration. The interfaces between airlines and distribution partners as well as airports show the highest potential for value migration, primarily for well-positioned low-cost carriers or larger multi-airline groups. To obtain that advantage, however, airlines need to extend their offering beyond the flight segment and reduce their replaceability by leveraging customer data along the entire travel chain, e.g., by sharing customer insights between segments and, thus, accessing additional revenue potential. For smaller, independent airlines, leveraging their -if present- dedicated niche strategy, will be the only lever to survive in the long-run. With its systemic perspective, this paper complements the currently fragmented literature on airline vertical strategies and suggests four generic strategic options for value migration to the airline segment.