Full-service Network Carriers Research Articles

COMPETITIVE STRATEGIES OF ENTERPRISES IN CRISIS PERIOD: THE MARKETING ASPECT OF AIRLINES

Goal. The article is devoted to the study of the modification essence of competitive strategies as a result of the impact of crisis phenomena on the example of the activities of airlines. Methodology. Research methods include methods of scientific abstraction, observation, synthesis, generalization to highlight the key features of airlines competitive strategies, system-structural analysis of the market. The classification system of Porter's general strategies was applied in the airline sector. Results. Functional-level strategies in different areas of the firm, such as marketing, operations, finance, can only be properly developed when there is clear understanding of the overall business strategy. The article discusses general strategies that are available to all firms regardless of the sector, in accordance with Porter's view of activities differentiation and low cost, taking into account the breadth of operational goals. The focus was on airline operations, indicating the competitive strategies of full-service network carriers, low-cost carriers, integrated cargo carriers, regional airlines, charter airlines, and carrier-within-a-carrier airlines. These business models form the spectrum of strategic choices that will mix and function in hybrid forms as airlines continue to add nuance to their diverse approaches. The impact of crisis phenomena is direct factor in the hybridization of competitive strategies, although budget airlines have proven to be the most stable business models in terms of staff reduction. Scientific novelty. The competitive strategies of enterprises for the aviation sector and the business models of airlines, which respond to the global crisis challenges to varying degrees, are adapted, among which the budget business model is the most stable due to low operating costs. It was established that the business models of airlines are characterized by the approach of hybridization and mixing of business model features. Practical significance. The obtained results contribute the further development of theoretical approaches to the marketing research of airline activities, the analysis of the functioning of the air transport market. The materials reflect the generalization of competitive strategies of airlines.

The Evolution of the Low-Cost Carriers in the Trans-Tasman Aviation Market

This research examined the evolution of low-cost carriers (LCCs) in the Trans-Tasman aviation market, quantifying their impact and qualifying their influence on the market. New Zealand is Australia’s second largest tourist market, and the air routes to Australia are New Zealand’s busiest; as such, the trans-Tasman passenger traffic is of significant economic and strategic interest. This study utilized an exploratory research design and an in-depth longitudinal research approach to examine the evolution of the market and to understand the process of market development. The qualitative data was examined by document analysis. The study period was from 1995 to 2020. The low-cost carriers (LCCs) first entered the market in 1995. The case study revealed that since that time, the market has broadly had four discrete phases. The first phase was from 1995 to 2003 when the first low-cost carriers (LCCs) entered the market; the second phase saw the rapid growth in traffic following the launch of services by Pacific Blue Airlines (a subsidiary of Virgin Blue) and Jetstar Airways. An important development in the market took place in 2010, when Pacific Blue was rebranded Virgin Australia, and, as such, implemented the full-service network carrier (FSNC) business model. In 2016, AirAsia-X entered the market, utilizing fifth freedom traffic rights, to provide daily Airbus A330 services from Coolangatta to Auckland. AirAsia-X exited the market in early 2019 leaving Jetstar Airways as the sole low-cost carrier operating in the market (Phase 4).

Predicting customer purpose of travel in a low-cost travel environment—A Machine Learning Approach

In the airline, business a passenger’s purpose of travel (business or leisure) has a strong relationship with the price elasticity of that passenger. Full-service network carriers (FSNCs) have long since recognized and monetized this concept by creating different cabins and products for the different types of customers. Conversely, until now, low-cost carriers (LCCs) have done little to differentiate between different types of customers. Recently though, even low-cost carriers have recognized the importance of the business travellers and are attempting to diversify their product offering to cater for different passenger requirements. In this paper, we use machine learning techniques to predict whether a passenger is travelling for business or leisure purposes. Although the problem is formulated as a prediction task, the primary objective is to model the behavioural differences between the two types of customers. In this respect, we discuss the importance and need for effective and interpretable machine learning techniques to facilitate communication with business stakeholders. This is a key requirement to improve the application and results obtained in research in daily practice, particularly in industries that are not primarily information technology based.

A data-driven approach for characterising revenues of South-Asian long-haul low-cost carriers per equivalent flight capacity per block hour

This study sets out to investigate the revenue characteristics of long-haul low-cost carriers (LHLCCs) in the Southeast Asian market using a recently established metric that calculates revenue per equivalent flight capacity per block hour (REB). REB allows for the accurate comparison of airlines on different routes with varying cabin configurations, and stage lengths. The majority of the data was sourced from Sabre MIDT and OAG, while supplementary data were from other various sources. In addition to REB, the study investigates: How do LHLCCs yields compare to full-service network carriers (FSNCs)? Are LHLCCs positively impacted by smaller share of connecting passengers? Are LHLCCs positively impacted by ancillary revenues? Do LHLCCs benefit from higher load factors and seat densities?Results show that LHLCCs performed 26.6% less in overall REB compared to their FSNC counterpart despite LHLCCs generating 43.9% less yield. This is a result of less revenue diluting connecting passengers, higher average ancillary revenue per block hour, higher average load factors and higher average seat densities for LHLCCs. On a route-level, some LHLCC operations can equally perform or outperform competition’s revenue performance. Furthermore, the findings are mostly consistent with earlier REB research conducted on the North Atlantic market by Soyk et al. (2018). Revenue and operating characteristic showed the same trends in both markets, although to varying degrees.This study exposes, with high detail, the revenue generating inner-workings of the elusive long-haul low-cost model in its second largest market, and compares it on equal grounds to their full-service network competition. We learn that airlines can drive the airfare down while minimising the loss of revenue per flight capacity of the aircraft by adjusting for the numerous variables that directly impact it, such as seat density, cabin configuration, ancillary revenues, load factors, and percentage of connecting passengers.

The impact of the COVID-19 crisis on the US airline market: Are current business models equipped for upcoming changes in the air transport sector?

We address the impact of the COVID-19 crisis on the US airlines market and discuss the benefits and limitations of current business models in a context of increasing socio-economic uncertainty and stringent environmental regulations. Drawing our data from the Bureau of Transportation Statistics and 10-K/A reports, we undertook an exploratory study of the performance of the 10 main passenger airlines in their domestic operation during one year. We found that, although major losses occurred industry-wide, ultra-low-cost and low-cost airlines fared better than full-service network carriers did in terms of financial performance. We argue, nevertheless, that such apparently successful business models are not necessarily adaptive to address future industry changes.

Identifying the drivers of profitable airline growth

While regulatory changes in the global economic environment have facilitated airline capacity growth, profitability remains as a challenging issue for airlines globally. This study examines whether the airline business model has an impact on the tension between growth and profits and is the first to apply the dynamic system generalised method of moments model to this relationship. We find that full-service network carriers are faced with a trade-off between growth and operating profits, whereas low-cost carriers are able to simultaneously pursue growth-oriented strategies whilst improving profitability. We discuss the key differences in the business models that drive these results and expect that short-term effects of COVID-19 travel constraints will impact different airlines in distinct ways.

The direction of airlines business models – up or down? (Post Covid-19 crisis – case study)

This paper deals with airlines business models, mostly full service network carriers (FSNC) and low-cost carriers (LCC) and their position on the airline market. Covid-19 crisis causes many negative impacts on all airline industry. Hybridisation process in aviation industry is described many times in the past; now it has a stronger impact on airline business model development and it is oriented on different aspects than before. The paper emphasises the fact that low-cost carrier’s business model is much closer to the features of the FSNC carriers from the price point of view and vice versa. Furthermore, the authors introduce some other diversifications of airlines business models and the paper offers the new stimulus to move forward in this tough time for airlines business, paradoxically, thanks to Covid-19. Finally, yet importantly, the authors emphasise the important role of the state in the further direction of the airlines during and after the Covid-19 crisis

PASSENGER PERCEPTIONS TOWARDS SERVICE QUALITY OF AIRLINES BASED IN SINGAPORE

This research focuses on understanding how passengers had perceived airline's flight services as well as how passengers had evaluated the importance of service quality dimensions of airlines based in Singapore, specifically understanding whether full-service network carriers or low-cost carriers had delivered better value-added service quality in terms of whether airfares were value for money, as well as identifying whether gender and age differences perceive differently towards service quality. Data was collected via a survey at Singapore's Changi Airport, targeting arriving passengers who had flown on Singapore-based airlines. The results revealed that full-service network carriers had delivered better value in flight services as compared to low-cost carriers. The results also highlighted that between genders, male passengers are more satisfied with airline's flight services as compared to females, while between age groups, significant differences were found in overall seat comfort. Moreover, Airline safety records and on-time departure and arrival followed by lavatories cleanliness and odourless were rated as the most important factors towards passengers.Keywords: Airfares, Service quality assessment, SERVQUAL, Singapore-based airlines, Value-added serviceJEL Classifications: L93, M30, M31DOI: https://doi.org/10.32479/irmm.9096

Evolution of Air Transport Networks under Different Airline Business Models: The Case of Three Chinese Airlines

This study was conducted to compare the evolution process of air transport networks (ATNs) under different airline business models, and empirically analyzed the causes of evolution differences combining with airline market behaviors. Three representative Chinese airlines (China Southern Airlines, Spring Airlines, and Lucky Air) that belong to three business models (full-service, low-cost, and regional) were examined. Based on mathematical statistics and complex network theory, from spatial pattern, topological feature and central city, the result showed that the airlines have their own unique evolution characteristics of ATNs driven by different business models. China southern airlines as state-owned full-service network carrier, its ATN is easily affected by national policy. Spring Airlines has more flexible and diverse choice in choosing target markets and the ATN had a transformation from a mono-centric divergence network to a two-centric regional one. Lucky Air as a regional feeder carrier, whether navigable airports or navigable routes increasingly concentrated within the southwest of China. This information is important for government to improve the national ATN by developing targeted airlines.

Mapping causalities of airline dynamics in long-haul air transport markets

The introduction of low-cost air transport services to short-haul routes has significantly shaped the structure of this market segment. Recent research investigates and discusses the transferability of the low-cost carrier business model to long-haul routes and identifies respective challenges such as lower cost advantages over the competing full-service network business model. Our paper complements the existing research with a review of airline dynamics in long-haul air transport markets and the subsequent development of a causal loop diagram of the transatlantic air transport market using systems thinking. The objective of this paper is to provide an overview of specific characteristics regarding airline operations in the transatlantic air transport market to investigate the market potential of long-haul low-cost carriers competing with full-service network carriers in this market. We implement these characteristics in a causal loop diagram which comprises the most important elements of and causalities within the long-haul air transport market that affect the development of these elements. These include the generation of transatlantic air transport demand, passenger choice, and airline ticket price and fleet development. The causal loop diagram serves as a framework for qualitative investigation of the market potential of long-haul low-cost services. The paper proves systems thinking to be a feasible approach to map causalities based on knowledge from scientific literature.

Airline hub as a source of competitive advantage

The development of airport infrastructure and creation of airline hubs, which have a great importance for the economy, encourage to thorough analysis of their role for airlines. Hub airports are the fundamental source of the competitive advantage of full service network carriers. This article explains their role for airlines. The paper presents also the most important properties of airline hubs, which affect the competitiveness of air carriers. It also presents major challenges related to the functioning of hub airports, which have to be addressed by airlines. These issues are very current due to planning of the new central transport hub in Poland. Keywords: Hub airport; Airlines; Competitiveness; Network carriers

The development of long-haul low-cost networks in the North Atlantic airline market: An exploratory data approach

For almost two decades, discussion in the literature has continued regarding the viability of the long-haul low-cost carrier (LHLCC) business model in the North Atlantic market. From 2015 onward, LHLCC operations gained some steam, mainly due to the expansion of Norwegian's North Atlantic network. A detailed analysis of the traffic developments on the North Atlantic shows that LHLCCs have a tendency to operate on parallel routes while serving an aggregate North Atlantic network that is less seasonal than that of full-service network carriers (FSNCs). In addition, analysis of passenger flows shows that Norwegian's North Atlantic flights from its Scandinavian bases and, to a lesser extent, from London Gatwick carry substantial shares of transfer passengers. Furthermore, both in the North Atlantic market as a whole and in specific individual city pair markets there are signs that the entry of LHLCCs has a positive impact in terms of competition. Strategic responses by FSNC incumbents can be detected as well. For example, British Airways shows a larger increase in traffic (both in seats offered and in flight frequency) on routes contested by Norwegian than on North Atlantic routes not contested by Norwegian. Next to that, the British flag carrier is able to substantially undercut Norwegian's air fares on most of its contested routes. All in all, after more than a decade of EU-US and EU-Canada Open Skies agreements LHLCC operations on the North Atlantic are dominated by a single airline in financial dire straits. As a result, the long-term viability of the LHLCC business model on the North Atlantic is not a fait accompli yet.

Business Model Management of Low-Cost Carriers: in a Search for Impact-Factors of Performance (Case of AirAsia Group Airlines)

The study is aimed at analyzing how social and economic development indicators, global and regional economic indices are influencing low-cost carriers (LCC), AirAsia Group Berhad (AAGB) in particular. It is crucial not only to define the impact-factors but to embed them in a management framework for further decision-making. Passenger traffic is the main indicator of LCC performance, unlike the Full-Service Network Carriers (FNSC) that taking advantage of both passengers and freights. However, both categories depending on the macroenvironment and business environment dynamics, and KPIs should be reconsidered to face the current global challenges. The global GDP, GDP per capita are commonly used to access the economic and social development trends, the passenger numbers per annum, unemployment rate, and else are used to understand the status of operations in LLC performance management. This study deals with several overlapped categories of research, such as low-cost carriers business model, impact-factors of air transport development, global trends in several industries. The research methodology is a combination of comparative analysis, correlation analysis, regression analysis, and forecasting, using secondary data from annual reports and quaternary financial reports. The comparative analysis gave us an understanding of the general performance trend of the group and subsidiaries. One of the study components is the correlation analysis that revealed the most correlated factors for the economic development of AAGB, such as global GDP, regional GDP, regional GDP per capita, population growth. The global and regional dimensions were presented in the research to reveal what affects airline performance the most. Global GDP is the most correlated indicator for the global and regional development within AAGB, and the regional GDP per capita comes the second by its significance. The population size has a great influence on performance indicators (globally and regionally), and if this indicator is taken into account for forecasting the potential growth is expected in the next five years. These findings enable to design of the business-model of LLC more accurate in accordance with the forecast analysis towards innovative cost decisions. Keywords: business model, management, KPI, performance management, Low-Cost Carrier, airline, AirAsia group, passenger traffic.

IMPACT OF AIRLINE BUSINESS MODELS, MARKET SEGMENTS AND GEOGRAPHICAL REGIONS ON AIRCRAFT CABIN CONFIGURATIONS

Besides the significance of estimating aircraft seat capacity for airline operating cost and yield estimation as well as for the conceptual design of aircraft, airline fleet planning requires an understanding of aircraft cabin configuration. This paper presents the impact of airline business models, market segments in terms of flight distances, and geographical regions on aircraft cabin configuration, i.e. aircraft seat capacities and installed seats per cabin class. Using the historical databases of global low-cost carriers and airline flight schedules between 2000 and 2016, two ABM clusters – full-service network carriers (FSNCs) and low-cost carriers (LCCs) - were developed, while using seven already-developed passenger-aircraft clusters. Focusing on the jet commuter (JC), narrow-body (NB) and long-range (LR) aircraft clusters, studies were conducted on the historical development of aircraft cluster seat capacities at different abstraction levels: global, airline business model, intra- and inter-regional flight distances, as well as a combination of ABM and (inter)regional flights. Selected results were further analysed using statistical tests on the mean and regression analysis. The analysis results show that LCCs use aircraft that have less average scheduled and less average maximum possible seats than FSNCs. Specifically, FSNCs use significantly bigger aircraft types in LR cluster than LCCs, while LCCs use significantly bigger aircraft types in JC cluster than FSNCs. Furthermore, average cabin utilisation of aircraft clusters scheduled by LCCs are significantly higher than average cabin utilisation scheduled by FSNCs. With increasing distance, average cabin utilisation also significantly reduces.

The comparison of financial performance of airlines with different business model operated in long-haul market

The competition between low-cost carriers (LCC) and full-service network carriers (FSNC) has been focused exclusively on short to medium-haul markets for a long time. The launch of new aircraft generation combined with further liberalization of intercontinental air transport market presents the backbone of the recent extension of LCCs’ service into long-haul sector. Thus, the emergence of this new concept triggered the changes in the landscape of competition, since it tremendously affects the operations of incumbents, mainly FSNCs. The aim of the paper is to examine the overall profit performance of airlines with different business models (LCC vs. FSNCs) that compete in some portion of long-haul market in terms of different competitive parameters. The paper proposes the method that incorporates the major factors affecting airline profit. The method enables the construction of high level causal multidimensional plane that illustrates the behavior of profits in terms of different indicators (such as fuel costs, other operating costs excluding fuel, average stage lengths, average load factor, etc.). The conversion of these tridimensional graphs into two-dimensional one enables the researchers to easily compare the airlines’ profits under different selection of dependent variables. The results obtained in this way may have practical benefits to academics, but moreover to airline management and operations that can easily detect the major competitive advantages/disadvantages in contrast to its rival(s).

The blurring lines between full-service network carriers and low-cost carriers: A financial perspective on business model convergence

Airlines rely on different business strategies in order to meet today's intensive competition and erratic market conditions. In the US, the low-cost carriers (LCC), posed a strong challenge to full-service network carriers (Legacy airlines) since their inception after the deregulation act of 1978. Encouraged by the success of the LCC, we have observed changes in the policies, practices, and strategies of legacy airlines. Similarly, some of the LCC such as Southwest Airlines adopted practices that are more expected from legacy airlines. In this research, we investigate the possibility of convergence of the LCC, especially Southwest Airlines, and the legacy airlines. We use econometric models to study the changes in the airlines' operation strategies for the last decade and provide a quantitative measure for convergence between the airlines. Our results support the hypothesis of convergence between the legacy airlines and Southwest Airlines. However, there is no evidence of strong convergence between the legacy airlines and other LCC.

How to regulate aviation's full climate impact as intended by the EU council from 2020 onwards

The EU Council intends to regulate air transport's full climate impact (i. e., CO2 and NOx, H2O, SOx, aerosols, contrails and contrail cirrus). A likely approach is the inclusion of all climate relevant species from aviation in the European Emissions Trading Scheme. We provide a proposal for this practice and analyze the economic impacts. Modelling results indicate that the cost effects of the EU-ETS addressing CO2 and non-CO2 emissions will be much larger than under the current scheme. This is because under the new approach, all climate relevant species are regulated and not just CO2. The cost effects also depend on the length and altitude of the flight. Both have consequences for the competitive environment of the airlines under the scheme. Especially the full service network carriers will have to bear a competitive disadvantage compared to airlines offering just short- and medium-haul services. Remarkably, some cost effects are in opposition to the corresponding results for an ETS for the regulation of CO2 alone.

The Strategic Deployment of the Airbus A350-900XWB Aircraft in a Full-Service Network Carrier Route Network: The Case of Singapore Airlines

In the global airline industry, an airline’s fleet routing affects its profitability, level of service and its competitive position. Using a qualitative research approach, this paper examines Singapore Airlines Airbus A350-900XWB fleet deployment and route network development for the period 2016 to 2018. The qualitative data was examined using document analysis. The study found that Singapore Airlines has deployed the Airbus A350-900XWB aircraft on new air routes from Singapore to Cape Town via Johannesburg, Düsseldorf and Stockholm via Moscow and return. The Airbus A350-900XWB aircraft are also replacing older, less efficient aircraft as part of the company’s fleet modernization strategy. Singapore Airlines is also acquiring the new ultra-long-range variant of the Airbus A350-900XWB for use on its proposed new non-stop services from Singapore to Los Angeles and Newark Liberty Airport in New Jersey, USA. The longest flight stage length is the Singapore to San Francisco route which is 7339 nautical miles (13,594 km) in length. The shortest stage length is between Singapore and Kuala Lumpur (160 nautical miles or 297 km). The new non-stop services from Singapore to Los Angeles and New York City will be the longest non-stop services operated by Singapore Airlines. The flight stage lengths between Singapore and Los Angeles and Singapore and Newark Liberty Airport are 7621 nautical miles (14,114 km) and 8285 nautical miles (15,344 km), respectively. The greatest number of available seat kilometers (ASKs) are generated on Singapore Airlines Airbus A350-900 XWB service from Singapore to San Francisco (3.57 million ASKs). The smallest number of ASKs produced are on the short-haul service from Singapore to Kuala Lumpur (75,141 ASKs).

Comparative efficiency analysis of major international airlines using Data Envelopment Analysis: Exploring effects of alliance membership and other operational efficiency determinants

The establishment of alliance groups during the end of 1990s has marked the beginning of an era that is characterized by increased consolidation among Full-Service Network Carriers (FSNCs). In the context of increased competition, membership in a global airline alliance group has served as the main avenue for FSNCs to maintain or increase market share and attain economic viability. Although previous literature has repeatedly stressed the enhancement of operational efficiency as a major incentive for airline alliance membership, existing research related to the assessment of comparative efficiency between allied and non-allied airlines and among alliance groups is fairly scarce. In the current paper, an integrated methodological framework employing Data Envelopment Analysis (DEA) with super-efficiency and intertemporal approach is implemented to assess the effect of alliance group membership on 30 major international airlines regarding period 2012–2016. Primary findings suggest that alliance group membership is not associated with superior airline efficiency. In addition, airlines with high freight traffic revenue share are found to be more efficient than airlines demonstrating lower freight traffic revenue share. Finally, a statistically significant superior efficiency of Asian and European air carriers over American air carriers is substantiated.

The Revenue and Cost of the Airline Company

<p><em>The airline industry is characterized by a number of business models with the most prominent being the Full Service Network Carriers (FSNC) and Low Cost Carriers (LCC) models. The main difference between full service network carriers and low cost carriers is how the airline companies operation their revenue and cost.</em></p><p><em>The advanced developments in telecommunications, air pollutions and the competition of high rail are three new challenges for the airline industry globally while an increasing passengers and the government policies are two big issues for Asia/Pacific regional airline companies. The fuel price and human-related costs are two big issues affecting the company’s cost. Code-sharing and advertising are two possibly ways in increasing company’s revenue, cutting down the fuel cost, advertising costs, controlling the human cost and cooperating with airports are four possibly ways in reducing company’s cost.</em></p>