New-entrant airlines’ life-cycle analysis: growth, decline and collapse

Many new-entrant carriers enjoyed fast growth and by the same token sudden failure, therefore raising interest in the characteristics of their life cycles. The article proposes a different approach to life-cycle analysis of airlines by integrating an ‘evolution path’ based on size classification with a ‘traditional life-cycle path’ that assumes two distinctive routes to failure. On the basis of a survey conducted among managers of new-entrant airlines in Europe and the USA, various factors were identified that showed significant differences between stages of evolution. The findings do support that new-entrant airlines have similar life-cycle characteristics as firms in general.     

Integrated airline productivity performance evaluation with CO2 emissions and flight delays

This paper evaluates the airline productivity change by applying a modified global Malmquist productivity index (GMPI) model, incorporating both CO₂ emissions and flight delays. Statistical inference is also performed on the GMPI results using the bootstrapping method. Empirical research was conducted on 15 international airlines during 2011-2017. The obtained results showed that the productivity of all airlines had been fluctuating and experienced a slight increase over 2011–2017. Most of these 15 airlines made more progress in managing punctuality than CO₂ emissions. High punctuality policy may not be the best choice for all airlines when considering financial constraints, while airlines in more liberalized aviation markets are more likely to improve productivity by reducing flight delays. Efficiency change and technological change were the major driving factors for the growth of airline productivity. European and US airlines benefitted more from superior technology, while most Asian and Oceanian airlines still benefitted from the advantage of efficiency. Based on the findings, specific management advice was given.     

An investigation of fatigue issues on different flight operations

The influence of various kinds of flight operations on pilot fatigue remains a chronic problem which has a bearing on flight safety. In this study we sampled flight crews from six airlines in Taiwan, asking them to report on their perceptions of both physical and mental fatigue, before and after flight duty. The data were then analyzed with paired t-test and ANOVA. Our research results confirm findings obtained in other studies, namely, that perceived fatigue levels increase after flight duty, with that of oceanic crews being greater than that of crews serving either regional or short-haul operations. A majority of the pilots surveyed reported feeling fatigued or even nodding-off during long-distance flights, and consequently were in favor of a program of scheduled cockpit napping. While these findings are preliminary, they offer valuable information to aviation regulators and airlines regarding the assigning of consecutively scheduled flights to the same aircrews.     

An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study

This study analyzes (1) the need among air travelers for commission-based ancillary products and services from airline websites via dynamic packaging and (2) the willingness to purchase them. For this purpose, a survey is conducted with 2030 airline customers in Korea. This study aims to provide insights into Korean traveler preference to enable airlines serving Korean customers to formulate and implement successful business strategies that incorporate dynamic packaging into airline websites to expand ancillary revenues. The results confirm that Korean travelers demonstrate the need for and willingness to purchase commission-based ancillaries when purchasing tickets from airlines. On average, commission-based ancillary products are positively received by respondents. Airport transfers (e.g. rail and shuttle services), foreign currency exchange offers, and travel insurance are the most popular. Female travelers, travelers in their 20s, and frequent travelers (10 + times a year) report a significantly higher need for and willingness to purchase a set of commission-based ancillaries with flights from airline websites. Willingness to purchase third-party products from airlines is higher than in previous studies, and the preference rankings also differ. This study supports the viability of commission-based ancillary offerings from airline websites targeting Korean travelers. It shows the potential for airlines to successfully upsell and cross-sell via dynamic packaging strategies, one of the first steps toward becoming competitive travel retailers.     

Airline in-flight entertainment: the passengers’ perspective

Following relaxation of economic regulation in many aviation markets, the competition amongst airlines has intensified in recent years. This has resulted in improvements in airline products, especially in the in-flight services. One of the areas on which airlines have focused their attention is the provision of personal in-flight entertainment (IFE). In 1998, airlines spent $1.8 billion on IFE. However, the industry is faced with a number of questions in relation to such levels of investment: Are the investments justified? Does IFE influence passengers’ choice of airline? Does IFE have a revenue-generating potential? What does the future hold as far as the IFE services are concerned? This paper addresses these questions based on a passengers survey and literature review. The results indicate that while IFE is not amongst the primary factors affecting passengers’ choice, it contributes greatly to passengers’ satisfaction with airline services. While provision of IFE can currently act as a differentiating factor, in the future it will become part of passengers’ expectations. It has also become apparent that, while IFE has the potential to generate some revenue, it would not be enough to cover the total costs associated with the installation and running of IFE systems. The impact of IFE would be felt, indirectly, through increase in passenger loyalty which should have a positive impact on airline revenues.     

The strategic impact of airline group diversification: The cases of Emirates and Lufthansa

The airline industry is a diverse sector, requiring the support of a varied range of ancillary businesses such as maintenance, catering and travel agencies to carry out its activities. Many of these supporting businesses demonstrate the potential to drive wider profit margins despite generating lower revenues than the airlines themselves, making them attractive investment opportunities in a sector prone to volatile and often lacklustre trading. This study investigates two of the largest diversified airline groups, Germany's Lufthansa Group and Dubai's Emirates Group, each adopting a distinct approach towards diversification that may serve as a model for airline groups worldwide. The areas investigated were Cargo, Maintenance, Catering and Travel Services. The research found that whilst diversification may not always present the most attractive option financially, strategic factors can often outweigh such concerns. Business units studied were found to have variable prospects; particularly in the case of Catering, a sector on the rise – versus in-house Maintenance, which for airlines, is likely to see decline. The pursuit of third party revenue streams to offset weak internal trading and growth in competencies were found to be the key drivers of success. Interplay between segments was also apparent, showing that a well-organised diversification strategy can achieve robust cross-functional benefits and deliver significant value to the parent organisation.     

An examination of the revenue generating capability of co-branded cards associated with Frequent Flyer Programmes

The Frequent Flyer Program (FFP) is fast changing the scope of ancillary revenues. The sale of miles to third-party partners has epitomised the revenue generating capability of FFPs, which has yielded co-branded credit cards as a prominent instrument in substantially boosting earning streams. This study triangulates the tripartite composition of airlines, banks and payment networks that formulate the sale of miles and the resulting value that accrues. A survey was conducted at a prominent commercial conference devoted to the subject area, along with secondary data to ascertain the financial impact of today's FFPs and to investigate the underpinning factors as to how they are producing such stellar incremental revenue streams. The findings indicate that there are a low number of active FFP members, while one-third of new members signup for a co-branded credit card. The hierarchical tier structure supporting the compositional framework of FFPs has a significant impact on membership levels and loyalty engagement. A large proportion of ancillaries now evolve from airline co-branded credit cards which have significantly contributed in propping up the overall value of FFPs. Banks are distributing record numbers of airline co-branded credit cards where the top tier segment spend heavily, while a substantial proportion of such rewards cards now propagate through the payment networks. The symbiotic commercial partnership that is being forged between airlines and banks is prodigious and the industry has engineered a tool that harnesses noticeable returns which can significantly assist in sustaining the financial future in an ever changing landscape.     

Cost and revenue synergies in airline mergers – Examining geographical differences

Deregulation, privatization and shifting demand patterns in the airline industry, combined with the emergence of low-cost airlines and rising fuel prices have increased the competitive pressure on legacy airlines. Since alliances do not deliver sufficient benefits to counterbalance these trends, many airlines have engaged in mergers to seek for additional cost and revenue synergies. An extent body of literature investigates the synergy potential in mergers and alliances, but there is no study on how synergies differ among mergers and what potential influence factors cause these differences. This paper aims at explaining differences in synergy estimates and realized synergies in recent airline mergers and places a special focus on geographical influence factors.The research methodology uses a comparative case study comprising six large airline mergers between 2003 and 2012 from Europe, North America and Latin America. After analyzing the cases individually, the pre-merger situation of the merging airlines, the synergy estimates and the realized synergies of the cases were compared.The results show considerable geographical differences in pre-merger cost structures, synergy estimates, and synergy realization. The European mergers present lower synergy estimates but also lower integration costs than mergers in the Americas. Whereas European airlines estimate cost synergies higher than revenue synergies, both North and Latin American airlines expect more revenue synergies than cost synergies from airline mergers. Only one merger showed superior post-merger profitability which indicates that the achieved synergies in the broad majority of the cases are insignificant.     

The effect of code-sharing alliances on airline profitability

Code sharing and global alliances both have been increasingly adopted by airlines worldwide in recent years. A growing number of airlines, therefore, are embedded in networks of multilateral “coopetitive” (i.e., cooperative, but competitive) relationships that influence their product offering, pricing strategies, operating efficiency, market power, and their overall successes. There has been considerable research analyzing the benefits for airlines from joining global alliances, including bilateral code-sharing partnerships. However, the joint effect of code-sharing and global alliances on airline performance has not been fully investigated. In this paper, we study how the use of code-sharing strategies and their structural embeddedness into global alliances may impact airline performance. Using a unique dataset compiled from Flight Global and Airline Business's Annual Airline Alliance Report, the paper empirically investigates the joint benefits of code-sharing partnerships and global alliances on airline profitability. The results based on a group of 81 airlines during the 2007–2012 period show that the profit margin of an airline is positively associated with the number of code-sharing partners it has. Furthermore, the profit margin gains from code-sharing are greater when an airline has a higher proportion of its code-sharing partners in the same global alliance; i.e., allied code-sharing partners. Finally, we find no significant evidence that the percent of comprehensive code sharing partnerships to total partnerships has an impact on profit margin.     

Management emphasis and performance in the airline industry: an exploratory multilevel analysis

Carrying through decisions in organisations is inherently micro-level, while the aggregated performance implication of decisions is a macro-level phenomena. This paper determines through exploratory factor analysis, factors associated with airline performance using a two-level bottom–up hierarchical approach. The determinant factors are used to test, through regression analysis, the relationship across lower and higher level factors and between the higher level factors and performance (distress versus non-distress). The results showed that airlines having higher relative score on productivity and brand image were less likely to be under financial distress, while airlines having higher relative emphasis on market power were more likely to be under financial distress.     

Third party ancillary revenues in the airline sector: An exploratory study

Some airlines, especially Low Cost Carriers (LCCs), have earned significant profits from revenues derived from ancillary revenues. However, to date few have been able to derive a meaningful portion of revenues from 3^rd party ancillaries. The key to increasing these revenues comes from an understanding of passenger willingness to pay for 3^rd party products/services, coupled with increasing customer awareness and consequently the all-important customer conversion. This study assesses the 3^rd party ancillary services that passengers are more willing to purchase, along with the potential offers that might increase their willingness to purchase specific 3^rd party services. A mixed methods approach was used consisting of a passenger survey and nine expert interviews. The main findings are that car hire, airport parking, and the sale of hotel rooms had the most significant associations with customer willingness to pay. It was also found that there was a significant association between specific offers and increased willingness to purchase. The 15% discount off a future flight, and to a lesser extent, hotel price guarantees were the most significant. Expert interviewees confirmed that the future sustainability of this revenue stream for airlines is centred on mobile digital devices, customer conversion, and exploiting potential market opportunities.     

Organizational learning,operating costs and airline consolidation policy in the Chinese airline industry

This study investigated and reviewed organizational learning in the Chinese airline industry, which is dominated by state-owned or state-controlled airlines. This empirical research focused on the extensive scale of airline mergers and acquisitions among 12 Chinese airlines for the period of 1996–2014. This research aims to make a contribution towards addressing the general lack of academic reflection on the impact of organizational learning on airline performance during and after the completion of mergers and acquisitions. The empirical findings of this paper suggested that there was, in general, organizational learning experienced by Chinese airlines from their prior operating experience in improving operating costs. However, airline mergers in 2001/02 increased airlines' average operating costs, as most state-owned airlines are notorious for poor cost management. Significantly, the performance improvement among Chinese airlines was found during the post-merger periods in this study, and the increase in Chinese airlines’ operating costs during the post-acquisition periods due to the limited integration of 2010 acquisition compared with the 2001/02 mergers.     

Commodity price pass-through in the US airline industry and the hidden perks of consolidation

How do changing jet fuel prices impact airline revenues? As expenses for jet fuel are one of the most relevant cost factors for airlines, their economic success largely depends on the ability to match changes on the cost side with an adaption on the revenue side. While previous studies primarily focused on the impact of fuel price changes to consumer prices, this paper empirically examines the ability of US airlines to pass-through lagged jet fuel prices to scaled operating revenues from an airline driven perspective. Our results suggest that the extent to which an exogenous increase in fuel prices can be passed on to revenues will deviate according to the competitive situation faced by an airline. Based on these findings our research should also be of interest for European policy makers who are discussing actions to exogenously increase jet fuel prices due to environmental reasons.     

Airline new route selection using compromise programming - The case of Taiwan-Europe

The decision to launch a new route has a huge effect on the outcomes of airlines in the market. In order to find potential destinations for airlines, this paper utilizes a compromise programming method for selecting direct flight routes. The selection framework comprises two objective functions, with one maximizing total revenue and the other minimizing total cost. A case studying Taiwan-European region destinations is interpreted in the analysis. The results indicate that four potential routes, including Madrid, Milan, Munich and Zurich should be added to the airlines’ service destinations. Therefore, this research suggested that the airport authority could apply incentives scheme to attract carriers to open new routes and add flight frequencies to strengthen its competitiveness.     

The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers

This paper examines the recent developments of China’s aviation polices focusing on airline consolidation, the opening up of the domestic aviation market, and the adoption of more liberal international aviation policy. It then goes onto assess the impacts of the above policies on the industry structure, the performance of major airlines, and the competitiveness of Chinese airlines in international markets. The study shows that the industry became more competitive following the opening up of the domestic aviation market. Although major airlines saw an increase in passenger volume and an improvement in load factors, the falling yield and rising costs make them difficult to grow profitably. Moreover, Chinese airlines largely failed to capitalise on building an international network and the majors were weak in international competition. Strategic use of aviation policy to build a strong and profitable airline industry is still a formidable task lying ahead for policymakers.     

Evolution of global airline strategic alliance and consolidation in the twenty-first century

Global airline strategic alliances have emerged since the late 1980s, and their number has slowly risen through the years. Will the number of such alliances continue to proliferate? Or will airlines consolidate with one another to form mega-carriers? In this paper, the likelihood of various airline consolidation and alliance development possibilities was examined based on a number of high-level trends and forces. The most probable near-term industry alliance and consolidation structure is described, accompanied with a probable path of evolution. These predictions have important implications for managers of strategic alliances, carriers who are currently in an alliance as well as carriers who are planning to join one.     

Modeling air travelers’ choice of flight departure and return dates on long holiday weekends

Air travel demand is typically high on long holidays. Understanding factors that influence the choice of air travelers with respect to their departure and return dates on long holidays can help airlines make effective decisions on pricing, ticket sales, and scheduling. We conduct a stated preference survey to examine the preferences of low-cost airline travelers on a particular holiday weekend. A temporally correlated logit model is developed to account for the temporal correlation of day-of-the-week alternatives. The results indicate that airfare is the key variable affecting air travel date choices. The utility of day alternatives decreases when more leave days are required before the holiday begins. Departure dates before the beginning of the holiday weekend and return dates after the end of the holiday are highly substitutable. The low-fare strategy comprising early departures and late returns can effectively increase the load factor of off-peak flights on long holiday weekends.     

A global model for estimating the block time of commercial passenger aircraft

This paper uses a two-stage statistical model to estimate the block time of commercial passenger aircraft. The model considers many of the factors contributing to airport congestion and provides a basis for future development of multivariate statistical models of the flight operation process. The model is tested using 2 million US domestic flights by six airlines in 2004. Model analysis provided insight regarding the relative impact of weather conditions and airport utilization on block time. In particular, population, arrival time, airport utilization, ice, and the interaction of poor weather conditions and traffic were found to be significant predictors of block time.     

A robust hybrid decision model for evaluation and selection of the strategic alliance partner in the airline industry

Owing to the cut throat competition and economic uncertainty in the market, airlines are focusing on strategic alliances for satisfying customer needs, especially in the current time which is dominated by global integration, demanding customer and fast changing technologies. This strategy is widely adopted by airlines. However, the selection of strategic alliance partner is a very decisive decision, and this selection process engrosses a number of complex processes which is result of compound reflection of associated various factors. In addition, the decision makers may be inconsistent in their views and preferences, arising due to imperfect information or intrinsic conflict between various departments. This paper presents a model based approach of an analytic hierarchy process (AHP) for evaluation of criteria and fuzzy technique for order performance by similarity to ideal solution (FTOPSIS) for the selection of strategic alliance partner. A case of Indian airline industry demonstrates the application of the proposed approach. Eventually, robustness of the model is demonstrated by sensitivity analysis.     

Eco-positioning of airlines: Perception versus actual performance

To date there has been little research in air transport into the eco-positioning of airlines, that is, their environmental image relative to other airlines and how actual environmental performance relates to this eco-positioning. This paper identifies the environmental perceptions that passengers hold of twelve airlines and relates these perceptions to airlines' actual environmental performance, using load factors, aircraft age and the atmosfair Airline index as proxies for environmental performance. Based on a survey of over 600 passengers at Liverpool John Lennon Airport, the research analyses air travellers' perception of airlines from an environmental perspective. The results show that while there are significant differences in people's environmental perception of airlines, the eco-positioning of the airlines is not correlated to their actual environmental performance. The results support previous research findings in other industries that in many cases actual performance is less important than communicating environmental messages to the public in creating a superior eco-positioning.