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.     

Flying Australia–Europe via China: A qualitative analysis of the factors affecting travelers' choice of Chinese carriers using online comments data

Recently, Chinese carriers entered the Australia–Europe route, a market currently served by several established airlines. The paper aims to explore and identify the contextual factors affecting the choice of China-based carriers for long-haul travel. The paper's innovation is in the way it uses the online comments made by readers of an aviation news article. In doing so, the paper highlights the advantages and limitations of such a data source and the full range of positive and negative perceptions about Chinese airlines as recorded by potential and actual travelers. This study highlights that in order to understand flight choice, it is worthwhile to consider the conventional itinerary choice factors in the context of the socio-cultural and historical influences. For researchers, the paper provides some evidence that air travelers apply compensatory decision rule in making airline choices. This supports the validity of the assumption of random-utility based choice models used in the study of air travel behavior.     

The emergence and effects of the ultra-low cost carrier (ULCC) business model in the U.S. airline industry

The effects of “low cost carriers” (LCCs) such as Southwest Airlines and JetBlue Airways on the competitive landscape of the U.S. airline industry have been thoroughly documented in the academic literature and the popular press. However, the more recent emergence of another distinct airline business model—the “ultra low cost carrier” (ULCC)—has received considerably less attention. By focusing on cost efficiencies and unbundled service offerings, the ULCCs have been able to undercut the fares of both traditional network and low-cost carriers in the markets they serve.In this paper, we conduct an analysis of ULCCs in the U.S. aviation industry and demonstrate how these carriers' business models, costs, and effects on air transportation markets differ from those of the traditional LCCs. We first describe the factors that have enabled ULCCs to achieve a cost advantage over traditional LCCs and network legacy carriers. Then, using econometric models, we examine the effects of ULCC and LCC presence, entry, and exit on base airfares in 3,004 U.S. air transportation markets from 2010 to 2015. We find that in 2015, ULCC presence in a market was associated with market base fares 21% lower than average, as compared to an 8% average reduction for LCC presence. We also find that while ULCC and LCC entry both result in a 14% average reduction in fares one year after entry, ULCCs are three times as likely to abandon a market within two years of entry than are the LCCs. The results suggest that the ULCCs represent a distinct business model from traditional LCCs and that as the ULCCs grow, they will continue to play a unique and increasingly important role in the U.S. airline industry.     

The effect of LCC market entry on dominant FSC's price into long haul sector: A case of Norwegian competition on British Airways' prices on selected transatlantic routes

The concept of long-haul low-cost operations has become somewhat appealing in the airline industry in recent years. In Europe, the rapid expansion of low-cost carrier Norwegian that entered the long-haul markets from several large metropolises (London, Paris, Barcelona, etc.) imposed a burden of challenges to full-service carriers (FSCs). However, Norwegian operates a large portion of its long-haul service from London Gatwick by offering flights mainly on high-density routes. Although Norwegian's capacity and market shares on these routes are still at a low level mainly due to the carrier's “puppy-dog” strategy, it seems that its effect on British Airways, the dominant carrier on these markets, cannot be ignored. The purpose of the research is to examine the extent to which the presence of Norwegian affects the prices charged by British Airways on three selected high-density transatlantic routes performed from London area. The model applies simultaneous equation systems to determine how the emergence of Norwegian affects the price and the passenger volume of British Airways, as a traditionally dominant carrier, at the city-pair markets. The findings are consistent with the well-established view held in the literature, that a LCC's presence at a specific market would generally affect the incumbents to reduce their prices. Indeed, British Airways announced the capacity expansion as a counter-strategy to mitigate the competitive pressure induced by Norwegian and its affordable service.     

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.     

Long-haul specialization patterns in European multihub airline networks – An exploratory analysis

Multihub airline networks are an important phenomenon in today's air transport market. An important question is to what extent different factors play a role in the specialization between hubs that are part of the same multihub network. This paper shows that total European market size to a certain long-haul destination and the ratio between the origin-destination market at the primary and the secondary hub are important variables for the role hubs play in the long-haul network of European multihub systems. Large long-haul markets are generally served from both the primary and secondary hub. Multihub carriers serve smaller long-haul markets uniquely from a single hub, depending on the relative advantage in the local origin-destination market. Looking at actual specialization patterns within European multihub networks, we distinguish between complementary multihub systems (such as Amsterdam–Paris CDG), overflow systems (such as Frankfurt–Munich) and regional systems (such as Paris CDG–Lyon).     

Rapid capacity expansions and failure: A trap for new airline entrants?

This paper investigates whether fast capacity expansions as a means to narrow cost differentials between a de novo airline entrant and established incumbents helps or hinders the survival of the entrant. Evidence from a longitudinal sample of new entrants in the European passenger airline industry showed that these firms exhibited higher failure risks after rapidly expanding capacity. Further, high product market overlap with an established incumbent reduced the probability of new entrants undertaking such expansions, in turn reducing the probability of failure.     

The impact of COVID-19 on airline passenger travel behavior: An exploratory analysis on the Chinese aviation market

China was the first airline market in the world to be hit hard by the COVID-19 pandemic. It has been gradually recovering as the pandemic is largely contained domestically. However, with the global pandemic spread and great uncertainty, there has been a remarkable change in airline passengers’ travel behavior. This paper collected air passenger-level data from TravelSky in the Chinese market. In addition to the analyses on aggregate passenger flow patterns, this paper explores changes in airline passenger travel behavior, such as ticket booking time, age distribution of passengers, refunds and ticket changes, and passenger arrival time at airports. This is one of the first studies to focus on micro-level changes in airline passenger travel behavior by using objective passenger-level data. The pandemic-induced psychological changes in air travelers are explored, providing useful managerial and policymaking implications for the normalization of the pandemic and the recovery of the airline market in the post-pandemic era.     

Impacts of videoconferencing on business travel: the Norwegian experience

This paper assesses the impact of videoconferencing on business air travel. Results suggest that videoconferencing has only a limited effect on business air travel, with substitution rates of 2.5–3.5%. Thus, within the Norwegian market, videoconferencing is not considered a serious threat to the airline industry. The enterprises considered in this survey indicate low sensitivity to the threat of terror and the instability that has followed September 11 in the US. In Norway, air travel recovered after 4–5 months. Videoconferencing is expected to grow but remain supplementary to personal contact.     

Market orientation and business performance: An empirical investigation in the airline industry

As the airline industry has become more competitive, carriers have looked to improve performance and competitiveness. During the last decade, market-oriented corporate strategy has emerged as a significant antecedent of organizational performance and is presumed to contribute to long-term success. This study investigates potential influences of market orientation on airline performance. Data were collected by mail survey, and MARKOR was used to specify the dimensions of a market-orientated organization. The results support the positive influence of market orientation on business performance.     

The long-haul low-cost carrier: A unique business model

While many industries reach a point of maturation, the airline industry is evolving to incorporate flexible strategies for business models that adapt to the changing economic environment. New business opportunities have emerged as a result of a variety of internal and external forces. This paper discusses opportunities for long-haul low-cost airlines by looking at the evolution of the model and defining three types of new business models.     

European airlines′ strategic responses to the COVID-19 pandemic (January-May, 2020)

This paper analyzes airline reactions to the COVID-19 crisis in the spring months of 2020 along the typical crisis response strategies of retrenchment, persevering, innovating, and exit. Based on the content analysis of 148 news items filtered from a daily aviation industry newsletter published during the unfolding of the crisis in Europe (from January 6 to June 2), the paper specifies and differentiates European airlines’ strategic responses, outlines key implications for the post-COVID-19 competitive landscape, and raises attention points for managers and policy makers.     

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.     

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.     

Air transport and tourism—Perspectives and challenges for destinations,airlines and governments

Air transport and tourism are interlinked. Tourism is a driving factor for and, in some cases, a stimulator of change in air transport; most notably the development of new business models such as charter airlines. On the other hand, air transport opened new destinations and tourism forms such as long-haul excursions. Here these interlinks are analyzed in a system model. For the strategic development of destinations, a clear airline policy and air access strategy seems to be necessary. For airlines an assessment and understanding of the business models of destinations is essential. By shaping the external regulative environment of air traffic, government may influence air traffic as well as tourism.     

Quantifying the impact of the COVID-19 pandemic on US airline stock prices

This paper uses data at the trading day frequency and the method of local projections to quantify the dynamic responses of U.S. airline stock prices to a COVID-19 shock. We show that airline stock prices decline immediately by 0.1 percentage point in response to a 1% COVID-19 shock. In addition, the effect of the shock persists beyond the day on which it occurs, with most airline stock prices falling by as much as 0.6 percentage points after fifteen days. This negative response of airline stock prices to a COVID-19 shock is not explained by a COVID-19-induced increase in airlines’ variable costs, but rather by a COVID-19-induced decrease in air travel, which, in turn decreases revenues, profitability, and stock prices of U.S. airlines.     

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.     

The relationship between air travel behaviour and the key life stages of having children and entering retirement

The airline industry sets fares in the knowledge that market segments behave differently in response to pricing changes. Traditional market segments, typically split into business and leisure travellers, can be developed further through the examination of the influence that life stage exerts upon air travel choices, particularly for leisure trips. Life stage can be defined as a specific, optional event. The two key life stages of having children and entering retirement are examined in this paper in relation to individual air travel behaviour, in order to determine the primary characteristics of the associated market segments. The paper is based on a series of household air travel surveys and focus groups. Findings show the distinct characteristics of family air travel, such as higher air fare sensitivity, as well as in-group variations due to factors such as the age of the child (or children). Retirement is also shown to impact upon air travel, affecting individuals in different ways. Some in retirement take advantage of greater time availability and fly more frequently; others will cut back, say due to health problems. Aviation industry implications, both in terms of surface access to airports and regional airport provision, are also presented.     

Observations of fundamental changes in the demand for aviation services

This paper addresses the seemingly inexorable decline in yield in the airline industry. The external shocks to the industry of the terrorist attacks of 9/11/2001, wars in Afghanistan and the Arabian Gulf and SARS all had downward impacts on the demand for air travel. However, these effects mask a more fundamental change in the demand for aviation services. The analysis uses published sources and a survey of 264 travellers to examine the fall in yields. The traffic mix of economy, business and first class passengers is shown to have changed over a 10 year period as proportionally more travellers choose to use economy class products. This combined with a fall in yield by a third in this cabin during the same period has lead to a significant fall in industrywide yields. Behavioural shifts in business travel and leisure demand are examined. Business travellers have switched from business class products as the difference between business class and leisure fares have increased significantly and as economy class and low-cost carrier products are increasingly viewed as acceptable for business traveller needs, particularly in short-haul markets. Leisure travel has increased as low-cost carriers have introduced low fares, generating new traffic and winning market share from scheduled and charter airline competitors alike.     

Mergers and acquisitions in the EU low cost carrier market. A Product and Organisation Architecture (POA) approach to identify potential merger partners

As the EU low cost airline sector matures, consolidation is expected. This paper details a three-stage methodology to examine LCCs mergers and acquisition activity. A series of depth interviews with aviation experts concludes that the motives for LCCs to enter mergers and acquisitions are largely similar to those of full service carriers. A key success factor for merging partners is to have similar business models and culture. An analysis of full service and low cost carrier mergers and acquisition activity events shows that the size ratio and degree of network overlap between merging airlines are also independent of airline type. Braxton and BCG analyses of EU LCCs show Ryanair and easyJet to be the only LCCs in the market with strong strategic positions across the markets they serve. Finally, an application of the Product and Organisation Architecture analytical approach was used to compare seven EU LCCs. easyJet and Vueling were found to have the most similar business models and were therefore considered the best strategic fit for a potential merger.