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Flights Debunked: What are the different operating models within the airline industry?

What are the long standing business strategies Andy

The airline business sector is a strongly competitive market which has changed dramatically over the last quarter of a century. The arrival of low-cost no-frills airlines challenged the traditional operating model of established airlines which in turn, brought huge changes within the industry, along with bringing benefits to the modern day business traveller.

European airlines are facing many challenges from political uncertainties such as Brexit, to high competition, higher input costs and a difficult environment for successful yield management. However, these challenges also now create opportunities for the industry to explore new avenues for survival.  

In recent years, some major airline brands have felt frustrated with the way their content is accessed via Global distribution systems (GDS), which is typically the main source of how Travel Management Companies (TMCs) access their content. Sales channels are evolving, as Airlines change their distribution models to provide their range of ancillary products directly to consumers, enabling them to sell a wider range of ancillary products such as pre-booked seats, adding luggage and catering requests. This ultimately provides the airlines with greater income streams whilst also creating a greater understanding of airlines travellers needs and buying habits.

Andrew Sison, Strategic Account Manager, looks at some of the long-standing operating models which come together to form the airline industry as a whole.

No-frills carriers

Travellers have always been sensitive to price, particularly for short flights. No-frills airlines offer very low prices by eradicating needless extras, like in-flight meals or business class seating. Given the high level of congestion at most airport hubs, low-cost airlines can also take the less expensive late-night and early morning slots to further drive down costs.  

Typical UK and Ireland airlines within this airline model would include; EasyJet, Flybe, Jet2, Norwegian Air and Ryanair who would look to compete with regional airlines based on where they operate. Ryanair (one of the leading no-frills carriers) recently announced their ancillary revenue, for extras such as assigned seating and checked baggage had risen during the last quarter, but the higher revenue was offset by increased fuel and staff costs,

Regional airlines

Regional carriers can contest through providing services in areas wherever there`s no adequate demand to entice service from major networks or no-frills airlines. These carriers tend to operate short sectors using low-capacity aeroplanes, transporting travellers to the hubs of main carriers or fly in the principal markets during times and days where demand does not warrant the use of the larger planes run by leading carriers. Typical UK regional airlines would include; Aurigny Air Services, BA CityFlyer, BMI Regional, Eastern Airways, Flybe, and Logan Air.

Mainline Subsidiary Carriers and Airline Brands

A mainline flight is operated by an airline's main operating unit, rather than by regional alliances, regional code-shares, regional subsidiaries, or wholly owned subsidiaries offering low-cost operations.

Network airlines and principal carriers shadow a more traditional strategy, providing flights with a moderately high level of amenities. Things that passengers value in an airline depends considerably on the duration of the flight, and mainline carriers can be perceived as a better proposition for long-haul flights. Network airlines who cut costs by reducing the number of in-flight amenities and service offerings become at the risk of offering an undifferentiated product in relation to their competitors. In addition, cost-cutting strategies applied by airlines can be achieved through improvements in the efficiencies of processes and logistics. For example, the US Airline industry has boasted overall improvements in operations following a stream of headlines last year highlighting customer service failures, improving in several key areas including the bumping of fewer passengers off flights and losing less baggage.

Airlines particularly sought to improve their public perception following an incident whereby an elderly man was dragged from his seat to make way for crew members on a US internal flight in 2017. Mainline subsidiary carriers and airlines within airline brands include carriers such as; Air Canada, Air France and KLM, Air New Zealand, American Airlines, Delta, Aer Lingus, British Airways, United Airlines and Singapore Airlines.

Charter Airlines

Charter Airlines distinguish themselves by using an integration strategy. Their low-cost flights are integrated into a chain connecting travel agencies, accommodation and ground transportation suppliers. While some contest direct links with low-cost carriers, most use their integration to create demand in areas where a seat-only service would not be competitive. Typical charter airlines would include Thomas Cook Airlines, TUIfly, Germania, and Avion Express.

The formerly mentioned business models of mainline carriers and low-cost carriers have converged in recent years in response to the competitive pressure between the two. Outside of airlines own strategies, the UK government in March 2018 published their proposed Clean Air Strategy which will aim to cut air pollution. Air pollution is one of the biggest threats to public health and the new Government strategy sets out how it aims to reduce human exposure to particulate matter pollution. The new strategy, which is now out for consultation, is a key part of their 25 Year Plan to leave our environment in a better state than we found it.

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About Andrew Sison

Andy is our Strategic Account Manager and works with a number of high profile businesses to manage their business travel more effectively. Andy’s track record is enviable and he works hard to deliver savings, add value, help companies consolidate their travel programmes and manage change.
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