This virtual simulation program was developed to help airline management teams understand competitive market dynamics and improve problem solving and decision-making skills. Find out more at: http://www.iata.org/airline-business-simulation

1. Airline Business Models and
Competitive Strategies – virtual
simulation course
Preview lesson: Scheduled airlines vs. low cost,
low fare airlines
Created in
partnership
with IATA Copyright © 2012

2. Lesson overview
 Airline competitive advantage
 Comparing airline business models
 Low cost, low fare airline market growth
 Why bundle services?
 What’s next?
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

3. Airline competitive advantage
STRATEGIC ADVANTAGE
Perceived Low cost
uniqueness position
Industry-wide
Differentiation Overall cost
STRATEGIC leadership
TARGET
Particular Focus
segment only
Source: Porter
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

4. Airline competitive advantage
Exercise: put these airlines into the correct category
STRATEGIC ADVANTAGE
Perceived Low cost
uniqueness position
Industry-wide
STRATEGIC
TARGET
Particular
segment only
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

5. Airline competitive advantage
STRATEGIC ADVANTAGE
Perceived Low cost
uniqueness position
Industry-wide
STRATEGIC
TARGET
Particular
segment only
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

6. Airline business models: products
Scheduled airline Low cost-low fare
model airline model
Multiple, differentiated Short average flight
products (to mitigate risk) lengths, high frequency
Wide route networks Bundled/unbundled
Enhanced airport facilities services
Alliances, mergers and Congested hub airports
takeovers avoided
Low fares, fewer traditional
passenger services
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

7. HIGH
Pattern of Alliance
Cooperation Merger-like integration
Revenue, cost and
benefit sharing joint
Expanded cooperation to
venture
develop joint network
Direct coordination (incl. prices,
Limited cooperation routes, scheduling, facilities)
on specific routes Code sharing
FFP and Lounge Access
Interlining
LOW Source: Airline industry presentation, DOT
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

8. Bundling services
Balancing service level with customer demand
PASSENGER TYPE
Business In-between Leisure
Traditional:
Travel Agencies,
CHANNEL
corporate, IB Bundle
Unbundle
New: Website,
portal
High Medium Low
SERVICE / CHOICE Source: Clickair
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

9. Airline business models: finance
Scheduled airline Low cost-low fare
model airline model
High production costs Low overhead costs
High competition (outsourcing)
Low yield effect Low yield, high volume
concept
Revenue management
techniques employed Lean business processes
in the product set-up
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

10. Airline business models: marketing
Scheduled airline Low cost-low fare
model airline model
Brand building “Outsourced” marketing
Frequent flyer programs through airports
Traditional channels Internet based
CRM
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

11. Airline business models: distribution
Scheduled airline Low cost-low fare
model airline model
Chartered seats are Low distribution costs
usually returned to the Ticketless travel
operator
Can bypass GDS through
Global distribution internet distribution
systems are widely used
(Amadeus, Sabre, etc.) Higher yield pax focus
through interline
agreements and GDS
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

12. Low cost, low fare model growth
 LCLF airlines continue to gain market share
 Fares and cost structures throughout the industry
are under pressure to compete
 European LCLF networks are expanding (more
regional airports)
 Many new LCLF airlines are entering the market
IATA Copyright © 2012 12 Airline Business Models and Competitive Strategies

13. Projected airline traffic growth
PASSENGER TRAFFIC IN EUROPE
AND NORTH AMERICA
(IN MILLION PAX)
Sources: AEA,
Ryanair, easyJet
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

14. What next?
 The low cost, low fare business model has shaken
the airline industry
 Some LCLF carriers are now targeting a new
market segment, high-yield business passengers
What can scheduled airlines do to renew
their competitive advantage?
Are the scheduled and LCLF business models as
differentiated as they seem?
IATA Copyright © 2012 Airline Business Models and Competitive Strategies

15. Find out more about this course at:
www.iata.org/airline-business-simulation
For other Airline Management courses, visit:
www.iata.org/training-airline-management
IATA Copyright © 2012
15 Airline Business Models and Competitive Strategies