Different Types Of Airline Business Models And Strategies

Overview of Low Cost Airlines (LCA)

Airlines business is a blooming industry in recent time due to the global enhancement technology. Nowadays, people mainly concentrate on saving their times. As the airlines allow the people to travel a long distance in a very short time span, the popularity of this business has increased a lot in last few decades. Therefore due to the global economic recession, the along with all other industries, the aviation industries has also faced this difficulties. As a result, the airlines companies have to compromise their existing business models. Most of the airlines companies generally followed the low cost strategies for combating with these situations. The existing full service business model followers starts to shift to the low cost business model strategy due to the economic crisis which affected almost all the sectors worldwide. On the other hand, the aviation companies who are already using the low cost business model modified their business strategies to such extent that a hybrid business strategy is discovered and this new business model created a bridge between this traditional full service business and low cost business model of the aviation sector (Bieger and Agosti 2017). In this essay, the different type of airlines business models are highlighted. In addition to this the evaluation of this two types of model are also discussed. In the later part of this essay, the Long Haul operation with low cost carrier products is discussed in a brief manner.

It can be said without any doubt that, the low cost airlines (LCA) has created a revolution in the aviation industry and this models are offering an low cost air services to the customers worldwide.  The LCA business model is mainly based on the fundamentally different postulates which are related to the business model of traditional airlines. The LCA airlines are generally operating in the medium haul routes.   However, in recent years it is very difficult to identify the category of airlines due to the occurrence of various other mixed business models. The LCA models of airlines business model generally concentrates on reducing the costs of services in order to implement a price strategy in the market in which they are operating their business. For example, it can be said that, in the world there are many airlines, such as Southwest Airlines, Air Asia group, who are providing low cost airlines services to the world (Pels, Njegovan and Behrens 2017). 

Overview of Full Service Airlines

The full service airlines refers to those airlines services which are providing a lot of services such as inclusion of multiple classes within a single aircraft cabin, foods, beverages. The companies which are following this model generally has different type of aircrafts, providing services in domestic and international regions, a wide range of destinations are covered by them, large price ranges for the multiple services.  In most of the European countries, the national carriers are the representative of this business model and on the other hand the countries like US have multiple representatives of full services. For example Air France, British Airways , Australian Airlines are providing traditional full services (Taneja 2017).

The hybrid model of airlines refers to the new model of business that is the combination of the LCA and full service business model. In this new hybrid model, the fare structure is inspired by the LCA model and simultaneously it also follows the wide range of destinations offering system of the full service model. In recent market, this new model is mostly followed by the aviation industries and thus it is accepted by the medium class travelers and also by the business class travelers. Air Berlin is a common example of hybrid model airlines (Ghorabaee et al. 2017).

The main reason of the rapid change of the airlines business model is the prices strategy of LCA model greatly affects the full service model. The LCA model can give an almost same service in a very low cost and this feature of LCA make LCA more popular. Due to this, the full service airline services are also facing reduction in their business and these forces the full service airlines provider to change their business as it has become very difficult to continue providing services in reduced profit range. As a result, they also changed their business model and a new model of services has introduced in the airlines market that is the hybrid model. 

While evaluating the two business models such as Low cost airlines (LCA) and full service airlines a few segments can be emphasized for this evaluation process.

• Firstly, the services given by the LCA and full services airlines can be analyzed. While analyzing this section it is found that LCA provides a low cost services to the consumers and they offers same prizes for all the customers. A sub regional, short-haul, point to point service is provided by them. Along with this they are also providing online and offline booking services to the passengers. Therefore, no free services are not provided to the customers. The full service airlines provides inter regional connecting flights to the consumers and different fares are provided to different customers and channels. In contrast to the LCA model full service airlines, offers entertainment services such as video and audio services to their consumers (Van de Voorde 2015).
• In most of the cases it is observed that, the LCA model airlines are generally concentrating on the profitable routes and as a part of their cost reducing plan they are using kiosk based check in system. In order to reduce their costing, LCA model airlines only offers airline services in a low cost and there is no aggregation of costly services. On the other hand, the full service airlines built more hubs for giving services to the consumers by providing connecting airline services (Pels, Njegovan and Behrens 2017).
• The LCA airlines routes are evaluated in a uniform manner based on revenues for traffic on that particular route. In order to reduce the service costs, the LCA airlines generally operate through the secondary airports and it helps to reduce the total unit costs by many folds. The main reason of the success of the LCA model is the low cost service.  On the other hand the main reason of adapting the new model is the high service cost of the full service models. Therefore, in some countries like US, China, Mexico full service airlines are still the dominator in the airlines market.
• While comparing the cost structure of the two types of business model it can be easily observed that, the LCA model mainly reducing their costs by using the new generation model of point-to-point routes and this will allow the LCA airlines to reduce the turn-around time, utilization of fuel and also to enhance the utilization of the aircraft. On the other hand, the full service airlines focuses on inter connecting aircrafts and aggregating core services with additional services and this will enhance the total cost of their service (Pels, Njegovan and Behrens 2017). 

In recent time, the long haul operations with low cost carriers have become very popular. In recent times, almost 20 companies are offering LHLC in the world and this trend is increasing in the world day by day. Due to increase of the LHLC, the routes of LHLC have also increased from Europe by 2.5 times in between 2015 to 2017. The emergence of LHLC has become popular in the world airlines business. It is recommended that in order to compete in the international market of aviation the LHLC model is one of the best model. In recent times, almost 19 LHLC airlines are serving almost 3% of total LHLC market. It is very helpful as it is consuming 20% less fuel than the traditional one and providing almost 6% cost advantage to the companies (Little 2019).On the other hand almost 25% savings can be done from the reduced costs of the cabin crew. However, it will cause reduction in placements of those candidates as well. In addition to this, the point-to point network strategy will reduce the overall travel time of the passengers as well (Lawton 2017). Moreover, this will allow those LHLC airlines services to improve their services as they can reduce their cost of marketing due to the immense popularity. 

Conclusion

Hence it can be concluded that, due to the economic recessions in the world, the full service airlines and LCA airlines have to remodel their business strategy and as a result the hybrid model come into the play. Due to its mixed service, the hybrid model has become very popular and most of the companies are using this model nowadays. Moreover, the LHLC services also started in recent past to give more economical comfort to the middle class passengers. 

References

Bieger, T., & Agosti, S., 2017. Business models in the airline sector–evolution and perspectives. In Strategic management in the aviation industry (pp. 41-64). Routledge.

Eller, R. D. A. G., & Moreira, M.,  2014. The main cost-related factors in airlines management. Journal of Transport Literature, 8(1), 8-23.

Ghorabaee, M. K., Amiri, M., Zavadskas, E. K., Turskis, Z., & Antucheviciene, J., 2017. A new hybrid simulation-based assignment approach for evaluating airlines with multiple service quality criteria. Journal of Air Transport Management, 63, 45-60.

Lawton, T. C., 2017. Cleared for take-off: Structure and strategy in the low fare airline business. Routledge.

Little, D. A. , 2019. The ultimate battle in the sky – reinventing the long-haul travel experience. Viewpoint. Retrieved from : https://www.adlittle.com/sites/default/files/viewpoints/adl_aviation_-_reinventing_long_haul_flights.pdf [ Accessed on 14^th March, 2019]

Pels, E., Njegovan, N., & Behrens, C., 2017. Low-cost airlines and airport competition. In Low Cost Carriers (pp. 125-136). Routledge.

Pels, E., Njegovan, N., & Behrens, C., 2017. Low-cost airlines and airport competition. In Low Cost Carriers (pp. 125-136). Routledge.

Taneja, N. K., 2017. Simpli-Flying: optimizing the airline business model. Routledge.

Van de Voorde, E., 2015. The future of low cost airlines and aiports. Routledge.