Airline Business

Strategy

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In today’s highly competitive environment, the marketplace is continuously changing. The landscape of the airline industry can no longer be defined by the differences between Full Service/Regional and Low-Cost Carriers. Evolving airline business models as well as product offerings are bringing more value to travellers in a range of ways. A wider array of service offerings better match airlines’ products with customer values.

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The “adapt or die” motto has never been more relevant than it is today. Resilient strategies and a more nuanced competitive positioning will be increasingly important. Already, some airlines are leaving no stone unturned in trying to find new sources of revenue and cost savings.

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Nearly every major airline has undertaken structural reforms in order to adapt to the new landscape, resulting in the convergence of business models. Multiple brands and business models have demonstrated themselves as an actual alternative to serve all passenger profiles.

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Until not so many years ago, it was almost unthinkable for FSCs to be charging for on-board meals and drinks, checked luggage, seat selection, and so on. FSC’s basic economy fare, which strips out amenities like checked baggage and advance seat assignments, is now a competitive tool against discounters.

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LCCs meanwhile were true to their “no frills” mantra, with few ancillary products offered that could enhance one’s journey. Alas, what is possible is continuously being redefined.

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EVOLVING BUSINESS MODELS

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Like LCCs, some FSCs now have a lower-cost division operating for the mainline and another more supranational dedicated LCC division. Like a traditional Full-Service Carrier, the long-haul LCC sector is no longer experimental and is becoming more mainstream. One of the last real barriers between FSCs and LCCs may be challenged in the near future: co-operation between the two, in the form of code-sharing, feeding each other’s networks, mutually improving each other’s connectivity. Some LCCs are also making use of non-traditional strategies, such as multi-fleet type, loyalty programs and sales through global distribution systems to premium customers.

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In this context, aircraft with up to 150 seats will form an ever more integral part of the global air transport ecosystem, bridging a gap in the market between the higher end of regional aircraft and the lower end of mainline narrowbody aircraft.

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These aircraft are optimized to deliver profitability per seat through right-pricing and competitive cost structure, tapping the acute equipment gap created by the unavailability of efficient aircraft in the segment for several years. Its versatility will be put to full use worldwide, feeding complex bank structures or pioneering new markets in point-to-point operation where a narrowbody aircraft could only be deployed on a low-frequency basis — if at all. As secondary and tertiary cities are poised to lead the demand for new air travel, the segment is ready to embrace this growth momentum.

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While cost remains a key competitive factor, it is no longer the sole driver to sustain a solid financial performance. Profit and returns are better measures of success. It’s not only revenue management strategies that need to be improved, airline assets (fleet, network) will also need to be optimized in order to get the most out of yields and generate higher returns.

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