The Strategic Developments of Airline Business Models Past, Present, and the Future
12000 word Thesis required, topic of the thesis is ‘The Strategic Developments of Airline Business Models Past, Present, and the Future’ and we are focusing on whether a commercial flying subscription business model could be the future of flying.
I am adding the project proposal to give the writer a better understanding of the topic.
1.0 Title and Introduction
The title of my research project is ‘The Strategic Developments of Airline Business Models Past, Present and the Future’.
The aim of choosing the topic is to look at Airline business models that airlines have adopted in the past, what business models there are now, and for the future, to specifically investigate if there could be a future for a commercial subscription flying business model. Airline business models have evolved due to the increased competition in the airline business and the growing need to satisfy customers, based on this and also Chesbrough (2010) identifies that further models are required to be developed. Airline businesses need to understand the past and the present to have a solid vision for the future.
2.0 Literature Scope
The research will focus on strategic developments of airline business models of the past, the present and the future. Models have been invented in the past and the present as airlines seek to outdo each other in the most ever competitive era. There exists extensive literature in peer reviewed academic journals, books and relevant industry sources such as Centre for Aviation (CAPA) and FlightGlobal about the strategic business models that airlines have developed as discussed in the 2.0 subsections of this proposal. The study will look critically at the following research questions based on secondary data as it seeks to understand various events.
These research questions highlight the scope of this project:
1. What are the airline business models used in the past?
2. What are the airline business models in use today?
3. Are the current business models sustainable for the years ahead?
4. What type of airline business model may suit the future best?
5. What would be the biggest obstructions and challenges faced for implementation of subscription flying?
The objectives of this research project are:
1. To analyse past and present airline business models
2. To underline the importance of future air transportation business model needs for the aviation industry
The following is part of the literature that the research explored to help identify the past and the present airline business models namely legacy airlines, low-cost carriers, charter airlines, regional airlines and hybrid airlines. Ideally this would suggest the need for a subscription flying model for the future.
2.1 Legacy Airlines
Also known as full network service airlines (FNSA), legacy airlines focus on the provision of a large variety of services which include many passenger classes within the aircraft cabin as well as the connected flight’s possibility. Often, referred to as the traditional airlines because they trace their invention to the airline invention days. A majority of FNSA run the hub-and-spoke model in their operations, these airlines can also be referred to as the hub-and-spoke airlines (Eliot 2016).
National carriers can be used as a perfect illustration of how traditional airlines operate. Suitable examples include Australian Airlines, British Airways, Lufthansa, and Air France among others (Williams 2002). Whereas a good number of the European Union countries’ former national airline carriers are now entirely or partially privatised, a few states, particularly smaller ones, still have state-owned national carriers. Outside the European Union, the structure and number of ownerships differ from country to country. It is only in the United States of America where a significant number of traditional airlines operate under the private sector. In many Asian and African countries, there usually is one conventional state-owned airline (Barret 2004; Bernardo 2008).
However, airlines are shifting away from traditional airline business models to the latest business models as will be discussed in the following sections of this proposal.
2.2 Low-Cost Carrier Model
The Low-Cost carrier idea traces its origins from the United States, and began in the 1970’s by Southwest the American domestic carrier. As the name suggests, Low-Cost Carriers indeed are massive when it comes to bringing down costs to the minimum level possible, and giving passengers, the notion of the airlines being cheap for respective routes (Boeing 2016).
The low-cost models work on the assumption that price markets itself. Consequently, there is an emphasis on the advertisement campaigns because it is necessary for the passenger to know of the actual availability of the provided low fare flights (Doganis 2013). All low-cost carriers are required to work within the regulations that guide all airline operations, they cannot save from things such as fuel costs and maintenance. Therefore, they must constantly look for ways to keep costs down. The low-cost carriers usually save in the way of not giving to customers expected ticket benefits (Rafael et al. 2008). The following are some of the services that are not inclusive of the standard airfare, for which passengers pay extra money: In-flight meals, reserved seating, baggage (Neufville and Odoni 2003).
Haraldsdottir et al (1998) identifies that some passengers may find the low-cost airlines to be cheaper than the legacy airlines because some passengers may just forfeit additional services to bring down the cost of a flight.
2.3 Charter Model
Charter airline business model is also referred to as holiday airline business model. They are mainly specialised in holiday excursions when companies offer holiday trips across the world. Typically, the airlines do not allow buying of individual tickets. Instead, the airlines enter appropriate contractual agreements with a travel agency for transporting passengers to or from an agreed place across the year. The travel agency resumes the responsibility of making sure that the aircraft gets passengers to their full capacity. One aircraft can be chartered, in some instances, with multiple travel agencies in case a single tour operator has difficulties filling the aircraft (Eliot 2016).
2.4 Regional Model
As the name suggests, the regional airline business models specialise in transporting passengers to the more significant hubs from regional airports that are smaller in capacity and thereby increasing social mobility within the respective countries (Neufville 2013). There are several income sources for regional airlines. The first one is the tickets the airlines sell on shorter busier routes with frequent travelers. Contractual agreements with established organisations that seek to serve their staff with variable transport means between their homes and workplaces are also a good source of income for regional airlines. The airlines also enjoy government subsidies meant to help connect local areas to other parts of the world (ICAO 2005).
2.5 Hybrid Model
There are several hybrid airline business models. Hybrid airlines are those who have a blend of features of more than one model (Tretheway 2013). The airlines have the hybrid aspect so that they can enjoy the benefits of more than one airline.
The above literature review provides a background for identifying the customer need not yet addressed and therefore lays the foundation for the main research question: whether or not there is a future for a commercial subscription flying airline business model.
Figure 1 Research Onion; Source: Saunders et al. (2009)
In this section, the elements that will be explored are the research design and the process of my data collection. Easterby-Smith et al. (2008) suggests that the philosophy of positivism states “social world exists externally and that its properties should be measured through objective reflection or intuition”. It was also suggested that positivism is the most appropriate way to examine human and social behaviour. The research depends on the objectives of the study. Methods of data collection under positivism involve structured samples that are measurable and quantifiable. However, can also be qualitative (Saunders et al. 2009). Furthermore, this research is best suited to the deductive approach as it is based on a top down research approach, as there is a need for a causal explanation to the relationship between the passengers and the need for a subscription flying model in the future. The table below identifies a difference between inductive and deductive approaches.
According to the research onion the research method to be used in the research is mixed method as Saunders et al. (2009) suggests that the mixed research method is a combination of quantitative and qualitative collection techniques and analysis procedures. Furthermore, the data collected will be subjective as this would be information from the prospect passengers point of view which will include their feelings and perceptions. Additionally, a hypothesis will be formulated based on the conducted research.
I will be using the qualitative and quantitative approach towards collecting and interpreting the data. My research may involve a skype interview, this interview will be with an already existing private subscription flying airline, the interview questions asked will be for example; How well is the subscription model working? do you believe this model could operate effectively and profitably on a larger commercial scale? etc. Furthermore, a questionnaire with a set of questions related to commercial subscription flights, these questions will be based around what people’s feelings and thoughts are about the idea, would they pay a subscription for unlimited flights? does the person in question like travelling/flying? In the respondent’s opinion up to how much would they pay monthly for a subscription flight service? How often would they travel? etc. This questionnaire will have multiple choice questions and a few open-ended questions to be completed by a sample size of a minimum 100 participants.
There are several limitations to the methods being used, for example; The subscription model is extremely small scale currently with only one private airline operating. Hence, there is only one person I could interview depending on their agreement to be interviewed, availability and ethical clearance from the university. The sample size available to participate with the questionnaire is small, Furthermore, there is also the factor of time constraints.
The research project will use primary and mainly secondary sources. The most significant advantage when it comes to the use of secondary sources is the aspect of time. It takes a relatively short time to get data compared to primary data collection (Miles and Huberman 1994). The process will be simple because it is now easy to access a lot of information through search engines such as Google. Libraries have digitalised their collections to help researchers conduct searches that are more advanced with increased accessibility of resources. Unlike in the past when secondary data used to be confined to institutions and libraries and the public was denied access, the internet has changed this.
However, it is worthwhile noting that use of secondary sources comes with some demerits. The most profound demerit is the high likelihood of data inappropriateness. The kind of data that one collects right from the field is usually collected while having a specific objective for it. Whereas secondary sources of data may be generous regarding volumes of information they can avail, they do not guarantee appropriateness of the data. The reason for the failure of secondary data sources to guarantee relevance to my research is the fact that they may have been collected with a different research need in mind.
As well as the primary data collection from the interview and questionnaires. The secondary sources for data collection will use online books, peer reviewed journals, websites, reports, and statistics. Books usually are well-researched due to the long process they undergo before publication. The use of journals is also very strategic to the successful completion of the research. Journals are collections of articles which relate to a specific subject. The good thing about journals is that they usually have the latest information. Also, they cover topics that are very specific and hence it is easy to retrieve information. Like books, the quality of journals undergo scrutiny during the process of peer review.
At the discussion stage, data will be analysed. Analysis of data encompasses the packaging process of the collected information (Miles and Huberman 2008), organising it in an orderly way as well as restructuring its components to make easy and efficient the communication of findings. The research will identify the customer needs which the past and the current airline business models serve and the level of efficiency with which they are served to recognise an opportunity for a new airline business model. The research will evaluate the likelihood of commercial subscription flying airlines being of utility to customers in future. The study will consequently determine whether such an airline business model has a future or not primarily on how well it fits in the existing gap in the market.
List of References
Barret, S (2004) How do the demands for airport services differ between full-service carriers and low-cost carriers? In Journal of Air Transport Management, Vol 10, pp. 33-39
Bernardo, R. Carmona, B and Lodewijks, G (2008) A literature review of the passenger airline business models: Full-service carrier, low-cost carrier and charter airlines [online] available from <https://repository.tudelft.nl/islandora/object/uuid%3A17c23f58-554b-40a7-a014-7bdc33e7ce39> [24 March 2018]
Boeing (2016) Airline strategies and business models 2016 Airline Planning Workshop [online] available from <http://aci-na.org/sites/default/files/03-airline_strategies_and_bus_models.pdf> [21 March 2018]
Borgogna, A. Stroh, S. Hilz, A. Agarwalla, A and Ivan, J (2016) “Connecting with the customer: How airlines must adapt their distribution business model” [online] available from <https://www.strategyand.pwc.com/reports/connecting-with-the-customer.> [21 March 2018]
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Chesbrough, H (2010) Business Model Innovation: Opportunities and Barriers. Long Range Planning, Vol 43, pp. 354-363
De Neufville, R and Odoni, A (2003) Airport Systems: Planning, Design, and Management, McGraw-Hill, New York
Doganis, R (2013) Flying Off Course. Hoboken: Taylor and Francis
Easterby-Smith, M., Thorpe, R., Jackson, P., & Lowe, A (2008) Management research: SAGE Publications Limited
Eliot, G (2016) The mill on the Floss. New York: Open Road Integrated Media
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Haraldsdottir, A., Schwab, R., and Alcabin, M (1998) “Air Traffic Management Capacity-Driven Operational Concept Through 2015”, 2nd USA/Europe Air Traffic Management R&D Seminar
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sourcebook (2nd ed) Thousand Oaks: Sage
Saunders, Lewis, P., & Thornhill, A (2009) Research Methods for Business Students, 5/e: Pearson Education England
Tretheway, M (2004) Distortions of airline revenues: why the network airline business model is broken, in Journal of Air Transportation Management, Vol 10, pp. 3-14
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Williams, G (2002) Airline Competition: Deregulations Mixed Legacy, Ashgate, England, United Kingdom