Airline Strategy: Static vs. Dynamic

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• Airline strategies can be categorized as static or dynamic
• Static strategies aim to protect existing market positions, emphasizing brand and hub dominance
• Dynamic strategies focus on market development through learning and knowledge acquisition about customers

Network Structure

• An airline network consists of nodes (airports) and edges (air traffic connections)
• Key network characteristics include size, frequency, and connectivity
• Network management impacts service attributes like punctuality and geographical coverage
• Hub-and-spoke systems aim for high connectivity via a central hub
• This allows carriers to leverage economies of scale, scope, and density
• Hub-and-spoke relies on concentrating traffic through a central airport
• A single airline may dominate an airport, controlling a high number of slots
• Point-to-point networks rely on strong, stable individual markets, simplifying operations
• Opening or closing point-to-point routes does not significantly impact the overall network

Partnerships & Alliances

• Airline alliances are formed in response to limitations in M&A activities
• Alliances allow airlines to develop global networks within regulatory constraints
• The formation of airline alliances has increased with globalization
• They serve as a means to remain competitive and access a global market
• Major alliances include Star Alliance, Oneworld, and SkyTeam
• These alliances control a significant portion of worldwide scheduled air traffic

Pricing

• Pricing in aviation is strategic beyond revenue, steering demand due to product perishability
• Two main pricing concepts exist: short-term fine tuning, and service/booking categories
• Short-term adjustments are made based on the reservation curve
• Prices are set according to service and booking categories
• Most airlines operate a three-class system with service elements such as lounge, et c.
• Booking classes are differentiated by conditions like pre booking time, and minimum stay

Distribution Channels

• Distribution channels are important for airlines, serving as a potential market entry barrier
• Indirect offline sales such as programs, and online sales are major channels
• Separate sales channels can target different customer groups
• Certain tariff categories are booked via travel agencies
• Special channels distribute discounts to avoid cannibalization of the main market.

Resources

• Competitive advantages can be achieved through a combination of static and dynamic
• Brand protection and hub dominance are static, while tactics such as customer loyalty enhance demand
• Brands serve to identify and position homogeneous service products
• Trust and orientation reduce customer perceived risk
• Brand image development usually takes years to decades

Service Level

• Airline comprises of ground service such as lounge access, and in-flight amenities
• Services allow for skimming a price premium and for service differentiation from competition

Customer Relationship Management

• Focuses on retaining existing customers due to high acquisition costs
• Reward systems like Frequent Flyer Programs (FFP) enable value exchange

Hub Dominance

• A hub must have a minimal size to attract passengers and increase market share
• Flight frequency attracts business travelers, creating a better network
• The dominant airline offers the best connections, attracting other airlines to the hub