AERO 1024 Week 2 SP2 2024.pdf

AERO 1024 Week 2: Airline Management and Organisation Core Services and 'Products' Provided by Airlines Core business functions of Airlines Principle of Organisation Planning What is an Airline? An organization providing a regular public service of air transport Airline service...

AERO 1024 Week 2: Airline Management and Organisation Core Services and 'Products' Provided by Airlines Core business functions of Airlines Principle of Organisation Planning What is an Airline? An organization providing a regular public service of air transport Airline service Commercial air passenger Freight (cargo) What differentiates airlines is the service package they provide? Cargo or passengers? Routes and Network Route is a flight leg Network is the route system of an airline Point-to-point vs. Hub-and-spoke Scheduled vs. Charter In-flight service First class, business class, economy class Provide food and beverages or not Generous Allowances or Strict Size and Weight Limits with Higher Excess Baggage Fees? To deliver their service package, airlines manage and organize their operations in specific business models. Cargo or passengers? Routes and Network Route is a flight leg Network is the route system of an airline Point-to-point vs. Hub-and-spoke Scheduled vs. Charter In-flight service First class, business class, economy class Provide food and beverages or not Generous Allowances or Strict Size and Weight Limits with Higher Excess Baggage Fees? Business Models In general, a business model outlines how a company is structured and operates, based on the intention to serve a specific target market. – Define the way of structuring and running a business – Generate a unique selling point to create an advantage over direct competitors A business model defines the long-term orientation of a company. (Think of a business model as the ‘DNA’ of a company.) Cannot be replaced by entirely different concepts without wasting earlier achievements. After this lecture, you will be able to Describe the different airline business models Identify airline business models and their business features. * Chapter 10: ‘Airline Passengers Marketing’ will discuss more about the reasons behind the existence of various airline business models in the market. Airline Business Models Passenger airlines (5 basic models) 1.Full-Service Carriers (FSC) 2.Low-Cost Carriers (LCC) 3.Regional Carriers (feeder) 4.Charter Carriers (holiday) 5.Business Carriers (e.g., flight department of a company) Cargo airlines Determinants of Passenger Airline Business Models Network Pattern Pricing/ Scheduling Costs In-flight Fleet service Strategy Marketing  Service package for Commercial air passengers Passengers Routes and Network (Where) Route is a flight leg Network is the route system of an airline Point-to-point vs. Hub-and-spoke Scheduled vs. Charter (When) In-flight service (What) First class, business class, economy class Provide food and beverages or not Generous Allowances or Strict Size and Weight Limits with Higher Excess Baggage Fees?  Service package for Commercial air passengers Passengers Routes and Network (Where) Network Pattern Route is a flight leg Network is the route system of an airline Point-to-point vs. Hub-and-spoke Scheduled vs. Charter (When) Scheduling In-flight service (What) First class, business class, economy class In-flight Provide food and beverages or not service Generous Allowances or Strict Size and Weight Limits with Higher Excess Baggage Fees? The framework to identify airlines business models Service package Network Pattern Pricing/ Costs Fleet Passengers Strategy Scheduling (Target market) Marketing In-flight service Fleet Strategy Fleet strategy - decisions on the future fleet are taken One or several manufacturers? Single vs. multi-type fleets? Regional, short- or long-haul airplanes? Network requirements and fleet structure need to match (Operational level) Network Pattern Airports served: An airport means more than a name of destination for an airline. Hub (business center) – Full-service Smaller airports within an urban region – Low-cost Small regional airports - a certain distance from a large city - Regional Network strategies applied Network: an airline’s route system Hub-and-Spoke vs. Point-to-Point (Full-service) (Low-cost) Scheduling Defining the optimal service pattern to attract as many passengers to the traffic flow or local region as possible. Optimal service and connectivity Frequency How many services in a set time period an airline may provide Punctuality – (on time or not, an index of service level) Reflects reliability of an airline and the attractiveness for potential customers Turnaround time is critical Time required to unload an airplane after its arrival at the gate and to prepare it for departure again. In-flight service Class of Service: Includes different classes like First Class, Business Class, and Economy Class offer varying levels of comfort, space, and service. Food and Beverage: Airlines often provide different types of meals and drinks depending on the class of service and the duration of the flight. Basic allowance for Luggage: Covers a limited amount of luggage, with additional fees applied for any luggage exceeding these limits. Additional Amenities: Include in-flight entertainment, Wi-Fi access, power outlets, amenity kits, and other comfort-enhancing features. In-flight service Class of Service Multi-class concept vs. Single class Other In-flight services Mostly free of charge vs. Catering and in-flight sales at high prices Generous Allowances vs. Strict Size and Weight Limits with Higher Excess Baggage Fees No Frills Service No frills ultimately equals a ‘pay as you go’ or ‘user pays’ approach. In this approach, many traditional airline services like assigned seating, free meals, and first-class cabins are typically eliminated. http://crankyflier.com/2013/09/19/fun-with-economics-why- unbundling-is-a-good-thing/ Pricing and Costs Pricing A means of marketing and gaining market shares (Demand Ch.12.) Used to display quality difference and to capitalize on reputation and brand. Costs Do always reflect in ticket prices? Driven by the other elements (fuel coast and labour cost) E.g., network concept, fleet strategy, and staff cost Marketing Distribution channels Travel agencies, CRS, direct sales, internet, call centers… Advertisement style Product-feature oriented vs. focus on price and direct comparison * Computer Reservation System (CRS) Applying this framework to identify airlines business models Service package Network Pattern Pricing/ Costs Fleet Passengers Strategy Scheduling (Target market) Marketing In-flight service Full-Service Carriers Full-service carriers and network carriers are typically used as synonyms for the same business model and the same group of airlines. Airlines founded as part of national infrastructure development e.g., Qantas, Lufthansa, American Airlines, British Airways, Singapore Airlines These airlines focus on the same operational, strategic, and economic features: Operating a complex network Combining a large number of continental services with intercontinental routes Using a hub-and-spoke system Class differentiation Full range of services Southwest in the 1970s  Key Characteristics of Full Service Carriers Mostly primary congested airports (Hubs) In-flight services are mostly free of charge Hub & spoke network Moderate to high fare; high reliance on Multi-type premium fare revenue fleet (Short- to From moderate to high flight frequency long-range) High labour costs; full bandwidth of young Punctuality Highly dependent on and highly experienced efficiency and capacity utilization of hub airports ( delay often occur ) Multiple ticket sale channel (Travel agencies, CRS, direct sales, internet, call Multi-class concept centers) Product-feature oriented advertising Low-cost Carriers In 1971 Herb Kelleher decided on the route and cost structure of Southwest Airlines (within Texas) US deregulation in 1978* accelerated LCC developments across the country 1978 to 1997: 40% drop in average airfare prices 1978 to 1997: Air traffic doubled in the US Very popular in Europe and rest of the world since mid of 1990s LCCs are projected to have one-third of global market share by 2030 Low-cost carriers and low-fare carriers are not necessarily the same * The law removed government control over fares, routes, and market entry (of new airlines) in the commercial Southwest in the 1970s airline industry  Key Characteristics of LCCs Cheaper and less congested airports One aircraft Point-to-Point network Catering and in-flight sales at high prices type (typically A320 or 737); High flight frequency; quick low fare; very high for short-notice bookings Short- to aircraft turnaround times medium-range Lower labour costs; higher labour Punctuality is very high productivity; high working hours Single class (economy only); Direct ticket sales (Internet and call centers) High seat density (maximum possible) Focus on price and direct comparison Convergence of Business Models Today, ‘pure’ concepts are rarely observed Low-cost carriers have started to adopt principles of full-service carriers Offering services to larger airports Operating a diverse fleet Network carriers adopt low-cost elements Offering services to smaller airports Reducing free services Focusing direct sales channels Intensifying aircraft utilization Carrier-within-a-Carrier: Budget Offshoots Many legacy and flag carriers have started LCCs to complement and enhance their networks, while providing lower costs and the ability to compete with LCC rivals For example: British Airways founded Go in 1998, but sold it in 2001; it was then bought by easyJet in 2002, and fully merged into easyJet * Whyte, R., & Lohmann, G. (2015). The carrier-within-a-carrier strategy: An analysis of Jetstar. Journal of Air Transport Management, 42, 141-148. Jetstar Airways Qantas started Jetstar Airways in 2003 as a competitive response to Virgin Blue Airlines Having acquired Impulse Airlines in late 2001, it merged its 717’s into the new Jetstar in 2003 Ansett’s collapse in September 2001 opened opportunities in the short term for Qantas, but medium to longer-term Virgin was becoming an increasing competitive threat for Qantas Basic business objectives – achieving financial success for stakeholder and creating value Maintain daily operations: Keep their promises to customers regarding products and services. Create cash flow to make a profit. * Gross Profit = Total Revenue – The cost of goods sold (COGS) > 0 Forecasting Estimate the future demand for a product/service in the market, based on specific assumptions or expectations. Plan to fulfil/meet the anticipated demand 1 Setting unity of objectives/workload to each administration 2 How? Productivity and Key Performance Index (KPI) within a specific timeframe Highlight for Principles of Organization Balance between control and efficiency A carrier must achieve a proper balance between span of control and the number of levels of management. Staff and line department Could you identify the type of department using the line-and-staff concept? Be clear about their definitions, and the areas and administrations they include at the functional level. Summary Core Services and 'Products' Provided by Airlines Core business functions of Airlines Transfer the six determinants into a framework to identify business models. We can apply a business model to understand how an airline’s business be managed and organised. Questions or Comments? For next week Read textbook chapter 9: Forecasting Models before next lecture Quiz 1: Due Friday, March 8 - Please Review Lecture Slides Prior to Attempt Group Posting 1: Due on Friday, March 15 Lecture Next Week: March 12, Tuesday, 3:10 PM – 5:00 PM Tutorials Scheduled for Next Monday: Time to Be Confirmed with Students.