Airline Management: Strategies, Business Models, and Pricing Management

This report provides an overview of the aviation industry, covering key concepts such as airline management, developments in commercial aviation, pricing, yield and revenue management, trends and their implications, key strategies for airline companies, airline business models, airline alliances, and more. It also includes the views of Warren Buffett and changes in the industry after 1989.

Running head: AIRLINE MANAGEMENT
Airline Management

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Executive Summary
The aviation management is different from managing the other businesses of the industry. It
required a high degree of knowledge and expertise to know all the strategies and concepts of
the airline management. This report summarized some main important elements of this
industry to provide a brief knowledge of aviation management. The main concepts that are
being discussed in this report are the development of the airline industry, competitive
strategies, alliances, business models and the pricing management used by the airline
companies.

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Table of Contents
Introduction................................................................................................................................3
Developments in the Commercial aviation................................................................................3
Pricing, Yield and Revenue Management..................................................................................4
Trends and their Implications.....................................................................................................5
Key Strategies for Airline Companies.......................................................................................5
Airlines Business Models...........................................................................................................6
Airline Alliances........................................................................................................................7
Views of Warren Buffett............................................................................................................8
Changes after 1989.....................................................................................................................8
Strategic Reasons.......................................................................................................................8
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
The aviation industry is a very particular system in which the passenger is transported
between two cities or nations at an agreeable price. In this system, there is neither any
product sold to the customer, not any inventory is created or stored. In airlines, a specific type
of management concepts, tools, and practices are used.
In this industry, the market is analyzed for each flight and also the passenger’s preference is
given to be important. If the customer belongs to the business category which covers the
small number of seats on the whole plain but the ticket price is high, the rise in comfort will
be given to the passenger.
Airline and Airport Management is a study of Management branch that teaches the
management of airport and airlines. This gives a deep understanding of various operational
and commercial priorities which also impact the decision making at the airport.
Airlines and Aviation are a part of international supply chain network. According to a report,
the growth of the industry on an annual basis will be 5.6%. It is equally distributed between
developed and developing country (Burbidge, 2016).
When the area comes for budgeting and tracking airport expenses, Airports are subjected to
various state, country, and municipal requirements and Airlines also focus on the aspect of
financial management as the opportunity lies in its improvement. For the management of
airline, it is essential to maintain all aspects regarding the flight, passenger, and other details.
The managers of all airports have to follow varied responsibilities which cover everything
from operations to regulations so that stakeholders can be convinced. Generally, Airline
management is fully covered under automation and updated technology which eases the
manager’s tasks. Also, it can be seen that the development in aviation management is rising
over time with the changing concept of pricing, yield and revenue management.
In this report, two of the major strategies are being discussed which are cost leadership and
quality leadership strategy and it differs from country to country. For gaining the deep
knowledge, two business models are also discussed below in the report (Wittmer, et al.,
2012).

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Developments in the Commercial aviation
The growth of airlines is continuously rising in the past few years due to the demand for
passenger travel and this also increase the profitability in the industry. The new trends in the
commercial aviation are the rise of premium economy and many airlines not see as a
downgrade for business class but as an opportunity which helps them to achieve competitive
advantage. The features of premium economy seats are the support for laptop and
connectivity which help the passenger to work in fights.
Due to the presence of various airline in the market, the demand of the passenger is also
increases and so many passengers’ demands for more premium seats and this customization
need in the alteration of the hardware part of the plain like making available various USB
ports, or providing PED holder.
Robot helpers are now also becoming part of the aviation management who can communicate
in different languages according to the countries standing and can give right directions to the
foreign passengers. Some robots are categorized into the cleaning field who keeps the airport
safe. For example, Air Canada had invested into three robots to clean its aircraft and these
robots are developed by a Swedish Company (Wittmer & Douglas, 2013).
Another development in commercial aviation is taking place in the form of growth of low-
cost airlines. For example, Air France announced the launch of ‘youth airlines’ which offers
low-cost flights to the various cities like Berlin.
Pricing, Yield and Revenue Management
 Price Management - Price management plays an important role for any airlines as
most of the airline is currently working in the loss. The management needs to make a
balance between various aspects like ticket pricing, service offerings, and customer
perception and demand. The prices also change according to the seasons or holidays
and this is the part where the management needs to focus (Huang & Lu, 2015).
 Yield Management - This is the part where the management can save cost and earn a
huge variable of profit. It also attracts transfer passengers. There is also a need for
making and framing various strategies related to sales and price. In every period, the
management is pressurized in selling the maximum amount of seats under this
concept. It is also called a pricing strategy which influences consumer behavior in
order to earn the maximum amount of profits (Goals, 2012).

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 Revenue Management – Most of the organizations are now thinking of reframing
their management practices due to the increase in the percentage of customer
spending on airlines. Some of the areas from where these ancillary revenues come are
onboard food, selection of premium seats and checked baggage. It can be raised by
optimizing total revenue and also by adopting a bundled model which is based on the
integration of many approached (Ng, et al., 2008). The management also needs to
analyze customer profile which can help in maximizing the total revenue. If the
airlines focused on attribute-level customization and spread on various categories of
revenues so that to build smarter RM model, then they can create a various potential
infinite number of price points.
Trends and their Implications
From past several years, various trends can be seen which force the airline industry to
reassess their competitive position and to adopt digitization. Various emerging factors like
customer needs and competition affect the management in the Airline Industry. Some of the
few trends are –
 Changing the system in revenue generation by focusing on several aspects.
 Social building for attracting new customers and creating brand equity.
 Low-cost airlines.
 Focusing on Digitization.
 Competitiveness positioning by increasing the number of flights with low fares.
 Giving premium feelings to the economic class passenger.
As the airline industry is evolving by leveraging with new and updated technologies like
AI for the seamless travel and the above-mentioned trends in airlines emphasis on
attracting more customer new customers while retaining the old customer. There is also
an improvement in the customer service from the past few decades.
Key Strategies for Airline Companies
In a business, everything starts with the effective strategic planning which is also a
continuous process of management. In the aviation industry, the management has to make
several strategies by taking our various aspects into the accounts like customer demand and
profitability, market competitiveness, and latest technology operating in the market. It is a
disciplinary approach for the industry or company which can make conquer in both sky and

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global reach. A company also have to hire various marketing professionals or experts for the
framing of these plans as sometimes they are irreversible.
Major two strategy used by the Aviation Industry is –
Cost leadership strategy – This strategy wants standardization, low prices with convenient
travel. For gaining this strategy, one needs to find a cost-efficient way of operations
surrounded by innovation and creativity. By cutting of various un-needful services like free
meals, entertainment in flights and lounges, the company can make save high cost which they
can transfer to the customer side by lowering fares. Generally, the low-cost airline does not
maintain high-end relationships with customers but due to the market competitiveness, now
they are balancing both sides (Josiah & Nyagara, 2015).
 Niche Carrier strategy (Focus Strategy) – This strategy is based on serving the
needs of a limited market segment or customer group for the confinement of cost
advantage. This helps the airlines to gain a competitive position in the market by
better serving the requirements of the selected segment. Niche carrier should also try
to dominate the local marker so that to earn a sustainable profit. This strategy is
different from the generic strategy like cost leadership and quality leadership. Most of
the airline who are providing niche services are focused on the business traveler as
this segment gives them the highest profitability and the airline also serve the high
product expectation of this segment (Toften & Hammervoll, 2012).
Airlines Business Models
The common business model is a framework which shows the whole path of the airline in
earning a money. In general, there is 5 basic model of airlines which are used by the majority
of airlines around the globe.
 Low-cost airlines
 Regional Airlines
 Cargo Airlines
 Charter Airlines
 Legacy Airlines
The idea of low-cost airlines was evolved in the United States but it was also started rapidly
in Europe. These carriers focused on reducing huge cost and make people believe that they
are getting the lowest fare airline. This model is price sensitive and compliances within the

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airline's regulations. These carriers do not give any service to the user or charge them for any
extra service like In-flight meals, baggage facility and reserve seats (Cook & Goodwin,
2008).
Regional Airline model focus on transporting the people from smaller, regional airports to
larger hubs or within the nations. Generally, this is preferred by the frequent travelers and
employees of larger organizations. This airline also gets various subsidies from the
government so that they can always be economically viable. The operating cost is also very
less in these airlines and this was transferred to the customer benefit by making low fares
trips.
Cargo airlines business model are based on transporting goods over the globe by big shipping
companies. These airlines generally work at night and also there is no costs are linked to the
transport of passenger or people. The whole model works on the contractual basis with
efficient reliability (Acar & Karabulak, 2015).
Next model is represented by the chartered airline which offers by several organizations
offering holiday tours, all over the world. They have a contractual agreement with various
travel agencies and the responsibility is also transferred to these travel agencies to fill the
plane with passengers. This type of business model is highly dependable on various travel
characteristics.
The next business model is followed by legacy airlines which have an advantage of retaining
other aviation services such as managing companies at their hub airports, repairing facilities,
and the catering companies.
So, these business model describes that how big is the airline industry and how an
organization can make huge revenues in this industry but the only issue with the industry is
the cost of entry and exit barrier (Martín & Dorta, 2009).
Airline Alliances
An airline alliance is an arrangement between two or more airline companies who agree to
cooperate with each other on a substantial level. Alliances help the organization by providing
marketing and branding facilities to the airlines. It also facilitates the member organizations
to share the code, and arrangements of blocked space agreements to maintain the profitability
of each member organization.
Features

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 It provides an opportunity for the national airlines to go global with the help of
alliance members.
 It increases the burden of managing the business on the management of an airline.
Advantages
 It increases the revenue of the airline on the basis of per seat/mile
 The frequent flyers of the other networks can be attracted towards the member
alliances.
 The airlines are able to use to resources of each other in order to provide high-quality
service to the customers
 Cost saving due to the joining hands of member airlines and using the facilities of
each other (Commission, 2016).
Views of Warren Buffett
Warren Buffett had a view about this industry and said that this is a death trap for the new
investors and new entrants. But on the basis of the findings and understandings of the
concepts, it is clear that his view has not proved right as this industry is providing
profitability to the existing as well as the new entrants also.
Changes after 1989
The aviation industry has adopted many changes after 1989. The major change incudes the
introduction of alliances, making strategies based on customer satisfaction instead of profit
maximization, providing high quality services at low rates, increase number of customers and
customer awareness about the airline services etc. These all changes enforces the investors to
invest in this industry.
Strategic Reasons
Strategic reasons are those factors which helps a company or organization to frame its
strategies. The main strategic reasons of the airlines are provide better customer experience,
maintain current financial position in the changing scenario of the business, to work as per
the international and national regulations and implications etc. These reasons covers the
aspect of direct financial return but has the main focus on the sustainability of business in
long run.

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Conclusion
On the basis of the above study, it can be concluded that the aviation industry is continuously
developing with the help of new technological advances. However, it has been changed a lot
in past three to four decades but still, it is growing faster in comparison to any other industry
in the present scenario. It has become a need for the economic growth at the international
level. The opinion of Warren Buffet has also proved wrong which can be seen by analyzing
the drastic changes in this industry in recent years. The study also concluded that in the
present scenario most of the airlines are using cost leadership strategies with the help of
alliances. Alliances are the newly emerging concept of the market that is proving beneficial
to the firms and hence it is becoming famous also. The report also summarizes some key
features and advantages of this concept. Along with this, some new emerging trends of the
aviation industry and their implications have been discussed to show that this industry is
progressing towards a better and profitable future. The entire report is being prepared on the
basis of authorized sources of information so that a true and fair view of the industry can be
explained in an effective manner.

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References
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Low Cost Carriers in Turkish Airline Market. Procedia - Social and Behavioral Sciences,
Volume 207, pp. 642-651.
Burbidge, R., 2016. Aviation climate resilience: clarifying the impacts and identifying the
barriers. International Journal of Aviation Management, 3(2/3), pp. 88-104.
Commission, E., 2016. Annual Analyses of the EU Air Transport Market 2016. [Online]
Available at:
https://ec.europa.eu/transport/sites/transport/files/2016_eu_air_transport_industry_analyses_r
eport.pdf
[Accessed 4 August 2018].
Cook, G. N. & Goodwin, J., 2008. Airline Networks: A Comparison of Hub-and Spoke and
Point-to-Point Systems. Journal of Aviation/ Aerospce Education and Research, 17(2), pp.
51-60.
Goals, L., 2012. Yield Management. [Online]
Available at: https://www.economist.com/babbage/2012/02/28/lofty-goals
[Accessed 4 August 2018].
Huang, K. & Lu, H., 2015. A Linear Programming-based Method for the Network Revenue
Management Problem of Air Cargo. Transportation Research Procedia, Volume 7, pp. 459-
473.
Josiah, N. M. & Nyagara, N. I., 2015. Assessment of the effect of Cost Leadership Strategy
on the performance of Liquefied Petroleum Gas Companies in Eldoret town, Uasin Gishu
County, Kenya. International Journal of Business and Management Invention, 4(4), pp. 1-17.
Martín, J. C. & Dorta, A. V., 2009. A note on how to measure hubbing practices in airline
networks. Transportation Research Part E, Volume 45, pp. 250-254.
Ng, I. C. L., Maull, R. & Godsiff, P., 2008. An integrated approach towards revenue
management. Journal of Revenue and Pricing Management, 7(2), pp. 1-18.
Toften, K. & Hammervoll, T., 2012. Niche marketing research: status and challenges.
Marketing Intelligence & Planning, 31(3), pp. 272-285.

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Wittmer, A., Boksberger, P. & Gerber, A., 2012. The future of ancillary service fees in air
travel – an exploratory investigation of budget air travelers. International Journal of Aviation
Management, 1(4), pp. 231-241.
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