The Evolution Of The Airline Business Model - Austria

The Evolution Of The Airline Business Model

Technology and business solutions that give low-cost carriers the freedom to grow their businesses as they choose

Low-cost carriers (LCCs) have revolutionised the short-haul market, expanding the choice of air transport to consumers at the lowest cost. And they have done so by leveraging their cost efficiency and innovation to remain in a leading position, even in a disconcerting market. However, as the industry dynamics have changed, so have the business strategies of LCCs.

To compete for cost-conscious, short-haul passengers, many traditional full-service carriers created new products, restructured and streamlined their processes, slashed costs and aggressively priced many routes. As a result, LCCs were forced to change or enhance their business models as well.

While price remains a key competitive factor, it is no longer the sole driver of low-cost carrier business strategies. LCCs now focus on other areas, such as merchandising, multi-channel strategies and increasing partnerships. They also place more emphasis on:

? Maintaining low costs while compensating for rising costs of fuel and aircraft,

? Integrating new services into the current model and enhancing customer service,

? Crossing international borders and experimenting with long-haul segments,

? Expanding market opportunities such as increasing international reach and accessing the corporate segment by participating in a GDS.

With carriers veering from the fundamental low-cost strategy, it is no wonder that the low-cost business model has been difficult to define in recent years. The result of this shift is the emergence of the "hybrid" business model. This model combines the cost-saving methodologies of a pure lowcost airline with the service, flexibility and route structure of a full-service carrier.

Figure 1 demonstrates this phenomenon of evolving models based on three carriers.

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2008

Low-cost carrier

Network

Sub-regional network; short-haul, point-to-point

Fare Structure

Offers same fares to all customers, handful of fares

Partnerships

No codesharing or interlining

Sales and Distribution

Direct sales only via website

Operations

Operates single aircraft model; top

quartile in costs

f s t-

Business modelolng-ha

evolution

Full-service carrier

Mix of short- Inter-regional n

and long-haul

flights

nn

Inter-regional; connecting flights

Differences by channel

Uses private fares and restrictions

lim arin

Differs fares by

customer/channel;

F

has restrictions

inte

Uses limited codesharing

Facilitates interlining

Uses Relationships with third-party travel agencies/ aggregators corporations

Some use of codesharing and interlining

onship vel a cor

Distributes through GDS

Uses mix of narrow- and wide-body

models

Second quartile in cost performance

easyJet

JetBlue Southwest

Mix of aircraft models; mid-range cost performance

Figure 1 Characteristics of three hybrid business models from 2008 to 2010.

2010

Low-cost carrier

f sho lo h

Business model evolution

gio hts

Full-service carrier

Network

Sub-regional network; short-haul, point-to-point

Fare Structure

Offers same fares to all customers, handful of fares

Partnerships

No codesharing or interlining

Sales and Distribution

Direct sales only via website

Operations

Operates single aircraft model; top

quartile in costs

Mix of short- Inter-regional

and long-haul

flights

Inter-regional; st connecting flights

Differences by channel

Uses private

rfeasrterisctaUionondds

Differs fares by

Facil customer/channel; terli has restrictions

Uses limited codesharing

Facilitates interlining

Us thir ag

Uses Relationships with third-party travel agencies/ aggregators corporations

Some use of codesharing and interlining

nship vel a corp

Distributes through GDS

Uses mix of narrow- and wide-body

models

Second quartile in cost performance

easyJet

JetBlue Southwest

Mix of aircraft models; mid-range cost performance

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Invest In Technology

that helps your business grow and sets you free

The trend toward a hybrid business model impacts the requirements for IT systems and drives the need for a more sophisticated and flexible technology environment. There are many reasons successful hybrid airline executives invest in leading-edge technology with the right technology partner, such as:

? Moving to a new passenger service system (PSS) that supports the current model as well as enables future capability requirements,

? Requiring technology to evolve and support the airline's scale of business,

? Requiring a provider with deep industry experience and sophisticated delivery methodology that meets current and future demands,

? Looking for greater revenue-producing codeshare and interline partnership opportunities,

? Expanding ancillary revenue,

? Identifying marketing opportunities to gain more accurate insight into customers' behaviour patterns and needs.

Therefore, as a hybrid carrier, it is crucial to acquire technology that "sets you free" to focus on your changing business challenges.

With the right technology, hybrid carriers can propel their businesses forward, responding more quickly and effectively to changes than ever before.

Sabre Airline Solutions ? and Sabre Travel Network ? technology helps your business evolve to the next level. Sabre

Travel Network connects sellers with travelers through the world's largest travel marketplace. Our Sabre ? AirCommerce TM solution bundles, powered by the Sabre ? system, deliver flexibility to meet your airline's unique needs -- growing revenue, increasing reach and gaining valuable insight. In addition, by providing a portfolio of progressive solutions, Sabre Airline Solutions ensures that you are properly equipped to effectively and efficiently address future business issues as they arise.

No other company can provide technology with the same degree of flexibility to change and adapt as conditions demand. Based on service-oriented architecture, our Sabre ? ASx SM Airline Services Exchange gives you the flexibility to control, build and utilise your own in-house systems and/or thirdparty systems.

And for airlines seeking a cost-effective alternative to an installed on-site system, our Software as a Service offering provides predictable, simplified pricing and equips airlines with an economical way to access our comprehensive portfolio of IT solutions without the usual added IT infrastructure.

With our SaaS offering you can:

? Significantly reduce total cost of ownership,

? Simplify your IT operations by letting us provide the right applications, hosting and maintenance,

? Focus on what you do best, namely managing passengers and flights, because we handle the IT environment, freeing up time and money for you.

Today, more than 130 airlines benefit from more than 400 applications hosted by Sabre Airline Solutions.

The technological foundation of our solutions portfolio delivers flexibility backed by years of industry experience, helping you to meet future challenges head on.

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Building Powerful Profitability Strategies

with a complete marketing and planning solution

Low-cost carriers excel at streamlining operations and maintaining lower costs. However, to expand beyond the network and consequently increase the competitive landscape, a hybrid carrier needs to ensure that profit remains high. To do so, airline assets (network, fleet) and revenue management strategies need to be optimised.

Our marketing and planning solution offers numerous profitability-gaining benefits including:

Decreased revenue dilution and increased revenue The revenue management solutions you rely on must support the dynamic pricing environment of the hybrid

carrier. Revenue benefits are realised through the support of restriction-free, lowfare ticket strategies, advanced forecasting and optimisation methodologies, accurate seasonality mapping and business support for both market and route analysis.

Choice of processing modes You can run different processing modes based on the desired level of sophistication in inventory control, such as leg-and-segment-based serial nesting, O&D-based virtual nesting and O&D-based continuous nesting.

Improved competitor insight By considering competitor data -- from sources such as QL2, Infare or other third-party vendors -- during the analysis process, you can be confident of the revenue management decisions you make.

In addition, analysis of competitors' Web data can assist with pricing and revenue management, such as using current data from competitors' websites to determine whether making inventory modifications in response to their available fares is a sound business decision.

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