AE232

Air Transportation
5th Course

Lect. Dr. Pınar GÜMÜŞ AKAR

AIRLINES
 Airlines
Airlines offer air travel 
allows people to move between two points.

• There are various options for traveller:

• A (origin) B (destination)

• A (origin) C B(destination)

• The link between Origin and Destination “OD” or “OD pair”.

Airlines
 Airline Business Models
• The core business of an airline 
carrying people and/or cargo over long distance

• In the beginning of commercial aviation 

air transport was considered as a strategic national task
• Therefore nearly all constituted airlines were owned and operated by
a nation (a government).
• We can say that these airlines are today's flag carriers.

• Today's main market segments in commercial air transport

• Full Service Network Carriers (FSNCs)
(National or Flag Carrier (FC))
• Charter Carrier (CC)
• Low Cost Carrier
Full Service Network Carriers (FSNCs)*
(National or Flag Carrier)
• Due to their operational setup they are also recognized as
network carrier.
• They operate complex global network systems with very different
flight legs in terms of capacity, length and frequency.

• FSCs  organize the intercontinental transportation of passenger

and cargo

• They use hub & spoke network.

• Central airports called hubs, where the long-haul flights start off,
characterize the network structure of a FSNCs.

Note: Nearly all flag carriers are FSNC. Therefore we can consider
these in this title.

* It is also referred to as Full-Service Carriers (FSCs) and Network Carriers (NCs) in

the sources.
Full Service Network Carriers (FSNCs)
(National or Flag Carrier)

Passenger composition in a typical Lufthansa long-haul flight

Full Service Network Carriers (FSNCs)
(National or Flag Carrier)
• Long haul flights  The key market for Flag Carrier (FC)

• The short-haul market  to feed these profitable long-haul

flights

• A typical network carrier fleet consists of short and long-haul

aircraft.
 FNCs Typical Characteristics
• Customer segment
• International and intercontinental passenger and cargo
• Concentration on time sensitive business travellers and
intercontinental flights

• Product and service

• Flights from main airports with good accessibility and airline
lounges
• Connecting flights at hubs
• Seat reservation
• At least two cabin classes, three on long-haul flights
• Highly differentiated on board services
Full Service Network Carriers (FSNCs)
(National or Flag Carrier)

• Production
• Use of main airports and hubs, therefore high airports fees and
risk of delays
• Highly differentiated fleet to cope for different flight legs
• Aircraft utilization of feeder flights limited by connectivity
requirements at hubs
• More and better paid crew to provide adequate service
• Ticket sales through computer reservation systems and own
website
• Utilization: varying (75 % (Feeder) − >90 % (long haul))
Airline Business Models
 Low Cost Carriers

• LCCs After in late 1970’s  Liberalisation

• liberalization of air transport is defined as the process of
gradually removing restrictions on destinations, capacity,
frequency and schedule adjustments which have been
established by air transport agreements and relevant regulations.

• After the liberalization of air traffic in the USA by the Airline

Deregulation Act in 1978 low cost airlines quickly expanded.

• In Europe liberalization of air transport began in 1987 and European

LCCs developed in the 1990s.
 Low Cost Carriers

Low cost carrier network development in Europe

 Low Cost Carriers

• LCCs  providing continental air transport passenger

services to selected destinations.

• They use the point to point network

• Short haul flights  The key market for LCCs

• FSCs  organize the intercontinental transportation of

passenger and cargo
• They use hub and spoke network
 Low Cost Carriers
Typical Characteristics
• Customer Segment
• Concentration on price sensitive travellers (best price strategy)

• Product and Service

• Only one cabin class at high seat density
• Catering and other services on board only against additional pay

• LCC’s  reducing the scope of product

 more efficient core product
 cost advantage

• LCC flights leg length  usually short – partly medium

 Low Cost Carriers
Typical Characteristics
• Production
• Use of smaller airports in the vicinity of metropolis for lower airport
fees and less delays
• Fast aircraft turnaround
• Used airport often less accessible, but provision of airport shuttle
from city center
• Standardized fleet with only very few aircraft types, often only 1
• No connecting traffic
• Minimum crew
• Distribution of tickets on own internet websites
• High utilization of aircraft >80 %
• Simple price structure
 Low Cost Carriers

Productivity of low cost carrier and flag carrier

Comparision of FSCs and LCCs business models
 Charter Carrier
• Charter Carriers  Airlines that delivering air transport
services for passengers and goods on occasion for a specific
demand.

• Non-scheduled traffic  In international air law

• These carriers do not provide a regular public scheduled
transport service.

• Charter operation is very common in holiday traffic

 Charter Carriers
Typical Characteristics
• Customer segment
• International and intercontinental passengers
• Concentration on holiday and leisure travellers
• Product and service
• Flights offered on a seasonal basis mainly
• Flights from airports with good accessibility and seasonal capacities
• Direct flights mainly
• Seating considerably more dense in comparison to scheduled flights
• Minimum or on request board services only
• Production
• Aircraft capacity blockwise sold to travel agencies
• Seats are guaranteed for whole or part of aircraft capacity
• Ticketing mainly done by travel agencies
• Utilization: Very High (load factor of 80–90 %)
 Strategic Alliances
• Due to the freedoms of the air it was not easy or possible in
the past for a national airline to operate in another country.

• One way to extend an airline own network and to enter

new markets is the creation of alliances.

• Strategic alliances are considered a form of competitive

strategy offering more destinations and frequencies.
• Membership of an alliance allows access to markets that are
difficult and costly to access.
• Codesharing
 Alliances

Star Alliance global network

 Alliances
• It is a common strategy of all alliances to cover all
globally interesting market segments by selecting
partners with appropriate networks.

• Such cooperation is also useful to manage slot limitations

at airports and provide access to destinations without
own flights.

• Also market presence of an individual airline is increasing

through the brand of the alliance.
 Alliances
• It is vital for the success of airline alliances that a
common culture of work is established. Because this
affects:
• Vision and strategy
• Quality and standards
• Market positioning and orientation
• Establishing a win-win-situation
• Through cooperation trust in place of dominance
• From passenger perspective alliances are valuable.
• a passenger can book a flight from A to B in one step although
several airlines are involved.
Airline alliances and market share
 Star Alliance
• Star Alliance Star Alliance is the world’s largest global airline
alliance.
• It was founded in 1997 by Air Canada, Lufthansa, Scandinavian
Airlines, Thai Airways and United Airlines.
• New members have since joined the alliance, and 28 member
carriers currently operate at over 1300 different airports
within 193 countries.

• Star Alliance categorises its frequent flyer customers into

silver, gold and (depending on the issuing airline) platinum or
honorary status tiers. This is in addition to the status level that
is held with an individual airline’s FFP.
 Oneworld
• The Oneworld alliance was founded in 1999 by American
Airlines, British Airways, Cathay Pacific, Canadian Airlines and
Qantas.
• It has 13 airlines and 30 affiliated partners who collectively
serve over 1100 destinations in 180 countries.
• Oneworld offers different tier benefits to its customers.
Oneworld member airlines work together to deliver a
superior, seamless travel experience consistently, with special
privileges and rewards for frequent flyers, including earning
and redeeming miles and points across the entire alliance
network. Some of the status benefits are intangible, unlike
direct discount schemes such as mileage points
 SkyTeam
• SkyTeam was formed in June 2000 by Aeroméxico, Air France,
Delta Air Lines and Korean Air and had their headquarters in
Amsterdam.

• As of 2019, SkyTeam has 19 member airlines.

• SkyTeam offers different status levels and benefits,

 Alliances and Cooperation
 Contractual arrangement: Two airlines can agree to cooperate by a simple contractual
agreement covering possible cooperation regarding labour, sales etc. This could be
anything from a ground handling contract to sharing lounges etc.
 Codeshare: This concept involves two airlines placing their own flight numbers on the
partner’s flights. This allows their customers to book the partner’s flights easily using
the inventory of the airline they are booking with, making the booking process easier
and granting the customers more options in terms of connectivity. This also allows
airlines to streamline their networks by offering codeshare flights, which otherwise
wouldn’t be profitable to run themselves. In return, the codeshare partner profits from
higher loads on their own flights.
 Global alliance: As mentioned above, alliances involve a group consisting of member
airlines that coordinate strategically on a bigger scale. Often this involves a variety of
measures such as strategic network planning with complementing hubs or cooperation
between frequent flyer programmes. The three global airline alliances are: Star
Alliance, oneworld and Skyteam.
 Equity stake: Taking an equity stake allows airlines to lower their capital and financing
costs by investing in shares of other airlines. This is widespread in the industry such as
Qatar Airways being a minority stakeholder in the International Airlines Group or Delta
investing in Virgin Atlantic. ,
 Joint venture: A joint venture involves multiple airlines closely cooperating on one or
multiple areas of the business. Often a joint venture is used in route planning, for
example, in the transatlantic business where several airlines form joint ventures to
fortify their market share.
 Merger: Airlines can cooperate by merging two entities, with the result being a group
with separate brands or a full merger. This allows the highest level of synergies in all
aspects of the business.