TSM10106 Airline Marketing & Management

Lecture3 : Airline Competitive Strategies

Edinburgh Napier University

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Aims of this lecture:

• Identify types of airline strategy

• Examine Porter’s model of Strategic advantage

• Look at what each type of strategy involves

• Look at potential ‘Legacy Airline’ strategies

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Building Strategy (Shaw, 2007, p76)

No airline can hope to be successful without the understanding of customer needs

and the marketing environment...

Once such an understanding is in place, the next requirement is to formulate a

sound strategy

There are a range of strategies available...but the essential thing is to pick one and
stick to it...

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Strategic families (from Porter’s Competitive
Strategy,1980, in Shaw, p87)

Uniqueness perceived STRATEGIC Low cost position

by customer ADVANTAGE

Industry
Wide (broad COST
focus) DIFFERENTIATION LEADERSHIP
STRATEGIC
TARGET
FOCUS
Particular
Differentiation Cost
Segment
FOCUS FOCUS
Only
(narrow
focus) 4
Fundamentals of each Business
Model

Cost ●
Must achieve and sustain lower operating costs than its rivals –
achieved through SIMPLICITY
Must identify what customers are prepared to give up (and not
Leadership
●

give up) for cheap prices

Differentiatio Offers a range of products under one umbrella – a

●

‘value-for-money’ solution to a wide range of

n customer requirements

Focus
●
Firm chooses to focus on one activity
●
Aims to achieve such expertise in one area they can
hold off challenge of those benefitting from C/L or D

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Establish and sustain a cost, and thereby maintain a
price advantage over their rivals

COST LEADER STRATEGIES

A very successful Cost Leader

9,500 stores in 20 countries

●
1. a limited product range
●
2. goods reflect basic human needs
●
3. all goods easy to handle logistically
●
4. best possible quality – measured against leading brands
●
5. lowest possible sales price
●
6. high number of private labels

Sales of more than US$80 bn

80% of all customers are regulars

6 key business principles

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Cost Leader Strategies
Sustainable Competitive Advantage:

INCREASING REVENUE REDUCING COSTS

Low fleet costs
Generation of new traffic
Uncongested airports
●
On board services
●
Web commissions
●
Baggage

Short turnarounds, high aircraft

●
Seat selection
●
Gambling
●
Airport check-in

ultilisation

Ancillary revenues Point-to-point only

Simple fares
Active revenue management
Low distribution costs
Providing a value-for-money solution to a wide range of
customer requirements, exploiting the synergies arising
from producing a wide range of products under the
same umbrella

DIFFERENTIATION
STRATEGIES
Differentiator Strategies
Sustainable competitive advantage

Product innovation and ‘first mover’ advantage

●
Wide route networks (self-feeding, risk spreading)
●
FFP benefits

‘moments of truth’

Brand building

Differentiated products for each of the main market segments

Synergy between these products:

Membership of global strategic alliances

FOCUS STRATEGIES

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A firm pursuing a focus strategy concentrates on
a specific regional market, product line or group
of buyers. For example:

FedEx

●
focuses on provision of guaranteed next day delivery for shippers who need to send
small, urgent packages

High status business travellers

●
e.g. Concorde (Maxjet, Eos, Silverjet all lost to bankruptcy in 2008)

Charter airlines

●
Eg Airtours, Thomson focussing on inclusive package holidays

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‘LEGACY AIRLINES’
(FULL SERVICE CARRIERS)
‘Legacy’ Airlines: Strengths

Grandfather rights on hubs

Hubs and extensive networks

FFPs

Alliances

Defendable competitive advantage in many long-haul markets

Proven
‘Legacy’ Airlines: Weaknesses

High cost base left over from time of regulated competition and state ownership

Marginal profitability in ‘good’ years and serious loss-making during downturns –

especially amongst US carriers

Slow to change due to bureaucracy and heavy unionisation

Short haul point-to-point markets under strong attack from ‘cost leader’ players and
now long-haul markets from ‘sixth freedom’ players such as Emirates, Qatar and
Etihad
Legacy Airlines: strategic
options

Consolidate
Reduce unit
through Set up a low-
costs and boost
alliances, Retreat to core cost subsidiary
revenues
mergers and business eg
through ‘a la
ventures eg Jetstar/Qantas
AF/KLM carte pricing’
 Summary
Successful
We Porter’s
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model are
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References and further reading

• Gillen, D. & Gados, A. (2008) Airlines within Airlines:

Assessing the vulnerabilities of mixing business models,
Research in Transportation Economics, 24 (1) pp 25-35.

• Evans, N. (2001) Collaborative strategy: an analysis of the

changing world of international airline alliances, Tourism
Management ,Vol 22, No.3, pp.229-143

• Shaw, S. (2011) Airline Marketing and Management, 7th

Edition, Surrey: Ashgate Publishing Ltd, (Chapter 4)

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