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Aviation Business Environment (MGMT 8067)
“The Aviation Industry”
Thursday 28th July 2022 (by midnight)
Raul Jimenez Fernandez
Student I.D – R00208655
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CONTENT INDEX
CONTENT INDEX ....................................................................................................................... 3
1. Vueling vs United Airlines.............................................................................................. 5
2. Aviation Industry Evolution & Future .......................................................................... 11
3. RESEARCH & REFERENCING ......................................................................................... 14
2.500 words (+15% /-10%)
2.180 total word count on this presentation.
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1. Vueling vs United Airlines
(A) Considering the regions of North America, South America, Europe, Asia and
Middle East, pick one airline from two different regions and compare the business
models and practices of these two airlines (50 marks).
My selection is Vueling Airlines and United Airlines, but the comparison of the business
model that I propose here could be used for other airlines such as Iberia, or Ryanair
among others; therefore, from now on, the comparison will be generic, applying in any
case the purpose of the work required.
Different Types and/or Business Models - Practices;
Years ago, the liberalization of the airline industry opened up a number of options for
passengers and broke part of the existing monopoly. Since then, different companies
have been born, have disappeared, others have merged or have reached options to
operate jointly. Of all the types of airlines, three models stand out as currently
dominating the aviation market in Europe, Asia and North America.
These three models can be broadly defined as follows:
• Flag carriers or Full Service Airline (FSA) / Legacy: They base their business
activity on offering a large route network and focus more on long haul or
international commercial routes. In recent years, these companies have
started to operate from large hubs (concentrating most of the flights in a
few large airports) and then make long trips across the Atlantic, the Pacific,
or crossing several time zones, from these airports. Some examples are
Iberia, Air Europa, Lufthansa, American Airlines, Delta Airlines, United
Airlines, etc.
• Low Cost Carrier (LCC): This type of business model focuses on a basic
service, without any kind of complementary services. Generally, it is
characterized by operating in secondary airports (not always the case)
and by using the same type of aircraft in all its routes to reduce
maintenance costs, purchasing operation, etc. Examples of this model
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include Ryanair, EasyJet, Southwest Airlines, Sun Country Airlines, and many
other’s.
• Point-to-Point Carrier (PTPC): This type of operator would be a hybrid
between FSAs and LCCs since its basic characteristics have nuances of
both models. They focus their operations on a reduction of variable costs
(i.e. single aircraft model) but with a fixed cost structure similar to that of the
traditional ones (i.e. services offered, routes and schedules). Clear
examples of this hybrid model would be Vueling Airlines, Iberia Express,
JetBlue Airways (Ryanair could belong to this type if we analyze its present
and future business model of its subsidiary DAC exclusively).
Although the three models have different characteristics, there are points of
convergence or common characteristics for two or all three of them. Broadly speaking,
it can be said that the complexity of the aeronautical market, the large number of
variables that influence it and, above all, the segmentation of demand mean that the
three models are successful, can coexist and, to a certain extent, even depend on
each other.
Flag or Traditional Companies:
Weaknesses Threats
- Ability to know exactly how much air travel is booked - Increased Airline security costs.
each day, via the internet. - Constant price war with competitors of the same
- Complexity and bureaucracy in dealing with the model.
Airline. - Price-sensitive travelers.
- Very large and expensive flight and support - Low-cost or point-to-point carriers.
infrastructure. - Substitute carriers.
- Very high fixed costs. - Exogenous shocks (catastrophes).
Strengths Opportunities
- Staff experience. - Establishment of alliances with other similar
- International Brand Prestige. companies.
- High bargaining power. - Code-sharing agreements.
- Network operation (HUB’s). - Ability to provide exclusive services.
- Access to strategic and high ranking - Opening new markets or new routes in new market
airports/facilities. niches.
- Frequent flyer programs. - Direct sales to travelers through the internet.
- Agreements offering a high range of services. - Strengthen the business market segment.
- Fuel and lubricant saving programs. - Access to technology.
- Ability to segment demand.
- After-sales and customer service.
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- Iberia: Airline belonging to the group or holding of major airlines, British Airways,
Aerlingus, Iberia, Level and Vueling.
Founded in 1927, its main base or HUB is Adolfo Suarez Madrid-Barajas Airport and
flies to more than 108 destinations in 42 different countries.
- United Airlines: Airline Holding company that was consolidated after the
acquisition of Continental Airlines by United Airlines. The result of this transaction
was the creation of the largest airline in North America. It has an extensive fleet
of aircraft that allows it to offer a network to more than 375 destinations. The
company's main airports (HUB's) are George Bush International Airport in Houston
and O'Hare International Airport in Chicago, although the company has many
other HUB's in North America.
Low Cost Carrier/Company (LCC):
Weaknesses Threats
- They operate in second rank airports (normally). - Intense competition.
- After-sales and customer service. - Price fluctuations derived from fuel prices.
- Depend on others for ground handling. - Economic crisis.
- Pricing policy affects brand image. - Revenue subjected to aeronautical regulations.
- Not operating with connections. - Revenue subjected to government regulations.
- Staff relations. - In-flight safety.
- Schedules. - Fleet obsolescence (not in all cases).
Strengths Opportunities
- Point to point operation. - Increased revenues from the sale of complementary
- Operation with the same type of aircraft. services.
- Low fares. - Increase in the aeronautical sector in the coming
- Simple product without added services. years.
- Cost efficiency. - Launch of new short or medium range routes.
- High frequency of flights. - Entry into first rank airports.
- Direct sales to customers through the internet. - Variability of demand.
- Higher staff productivity.
- Low fixed costs.
- High flight occupancy levels.
- Ryanair: Irish low cost airline, founded in 1985, is currently considered (after market
segmentation in its current holding company) the most profitable airline in the
world due to its cost reduction operations. It has more than 511 aircraft throughout
the group and more than 180 destinations.
- Southwest Airlines: American airline founded in 1971 after deregulation. Currently,
it is considered the largest low-cost airline in the world and one of those with the
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largest fleet, with a number of 582 aircraft. It focuses its flights in the United States
of America and Puerto Rico with approximately 90 destinations.
Hybrid or Point-to-Point Companies (PTPC):
Weaknesses Threats
- Moderate fixed and personnel costs. - Large number of potential competitors.
- Low bargaining power with service providers. - Fluctuations in fuel prices.
- Concentration in the nearby geographic market. - Stock market fluctuations.
- Revenue subjected to aeronautical regulations.
- Revenue subjected to safety regulations.
Strengths Opportunities
- Point-to-point operational combo with HUB. - Sale of other complementary services.
- Optimization of routes offered. - Value for money.
- Operation in first and second rank airports. - Competitive price at the level of substitute products.
- Code sharing. - Good relationship with sales on the internet and
- Fleet with the same type of aircraft. through intermediaries.
- Low fares. - Creation of customer loyalty programs.
- Basic service with supplements integrated in the
price.
- Good brand image.
- High access to technology.
- Vueling Airlines: Point-to-point airline of Spanish origin belonging to the IAG group.
Founded in 2004, after the merger with Click-air in 2009, part of the company's
capital became part of Iberia. In 2013, the IAG group led by Iberia made a
takeover bid for Vueling, which became controlled by the shareholders of this
group.
It has more than 110 Airbus A320 and A321 aircraft, with which it operates to more
than 120 destinations throughout Europe. The company's central hub is
Barcelona's El Prat Airport, where its headquarters are also located.
Table Comparison of the different models:
In order to have an overall view and thus be able to compare the different models, I
have prepared a cross table of the three models where most of the characteristics
mentioned in the previous sections can be found, but analyzed simultaneously for the
three models.
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The level of detail in this table is evaluative, since a wide range of factors are involved
and serve only as a summary.
(*) Ryanair and other low cost airlines are currently growing in size and fall under a new
hybrid style, which defines these companies as operating with a structure &
management style’s similar to that of the Legacy's (having their own handling
infrastructures, maintenance hangar’s and personnel, etc), but under a strict cost
structure typical of a low cost carrier.
Full Service Airline Low Cost Carrier Hybrid Company
Type of operation Networked with several Point to point Point to point with HUB´s
major HUBs
Type of airports Major airports Secondary airports Major & secondary airports
Routes range Long, medium and short Short range Short and medium ranges
range
Type of fleet Many aircraft models A single aircraft model A single aircraft model
Average aircraft capacity Variable according to route Between 150 to 220 pax Between 150 and 220 pax
Average aircraft occupancy Less than 65% on short-haul Over 80% on all routes Uneven occupancy by route,
flights, and more than 80% around 70% on average
on long-haul flights
Fleet utilization Average, few daily flights Very high, many daily flights High, quite a few daily flights
Turnaround times Between 60 and 90 minutes Less than 30 minutes Between 30 and 45 minutes
Crew and personnel Highly trained and With little experience Highly educated and
experienced inexperienced
Personnel relations Good relationship (unions) Poor relationship, currently Acceptable relationship with
with trade unions but no unions and active
active communication communication
Handling Own Subcontracted Subcontracted
Infrastructure High Low Focalized / focused
Fix costs High Low Medium
Variable costs High Low Medium
Government relations Preferential Correct Fluid
Rates / pricing High Low Medium
Major competitors Flag carriers in the long Low cost and point to point Low cost and point to point
range, low cost and point to carriers carriers
point carriers in the
short/medium range
Examples Iberia, United Airlines, Delta Ryanair (*), Wizzair, Ryanair (*), Vueling,
Airlines, Singapur Airlines, Southwest, EasyJet, Iberia Express, Jetblue
Qatar Airlines, etc SunCountry Airlines, Volotea, Airways, etc.
etc.
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2. Aviation Industry Evolution & Future
(B) Looking at the aviation industry over the past 30 years, identify two events that
affected aviation business and critically evaluate the effects of these events.
These can be economic events such as recession, trade, agreements, terrorist
acts, agreements between airlines and manufacturers or governments, strikes,
incidents, etc, and can be events that had positive or negative outcomes (50
marks).
First event – European Commission “CLEAN SKY 1, 2 and other’s to come”;
POSITIVE OUTCOME –
The strategy proposed by the European Commission for 2050 through the Clean Sky2
project aims for 40% of the fuel used in aviation to be low in carbon dioxide (CO2)
emissions without renouncing the energy power of kerosene.
It also seeks to eliminate the waste generated on commercial flights - around 5.7 million
tons a year, according to IATA, which end up buried in landfills - with projects such as
Digestais, an anaerobic digestion recycling system that would replace the current
onboard storage tanks and convert organic waste into compost and clean energy
during the flight.
This regulation is expected to come into force in 2050, where the Commission intends
not only the aforementioned, but also a 90% reduction in nitrogen oxides (NOx), a 65%
reduction in aircraft noise in flight, or the manufacture of recyclable aircraft. This is a
European commitment to R+D+I in the aeronautical sector that is expected to continue
later with a third Clean Sky.
The global nature and the cycles that characterize the aerospace or aviation sector,
with product life cycles of 30 to 40 years and long capital-intensive development
periods, produce very long-term returns. Maintaining a position in the market is therefore
complicated, as it requires high reliability in design, manufacturing and economic
investment, and is subject to numerous quality, safety, technology and certification
requirements.
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Therefore, although many companies and projects financed by governments
(Cryoplane, Hycarus, Bye Aerospace, Airbus, Dante Aeronautical, NASA and the
Massachusetts Institute of Technology MIT, etc.) are at war to lead this change, the
immediate future of air transport involves developing new fuels and more efficient
aircraft, with cleaner and quieter engines such as the Airbus 320 Neo, for example,
which has managed to reduce consumption and pollution by 15% compared to an
aircraft of similar size, which means 3,600 tons less CO2 emitted per aircraft per year. 600
tons less CO2 emitted per aircraft per year. All this has made aviation much more eco-
sustainable than in recent years.
Second event – Aviation security after 9/11;
POSITIVE OUTCOME –
Aviation security changed radically the day the skies were closed. Civil aviation has
been, for many years, one of the targets of terrorism for a variety of reasons. And it
continues to be. But after the terrorist attacks of September 11, 2001, the industry had to
put new security measures in place to allow people to feel safe while flying.
The changes generated were specifically with regard to screening procedures for
passengers, their belongings and baggage (carry-on and hold), and other onboard
protocols, which resulted in isolating the flight cabins at all costs from the passengers.
Also, since then, governments around the world have created new organizations to
implement airport security systems, and massive investments have been made both in
technology and in the hiring and training of security personnel. In addition, international
aviation security regulations and standards have been strengthened. And ICAO
amended Annex 17 of the Convention on International Civil Aviation to require
compliance with higher security standards than those established prior to 9/11 at all
airports of the Convention's members.
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3. RESEARCH & REFERENCING
Evidence of Academic Research & Referencing.
Anon., n.d. European Union. [Online]
Available at: [Link]
[Accessed 2022].
Classmates, M., n.d. Classmates of CIT B.A International Business with Aviation Studies 2021 to 2023. s.l.:s.n.
Group, I. A., n.d. IAG. s.l.:[Link].
IATA, n.d. IATA. [Online]
Available at: [Link]
[Accessed 2022].
Organization, I. C. A., n.d. [Online]
Available at: [Link]/Pages/[Link]
Ryanair, n.d. Ryanair. [Online]
Available at: [Link]
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