Airline Industry

Anja Romandic
Galina Tasic
Leila Ultelbayeva
Anna Pecii
Nikola Vassilev
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 Airline industry 1 14 Valuable resources and capabilities

Table of content Main sources and dimension of

2 15 competitive advantage

Overview ofofthe
Overview
Overview thethe
of industry
industry
industry 3-4 15 Most adopted competitive strategy

Recent trends 5-6 16-18 Industry evolution

Profitability 7-8 19 Red/Blue Ocean strategy

Strategic groups/segments 9-11 21 The end

Typical value chain 12-13

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 The Most Successful Competitors
in 2020 by kilometres flown
Largest competitors always
tend to be related to highly
American Airlines (124 billion) populated areas or those
that have the money to
China Southern Airlines (110.7 billion) spend on travel. This is
why top 5 companies in
Delta Air Lines (106.5 billion) this industry are either
Chinese or from the US.
United Airlines (100.2 billion)

China Eastern Airlines (88.7 billion)

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Revenue of Commercial Airlines
2003-2022

The most popular

destinations to
travel are usually
USA, Brazil, China
and EU.

Statista 2021 4
Recent Trends (1/2)
• The airlines sector was one of
the most influenced by the
spread of Covid19
• After the start of the pandemic
the passenger traffic was reduced
by 90%
• The sector is expected to recover
to its 2019 level by 2024

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Recent Trends (2/2)
1. Contactless technology 3. Digital health passports

Adopted rapidly due to the spread of Covid-19. This new trend will provide even safer environment for
the passengers although provides various
First introduced by Etihad and Air Asia. administrative barriers between countries.

For the future it is expected the full process of flying, 4. Sustainability

from check-in to on-board services, to be contactless.
Widely discussed topic in the aviation even before
Costly for the most companies, but in the long run it will Covid-19.
reduce the expenses for the personnel.
Ex. Delta announced to invest over 1 billion dollars to
2.Decline in business travels decrease the emissions from their planes.

Due to the increase in remote working and other forms of Another new trend- using hydrogen as a fuel, Airbus
flexible working arrangements. have 3 concepts for it for the next years.

Since a lot of the airline companies depend on business 5. Artificial intelligence

passengers their overall financial contributions in net AI is used to collect flight data to optimise routes and
margins are expected to be negligible if not even negative. weather forecasting and systems for facial recognition
replacing for biometric checks.More than 98% of the
companies are working towards deploying AI.

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 PESTEL Analysis
Political

Typical by plane is highly P

politically regulated due to
border control. Political Economic
conflicts affect air travel .
Still suffering the aftermath of 9/11
E attacks 20 y ago
2008 recession
Social Coronavirus economic impact
Newer generations have a different
financial perspective. Recent S
passengers prefer to fly economic
Technological
much more.
Outdated ticketing systems
T HIghly dependent on aircraft
Environmental technology trends
Rising carbon footprint worries
Customers prefer other forms of
transportation
E
Social responsibility of companies.
Legal
Numerous incidents resulted in
L regulations
Strict legal limits affect both customers
and airline
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 Five Forces Analysis
For the key competitors, but also those who are less successful, the 5 Forces model can give
useful insight into what the biggest threats within the company are.

Threat of new Substitute Power of Power of Competitive

entries competition suppliers buyers Rivalry
High- Buyers are price
Moderate-the aviation HIgh- key factors such sensitive. Online ticket
Low- the amount of industry rarely suffers as fuel, aircrafts, HIgh- extremely
systems make that even
capital required to from substitute issues but workforce and others competitive business,
easier, countless tools help
starts successful airline can still be threatened by are affected by even harder with low
customers decide which
is too large other means of suppliers. There are cost carriers
company to choose (e.g.
transportation in some not many suppliers, so skyscanner)
situations (e.g. high speed airlines do not have
trains…) wide choice.

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 Behavioural Customer Segmentation and KSF (1 / 2)

Segment Explanation KSF

Efficiency People who are looking for short-haul

Achieving low costs through high demand
for short-haul trips. Low operating costs,
seeker economical business or leisure trips. limited customer service and personnel
expenses.

Medium class business customers looking Achieving medium costs by offering

Convenience-s for medium and long-haul trips in medium and long-haul routes and good
eekers economic or premium class. customer and cabin service.

Individuality High class business customer

considering business trips in
Same as the convenience seekers but
offering higher level of cabin experience
seekers premium or first class. and more route option.

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 Behavioural Customer Segmentation and KSF (2 / 2)
Segment Explanation KSF

Exclusivity Wealthy people or families considering all

possible destinations travelling in premium
Offering large variety of routes all over the
world with premium customer and cabin
seekers or first class. service.

Adventure Middle class people considering short/long Similar to efficiency seekers but offering
larger variety of routes and services.
seekers haul journeys in economic class.

Care seeking Families considering short and long

Targeting large variety of customers
with large variety of routes and different
families haul trips in all classes.
type of on-board services.

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 Strategic Groups in the Airline Industry

First business eco

Cabine

LEISURE FAMILY &FRIENDS BUSINESS

Purpose of travel
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 Typical Value Chain (1 / 2)

● A value chain analysis helps a business

identify its primary and secondary
activities/duties, sub activities and evaluate
the efficiency of each activity.
● Five primary activities: inbound operations,
operations, outbound logistics, marketing and
sales, service.
● Four secondary activities: procurement and
purchasing, human resource management,
technological development and company
infrastructure.
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Value Chain of the Airline Industry (2 / 2)

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 Valuable Resources and Capabilities

In order to support an airline company, there is

a large list of resources necessary for its
functioning, such as:

● Physical resources (airport/land, buildings

and equipment);
● Technological support and equipment;
● Employees;
● Aircrafts, etc.

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 Competitive Advantages

● Digitalization process relying on big data and advanced analytics;

● Cost leadership;
● Differentiation (marketing, product/service quality);
● Defensive strategies and
● Strategic alliances (Star Alliance, SkyTeam, and Oneworld -
combined market shares app. 60% (Statista, 2017)).

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 An Evolution of the Airline Industry (1/3)
Airlines finds its beginnings in 1903, when the Wright brothers
made their first aircraft flight, and during the World War I and II
become the primary delivery vehicle for weapons and people,
being able to transport more than 3.3. million people just in 1941.

Next period of expansion is related to supersonic flights and

establishment of turbo jet airliner companies, as well as aircraft
producers, as well as regulation and deregulation of airspace,
which accelerated further a development of the airplane industry.

From the mid 1990s to the beginning of the 2000s, the aviation
industry faced one of the biggest booms in its history,
resulting from globalization and GDP increases which
stimulated the healthy growth of 4-6 percent per year.

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 An Evolution of the Airline Industry (2/3)
First decade of a 21st century (2000-2009) resulted with huge
amount of net losses with seven negative and only three
positive financial years, and average annual economic
growth rate of 2.7%.

From the year 2010 airlines recovered fully, generating to the

year 2015 net profit of 94.5 billion USD, with the best
business year 2015 with net profit 35.3 billion USD and the
worst business year was 2008 with net losses of 26.1 billion
USD due to high jet fuel prices and global economic crisis.

From the 2015 till 2019, airline industry was a stable

market earning profits.

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 An Evolution of the Airline Industry (3/3)
In 2020, COVID-19 devastated airlines by decreasing McKinsey&Company’s forecast* the following fundamental
revenues of $328 billion for 60% in comparison to shifts in the airline industry after pandemic:
previous year. Airline traffic is estimated not to be ● Leisure trips will fuel the recovery - Business travel will
returned to its previous levels before 2024. take longer to recover as people will take fewer
The airline industry was characterized by three corporate trips;
driving trends before Covid 19, such as: hybridization ● High debt levels will lead to ticket price increases and a
of business models, low-cost carriers’ entry; larger role for government intervention;
consolidation through alliances; and high exposure to ● Greater disparity of performance among airlines in the
financial distress and government intervention. future – taking proactively transformation such as IT
The sector is expected to be smaller for years to come, and digital investment;
and some of the effects will change airline sector ● Aircraft markets may be oversupplied for some time to
irrevocably. come – production was increased and there is a huge
aircraft availability, which can be use as an advantage
for airline companies to purchase aircrafts under lower
prices and Air freight will underperform in years to
come.
*https://www.mckinsey.com/industries/travel-logistics-and-infrastructur
e/our-insights/back-to-the-future-airline-sector-poised-for-change-post-
covid-19 18
 Red ocean VS Blue ocean
✔ The airline industry uses the Red Ocean ✔ The Blue Ocean in the airline industry is
strategy to outperform competitors and Netjets. They offer innovative business
increase market share. approach to flights such as Netjet’s ShareTM,
✔ Ryanair, a European airline, exemplifies LeaseTM and CardTM.
✔ Netjets used these advantages to create a blue
the Red Ocean strategy operating in
ocean. Customers get private jet convenience
already crowded short-haul airline at commercial airline prices, which includes
industry. smaller aircraft, fewer employees, and use of
✔ Their strategy is to provide a basic airline regional airport.
at a low cost by using secondary airports ✔ Finally, Netjets offers personalized service
located far from cities, only allowing while reducing security risks. A private jet's
online booking and check-in, and convenience and speed at a fraction of the
charging for any extra services. cost of first- and business-class commercial
airline travel is a multibillion-dollar blue
ocean created by Netjets.
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Thank you for your attention!

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