Airline Business Models
Jagoda Egeland
Strategy & Policy Manager
Airports Commission Briefing
London, 17 March 2014
1
The global aviation sector:
Two parallel trends
• Consolidation, partnership & network
integration (legacy carriers)
• Budget travel, mostly offered by new
entrants (low-cost carriers = LCCs)
2
Legacy carriers vs. low-cost carriers
Legacy carriers
Low-cost carriers
Hub-and-spoke networks
Point-2-point connections on the
thickest or previously unserved routes
A range of different aircraft (from 737
to A380)
Small, efficient aircraft (737, A320)
Based at hub airports, often close to
large agglomerations
Based at primary or secondary
airports
Branding, extensive route network,
loyalty programmes
Affordability, availability at secondary
airports
Short-haul and long-haul
Predominantly short-haul
Business and leisure
Predominantly leisure
3
Currently, the three major alliances hold over
half of global seat capacity…
4
…but most growth over recent years
has been due to LCC expansion
Passengers at UK airports by ELFAA membership, 1990-2012
Source: DfT analysis based on CAA airport statistics
5
This picture is constantly changing
The AC is looking into factors that are
driving that change
• Regulation
• New aircraft technology
• Behaviour of aviation users
6
Regulation: Further consolidation or
further expansion of LCCs?
• Will restrictions on foreign
ownership of airlines be
relaxed over time and
hence strengthen the
alliances?
• A global EU-US
Open Skies
agreement will be a
chance for low-cost
carriers to expand?
7
New aircraft technology: A long-haul
low-cost revolution?
• Will Boeing 787 and
Airbus A350
facilitate low-cost
dominance in the
long-haul market or
will they simply
reconfirm the
position of legacy
carriers?
Source: Norwegian Air Shuttle,
n Magazine, March 2014.
8
Why LCCs may not want to fly long-haul?
Low-cost carriers’ input-cost edge is larger for short-haul flights than for long-haul ones
Source: McKinsey Quarterly, Budget carriers face
difficult odds moving into the most profitable
sector of the airline industry.
9
Will LCCs and legacy carriers reach
into each other’s business models?
• Business travel with LCCs
• Asian consumer will dominate route networks in
2030
• Self-connecting
• LCC model predominantly on
short-haul and the thickest longhaul routes
• Legacy carrier model serving the
majority of long-haul connections10
The AC is looking into potential
scenarios for each short-listed scheme
• What will the potential airport charges be?
– How affordable is the proposal to airlines?
– New entrants?
• What kind of airline business models could different levels
of charges attract?
– Scenarios and their plausibility
– What is the potential competitive impact on the UK
airport system in each case?
– What connectivity can potentially be delivered?
11
Airline Business Models
Jagoda Egeland
Strategy & Policy Manager
Airports Commission Briefing
London, 17 March 2014
12