The Airline Business Model Explained

When the airline business model is brought up in conversation, eventually the idea of fee-based services will come up. Extra charges for bags, food, and other comfort conveniences has left a lot of bad flavors in the mouths of consumers. At the core of this business model, however, is the evolution that the low-cost carriers have placed on the industry. By leveraging cost efficiency and innovation, they’ve given consumers more options to fly from Point A to Point B for a highly competitive price.

Yet price isn’t the sole driving factor in consumer decisions today when it comes to the airline industry. Everything from merchandising to improved equipment efficiencies have helped the low-cost carrier stay competitive in even difficult times. The airline business model today is basically fueled by three distinctive points.

1. Finding ways to integrate new services into the current business model while keeping customer service levels as high as possible.
2. Discovering new ways to cross international borders or create long-haul flights that attract customers without raising overall costs per flight.
3. Expanding each market so that a maximum amount of reach can be obtained.

Low-cost carriers are moving toward the primary carriers with their business model. The primary carriers are moving toward the business models of the low-cost carriers. Then end result has become a hybrid model that has every carrier focusing on flexibility, route structure, and service viability.

Do Low-Cost Carriers Still Have an Advantage?

Fare structure is still a point of contention within the airline business model. Low-cost carriers tend to offer the same fare to everyone. There are only a handful of fares, but there are also only a handful of destination points. In comparison, the full-service carrier will offer a different fare based on the channel used to book a ticket. Certain customers may also receive different fares and there are usually restrictions placed on those fare.

This means low-cost carriers still have an advantage in the airline business model, but only within their sub-regional network. Consumers who just need basic point-to-point services on a short-haul basis will find a better value in the low cost carrier hybrid model. For those who are looking to fly outside of their region, then the full regional hub of networking that includes connecting flights is a better option.

What Is the Primary Feature of the Airline Business Model?

If there was one lesson to be learned from the airline business model, it would be that optimization should be the #1 priority of every business. For carriers to expand beyond their current network, they must have a landscape that provides them with a high profit margin. All assets, including revenue and strategic, must be optimized so that everything works together to achieve the overall goal.

How can this be effectively achieved? Revenue management becomes a lot easier to control when there is some insight into what the competitors within the industry are doing. The goal is to set a business apart from all other businesses within the same industry. For this reason, JetBlue has moved towards more of a traditional carrier business structure, even though their financial structure is similar to the low-cost carriers.

Southwest Airlines has done the reverse. They’ve moved away from the traditional carrier towards an overall low-cost carrier experience. Southwest still has region hubs and serves many communities, but their cost structure is reflective of the flat, regular fares instead of the variable fares that are offered by the somewhat larger competitors.

What Does This Mean For Businesses Today?

The airline business model proves that core concepts, when combined with individualized components, can lead a business towards success. Every business model in some way needs to be a hybrid model because there are unique needs that every business must have met. Instead of insisting on a specific structure, it has become important to have a flexible structure in place so that when a business needs to evolve, it will be able to do so without losing sight of its overall mission.

Airline carriers have seen a lot of consolidation over the years, but there has also been an emphasis on individuality as well. Each carrier seeks to give its passengers a unique, affordable experience that has some level of value to it. Being responsive to the changing environment and economic climate has allowed the industry to thrive. Innovate, manage assets properly, and the airline business model can be a solid foundation to build upon.