airlines business model analysis

Evolution of Airline Business Models: The Case of Pegasus Airlines

First Online: 25 October 2020

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Leyla Adiloğlu-Yalçınkaya 4 &
Senem Besler 5

Part of the book series: Contributions to Economics ((CE))

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Pegasus Airlines has been an unique airline, as it changed its business model from a charter airline business model to a low-cost airline business model and is currently positioned itself with low-cost network carrier business model. The aim of this study is to examine the change of business model of Pegasus Airlines, which has been operating in airline industry in Turkey since 1990. For this purpose, a single case study approach was designed to allow in-depth analysis of the airline business model. Semi-structured interviews were conducted in 2019, supported by data gathered from multiple sources. The results confirm that the change of regulations and perspectives, geographical advantages of the airports and the state support could serve as catalysts to the ability to change the airline business model. This study makes a contribution to airline business model literature by revealing the factors influencing the evolution of a business model of Pegasus Airlines.

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Adiloğlu-Yalçınkaya, L., Besler, S. (2020). Evolution of Airline Business Models: The Case of Pegasus Airlines. In: Horobet, A., Polychronidou, P., Karasavvoglou, A. (eds) Business Performance and Financial Institutions in Europe. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-57517-5_4

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Back to the future? Airline sector poised for change post-COVID-19

It’s difficult to overstate just how much the COVID-19 pandemic has devastated airlines. In 2020, industry revenues totaled $328 billion, around 40 percent of the previous year’s. In nominal terms, that’s the same as in 2000. The sector is expected to be smaller for years to come; we project traffic won’t return to 2019 levels before 2024.

Financial woes aside, the pandemic’s longer-term effects on aviation are emerging. Some of these are obvious: hygiene and safety standards will be more stringent, and digitalization will continue to transform the travel experience. Mobile apps will be used to store travelers’ vaccine certificates and COVID-19 test results.

Other effects, though, are more profound. Unlike the 2008 global financial crisis, which was purely economic and weakened spending power, COVID-19 has changed consumer behavior—and the airline sector—irrevocably.

This article will explore five fundamental shifts in the aviation industry that have arisen from the pandemic. For each of these shifts, we also issue a call to action. By responding to these shifts decisively now, carriers should be able to look beyond the pandemic and adapt to the long-term realities of COVID-19.

1. Leisure trips will fuel the recovery

Business travel will take longer to recover, and even then, we estimate it will only likely recover to around 80 percent of prepandemic levels by 2024. Remote work and other flexible working arrangements are likely to remain in some form postpandemic and people will take fewer corporate trips.

In previous crises, leisure trips or visits to friends and relatives tended to rebound first, as was the case in the United Kingdom following 9/11 and the global financial crisis (Exhibit 1). Not only did business trips take four years to return to precrisis levels after the attacks on the World Trade Center but they also had not yet recovered to pre-financial-crisis levels when COVID-19 broke out in 2020. Therefore, we expect that as the pandemic subsides, the rise in leisure trips will outpace the recovery of business travel.

Some carriers are highly dependent on business travelers—both those traveling in business class and those who book economy-class seats right before they need to travel. While leisure passengers fill up most of the seats on flights and help cover a portion of fixed costs, their overall financial contributions in net marginal terms are negligible, if not negative. Most of the profits earned on a long-haul flight are generated by a small group of high-yielding passengers, often traveling for business. But this pool of profit-generating passengers has shrunk because of the pandemic.

A McKinsey Live event on 'Returning to corporate travel: How do we get it right?'

The call: Revisit flight economics

Airlines should reevaluate the economics of their operations, especially long-haul flights. First, a smaller contribution from business traffic could necessitate a different pricing logic. For example, today most carriers price point-to-point nonstop flights at a premium. Travelers who value time over price—mostly business travelers—book these nonstop flights. Leisure travelers, even those traveling in premium classes, are more price sensitive and may choose an indirect routing. This large gap between nonstop pricing and connect pricing may need to narrow.

Second, lower business traffic may require network changes. Airlines added many flights over the past few years between hubs and smaller cities, using small-size widebodies such as the Boeing 787. These flights work because of the high-yielding business demand. With business demand subdued, economics favor larger aircraft flying less frequently. Airlines may find that larger aircraft such as Airbus A350s or Boeing 777s—which have lower unit costs—become the base of the long-haul network.

Third, airlines may also look at reconfiguring the layout of their cabins to address the increased share of leisure traffic. At the simplest level, lower business-class demand may warrant smaller business-class cabins. Taking this further, products may shift to better cater to premium-leisure passengers, such as growth of premium-economy cabins or development of business-class seats more suitable for traveling as couples or groups.

2. Staggering debt levels will lead to ticket price increases and a larger role for government in the sector

Many airlines have had to borrow huge sums of money to stay afloat and cope with high daily cash burn rates. Tapping into state-provided aid, credit lines, and bond issuances, the industry collectively amassed more than $180 billion worth of debt in 2020, 1 “COVID-19 lowers airline credit ratings and raises the cost of debt,” International Air Transport Association, August 21, 2020, iata.org. a figure equivalent to more than half of total annual revenues that year. And debt levels are still rising (Exhibit 2). Repaying these loans is made even harder by worsening credit ratings and higher financing costs.

These costs will need to be recouped. Therefore, we’ll likely see ticket prices rise. By our estimates, this could amount to a rise in ticket prices of about 3 percent, assuming a ten-year repayment window for only the additional debt taken on.

Furthermore, when demand for air travel returns, it will likely outpace supply initially. We see a glut of latent demand of people eager to travel. It will take time for airlines to restore capacity, and bottlenecks such as delays in bringing aircraft back to service and crew retraining could lead to a supply–demand gap, resulting in higher short-term prices.

In many cases, airline rescue efforts come in the form of government bailouts—with strings attached. We’re seeing a reemergence of, or increase in, the level of state ownership and influence. In Europe alone, TAP Air Portugal, Lufthansa Group, and Air Baltic all received state aid combined with an increase or reintroduction of government shareholdings.

The call: Be a constructive collaborator

As the state becomes a more active player—whether as a creditor, a direct shareholder, or as part of the board—airlines will find themselves having to deal more closely with the authorities. Instead of seeing this as a necessary restriction to access much-needed funds, airlines can treat it as an opportunity to shape how the sector evolves with a key stakeholder.

Airlines can work with regulators to set standards across a gamut of issues. These could include committing to reductions in greenhouse-gas emissions in return for more labor flexibility; increasing the cash-on-hand requirements to make airlines more resilient against future shocks; more balanced value sharing between airlines and other sectors such as airports; or changes in the ownership caps to allow greater inflows of foreign capital, reducing the reliance on state capital further down the road.

3. We will see a greater disparity of performance among airlines in the future

Some airlines have responded to the pandemic by restructuring for greater efficiency; others are merely muddling through. Occasionally, this is linked to state-aid programs, which may reduce the incentive for much-needed measures such as cost, organizational, and operational restructuring. Airlines that are not proactively transforming risk failing to set the business up for longer-term structural value creation.

As such, we’re seeing some airlines pull ahead. Before COVID-19, an airline boasted an ROIC well ahead of the overall industry’s rate of 5.8 percent. Not only did its stronger position pre-COVID-19 enable it to navigate the crisis thus far without taking on government loans of the scale relative to other airlines, it also made it possible for it to restructure to emerge with an even more competitive cost base.

Another group of carriers that have an opportunity to transform their business are airlines that have access to a restructuring process, such as Chapter 11 in the United States. These carriers can renegotiate midlife leases, shed excess debt, and emerge leaner. They will be fierce competitors going forward.

The call: Aim higher when it comes to IT and digital investment

Becoming better can necessitate investment. Even though many airlines find themselves in financial straits, we recommend investing more in IT and digitalization, not less. Before the pandemic, airlines spent roughly 5 percent of their revenue on IT. This is relatively low compared with other sectors. By means of comparison, the retail industry spends around 6 percent on average, and financial services 10 percent.

Airlines could consider stepping up IT and automation investment now. For example, airlines can respond to the quicker recovery of domestic and short-haul flights by investing in direct sales and owning the customer relationship. Relationships with IT and distribution providers could be reexplored. Carriers can also invest in the customer experience—such as making check-in and boarding processes more seamless—and support services—from revenue accounting to invoicing—to drive the next level of efficiency. Beyond this, the next horizon is analytics, which involves, among other efforts, using data in smarter ways to enhance decision making, requiring some investment but yielding significant payoffs .

4. Aircraft markets may be oversupplied for some time to come

In the years before COVID-19, aircraft OEMs ramped up production in the anticipation of continued growth. This has led to a glut in aircraft availability. Furthermore, some carriers have returned relatively new aircraft to lessors, such as Norwegian Air Shuttle when it exited the long-haul market. Prices for used-aircraft leases have plummeted and are likely to remain lower. For instance, the monthly lease rate of a 2016 vintage Boeing 777-300ER aircraft was around $1.2 million in 2019. In 2020, the rate fell to less than $800,000. New aircraft are rumored to be available at even deeper discounts.

The call: Act countercyclically now, if you can

If finances permit, carriers can consider acting countercyclically: locking in orders for new aircraft or confirming operating leases now when demand is low. Aircraft are a significant expense for an airline, making up 10 to 15 percent of a carrier’s cost base. As lease rates and OEM pricing fluctuate with supply and demand levels, inking deals during a crisis could allow carriers to enjoy a cost advantage for years to come.

5. Air freight will see undersupply for some time

Over the past ten years, low cargo rates and the unprofitability of the cargo business have led many airlines to relinquish or scale back their dedicated cargo freighter fleets. However, cargo has been a lifeline for the aviation industry during COVID-19. Before the pandemic, cargo typically made up around 12 percent of the sector’s total revenue; that percentage tripled last year. Based on data from the Airline Analyst, only 21 (down from 77 in 2019) of the airlines around the world that disclosed their operating performance achieved positive operating profits for the third quarter of 2020, traditionally the industry’s most profitable quarter. Among these 21 airlines, cargo revenue accounted for 49 percent of total revenues on average.

During the pandemic, e-commerce sales soared while many passenger flights—which are responsible for delivering around half of total air cargo—were grounded. As a result, cargo yields increased by about 30 percent last year. As commercial flights gradually return, belly supply will increase, although not to pre-COVID-19 levels for at least a few years, as the industry is expected stay smaller than before the pandemic for several years.

The call: Bring back freighters, carefully

In response to the high demand and low supply of air freight right now, carriers could investigate short- to medium-term opportunities to boost their cargo services. Airlines can enhance their flexibility through measures such as increasing the deployment of so-called preighters, or passenger airplanes that are used to transport cargo. Airlines may look at freighter conversions, especially as their passenger fleets reduce in number.

Airlines need to be agile. Rushing headlong into developing and maintaining a large freighter fleet again comes with risk. Airlines need to grow cargo in an agile way that allows for quick adjustments; pursuing such a play should be seen as part of a wider theme of establishing a more flexible production setup. High fixed costs combined with unpredictable demand levels outside an airline’s control increase the need for airlines to be able to scale down supply nimbly.

The impact of the COVID-19 pandemic is far from over. There is some relief to be found in various parts of the world now that vaccinations have begun, but the road to recovery for air traffic will take several years. The shape of the post-COVID-19 airline sector is becoming clearer and holds lessons for airlines today. Multiple longer-running trends have been accelerated, such as digitization and the phasing out of less efficient aircraft. Burdened by debt, many carriers have depleted their cash reserves. But the forecast is not without bright spots. Travel will become greener and more efficient, and people are itching to travel again for holidays. Taking steps now will help airlines thrive in this transformed sector.

Jaap Bouwer is a senior expert in McKinsey’s Amsterdam office, Steve Saxon is a partner in the Shenzhen office, and Nina Wittkamp is a partner in the Munich office.

The authors wish to thank Alex Dichter and Vik Krishnan for their contributions to this article.

This article was edited by Jason Li, a senior editor in the Shanghai office.

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Oliver Wyman’s Airline Economic Analysis was initially designed to explore the economic fundamentals that drive airline profitability. In 2021, it has become a study of the forces that are undermining it. Thanks to an almost complete shutdown of both business and international travel, the industry faced substantial losses in 2020, and this trend will continue for much, if not all, of 2021.

In fact, it is fair to say that no crisis in modern times has shattered the aviation business model as much as the coronavirus pandemic. That’s because no previous crisis has disrupted corporate and international travel as much as COVID-19. Along with causing a depressed market for domestic leisure travel, the pandemic has managed to wipe out two decades of demand growth in a few months.

Because of COVID-19, almost three-quarters of companies worldwide canceled or suspended domestic travel, and 93 percent canceled or suspended international travel, according to the Global Business Travel Association. Corporate bookings plummeted 85 percent in 2020 and have remained at that level in 2021, based on Airlines Reporting Corp. data. These decisions by companies to keep executives off the road are particularly painful for airlines because business from corporate fliers is their most profitable market segment.

In a normal year, business travel accounts for more than half of airline earnings and nearly a third of total airline revenue in major economies like the United States. Yet high-yield passengers such as executives account for only nine percent of the total flying public. The average high-yield booking produces 4.3 times more revenue than a typical leisure booking.

Leisure rules

As a result, the industry has become dependent on leisure travelers who, despite the pandemic, began to take trips again in the second half of 2020. With these lower-yielding travelers making up a higher portion of a decimated demand, airlines were doomed to see a drop in revenue and substantial losses.

As we were completing this report, the International Air Transport Association (IATA) was predicting that the global aviation industry would not be cash positive until 2022, despite indications from a few airlines that their core operations could be cash positive sometime this year. In November, the association said it expects carrier losses to be an additional $38.7 billion cumulatively in 2021. That’s after losing $118.5 billion in 2020.

In the US, except for spikes at major holidays, passenger traffic stayed around 40 percent of 2019 levels through most of the second half of 2020, based on traveler checkpoint data from the Transportation Security Administration (TSA). It was still only a little over 40 percent for the first two months of 2021.

This tepid demand for air travel also affected fares, particularly fares to destinations popular with business travelers. Looking at 20 US destinations —10 predominantly business and 10 leisure — we found fares in heavily business-oriented markets dropped 33 percent in the pandemic year of 2020 versus 12 percent during the 2007-2009 US recession and H1N1 flu pandemic. Leisure fares, on the other hand, fell 16 percent by the end of last year versus 13 percent during 2009. This disparity underscores the disproportionate impact the absence of higher-paying business travelers has had.

Full-service disadvantage

In event-triggered downturns of the past, such as 9/11 and the global financial crisis of 2008-2009, low-cost airlines had an advantage because of their lower operating costs. For those crises, there were similar declines in revenue per available seat mile (RASM) — a benchmark metric used to compare airline revenue performance — across the various classes of carriers.

That wasn’t true for COVID-19. Where in the past low-cost carriers only had an operating cost advantage during crises, they now also have a revenue advantage because their primary market — leisure customers — has recovered faster than the business travel market. Our analysis of US Department of Transportation data reveals RASM for full-service airlines fell 50 percent year-over-year in 2020’s second quarter, probably the darkest period for US carriers. Meanwhile, the RASM for low-cost airlines fell 23 percent in the same three months.

The third quarter’s RASM brought the performance of the two airline groups closer together, with full-service carriers declining 45 percent and low-cost carriers down 38 percent. The cumulative for the six months is 47 percent and 34 percent, respectively.

Staying near home

Another missing component from the travel market has been the international segment. Like business travel, the international market dried up because of the various national restrictions preventing or discouraging cross-border trips and fears consumers harbored of having trips canceled or getting stuck in a foreign country. In two global Traveler Sentiment Surveys conducted by Oliver Wyman in 2020 involving nine countries, respondents said their first trips once pandemic restrictions lifted would still most likely be domestic to see family and friends.

The evaporation of international travel hit the airline industries of some regions very hard, particularly those outside the US, where 60 percent of travel is domestic. In Europe, the Middle East, and Africa, only 10 percent of air travel is domestic.

Even in Asia, where nations, such as China, South Korea, and Vietnam, managed to contain the virus in a matter of a few months, international traffic is down more than 70 percent, primarily because of regulations prohibiting cross-border travel. Despite the fact that airlines in these three countries saw domestic demand recover to 2019 levels in 2020, they felt the loss of international traffic. In China, for instance, international travel makes up 45 percent of its aviation market.

For the second half of 2020, global domestic capacity — measured in available seat miles — was down 34 percent while international was down a stunning 75 percent. Besides sending a lot of widebody aircraft into storage and reducing long-term demand for these larger, long-haul planes over the decade, the loss of international traffic killed the tourism in cities like New York and Paris as well as in some developing economies dependent on spending by visitors. That said, the international leisure segment is likely to recover faster than business, as other countries catch up with the US on vaccinations.

Increased competition

In response to the disruption of two important market segments, the bigger, full-service carriers now find themselves in competition with low-cost carriers for price-sensitive domestic travelers and are slowly taking on some of the characteristics of the upper rung of low-cost carriers. Consequently, passengers will likely see more similarity in the fare structure of the two classes in both economy and premium cabins.

Airlines have been unbundling fares in premium cabins to cater to well-off travelers not flying for business but looking to social distance in roomier business cabins. Led by US carriers, a handful of carriers in the Middle East, Europe, and Asia are also pursuing this strategy.

Besides dwindling revenue, airlines are struggling with cutting costs — often pursuing strategies that do not always produce the intended result. During the 2009 economic recession and H1N1 the same year, cost per available seat mile (CASM) increased 10 to 15 percent with every 10 percent reduction in capacity. Why? Unless airlines are running a very effective cost transformation program, operating costs will rarely decrease proportionally with cuts in capacity.

As an example, look at labor costs. Especially for full-service airlines, furloughing workers will often leave payrolls full of highly paid employees with lots of seniority. Take the case of cost-control programs that match expenses to volatile ups and downs in demand: They may ease cashflow pressures but often raise airline unit costs in the short run.

While all types of carriers will face shrinking margins for the next several years, pressure will be the greatest on full-service carriers and international carriers. With the market unable to quickly make up for lost growth, these network airlines will be increasingly forced to shift their strategies toward those of value carriers by appealing to more price-sensitive customers looking for deals.

Changing schedules

To cut overhead and improve efficiency, airlines will have to adjust schedules, reduce unprofitable routes, and shrink the overall size of networks. Behind the scenes, flight hours also need to be adjusted to better reflect the less congested COVID-19 environment and reduce wasted expense. In a normal year, a full-service or legacy carrier may schedule 14,000 flight, or block, hours per day. These drive a lot of operating costs involving crews, fuel, and maintenance.

Typically, most carriers produce, on average, one percent of excess block time. Following 9/11 and during the financial meltdown, that excess time doubled. The reason: As flights operated faster than planned in a less congested, lower-demand environment, ground time made up of unneeded block hours increased. Anticipating and accounting for these effects is an area where the industry has historically left opportunity on the table, failing to eliminate unnecessary cushion time. One percentage point of excess time for an average full-service carrier can easily represent an additional $250 million in annualized cost in a more normal market.

Even so, the aviation industry has historically struggled to make shrinking operations work to its financial benefit. For example, as US carriers slashed capacity during the 2008-2009 global economic crisis and H1N1, their CASM — another benchmark metric — typically increased 10 to 15 percent for every capacity reduction of 10 percent. That’s because airlines have high fixed costs and overhead that can’t be cut at the same rate as capacity.

Vaccine and stimulus

Of course, with recent news from the Biden administration about increased availability of vaccines and passage of the $1.9 trillion American Rescue Plan Act, the outlooks for aviation and the national economy are gradually brightening. On March 15, our health and life sciences team issued an update , predicting that herd immunity could be reached in most of the US by early summer — the second half of June or the beginning of July. That’s three to six weeks sooner than we were predicting in January.

This projection was based on the rapidly increasing distribution of vaccines. Where today the US is handing out more than two million doses a day, it is likely that number could rise to over three million with the additional funds available through the recently passed stimulus and relief package. The Northeast will be one of the regions that emerges earliest, which is fitting as it was the region to be hit hardest in the early days of the pandemic. If the progression toward herd immunity unfolds as expected, then the US could see a relatively rapid pickup in demand for domestic travel sometime this summer. Of course, our calculations assume no big surprises, such as the emergence of variants resistant to the vaccines or a short-lived immunity from the vaccines which could cause COVID-19 to linger — both of which remain risks.

China and a few other nations in Asia already saw that trend, even without a vaccine, thanks to aggressive COVID-19 containment efforts. For example, China’s domestic air travel recovered to 2019 levels in November. The return of international travel is also a question mark, given the plethora of travel restrictions put into place at the height of the pandemic. The sector will take longer to recover than domestic for that reason and may look different as “vaccine passports” and other protocols are likely to be adopted in some places to facilitate a return to normality. We may also see the development of bilateral agreements to permit travel between nations where there has been mass vaccination or infection rates are minimal.

While still in the thick of the pandemic, it’s hard to assess which impacts will leave permanent scars. The disruption in business travel isn’t expected to fully reverse anytime soon, given the existence of mobility substitutes like videoconferencing that provide an alternative to travel and commuting. This is particularly true for internal company travel. As long as these substitutes persist to any substantial degree, the business travel market will constitute the biggest drag on airline earnings for the foreseeable future — one that will force airlines to keep tweaking their business model to compensate. But even beyond corporate travel, this kind of shock will not be forgotten soon.

About the report

After a hiatus year where a thoughtful analysis of the industry outlook in the face of the then rapidly proliferating COVID-19 pandemic was impossible, the report has returned to begin its second decade.

This year’s in-depth report covers a range of aviation industry-specific economic and performance data as well as global capacity during the pandemic. For our 2021 AEA, we expanded our report to be more global in nature, reflecting the worldwide impact of COVID-19, and included forward looking commentary. The analysis outlines the varied pace at which different regions were affected by the virus and will ultimately recover from it.

The report also includes analyses on:

Capacity changes and available seat miles
Employment changes
Revenue per available seat mile (RASM)
Cost per available seat mile (CASM)
Load factors
Operating profit

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Overview of Porter's Five Forces

An Overview of Delta Air Lines

Industry competition, bargaining power of buyers, the threat of new entrants, bargaining power of suppliers, threat of substitutes.

Fundamental Analysis

Analyzing Porter's 5 Forces Model on Delta Air Lines

Discover which forces pose the biggest threat to Delta

As one of the largest airline carriers in the world, Delta Air Lines faces competitive challenges and threats that can impact its performance and profitability. Investors interested in analyzing the company as a potential investment can conduct a fundamental analysis to help them gain a clear picture of Delta's financial position and its position within the airline industry. This information leads to better investing decisions since share price appreciation tends to follow sound fundamentals. The fundamental analysis starts with examining a company's financial documents, such as its financial statements , annual and quarterly reports, and stock performance.

However, the shrewdest investors will go beyond looking at Delta's financial position and will study the potential effects of external forces on the company's health. One of the most effective tools for this is Porter's Five Forces.

Overview of Porter's Five Forces Method

Porter's Five Forces is an analytical framework developed in 1979 by Harvard Business School professor, Michael E. Porter. Porter's goal was to develop a thorough system for evaluating a company's position within its industry and to consider the types of horizontal and vertical threats the company might face in the future.

Horizontal Threats and Vertical Threats

A horizontal threat is a competitive threat, such as customers switching to a substitute product or service, or a new company entering the marketplace and appropriating market share. A vertical threat is a threat along the supply chain , such as buyers or suppliers gaining bargaining power, that can put a company at a competitive disadvantage.

The Five Forces model evaluates three potential horizontal threats and two vertical threats. Industry competition, the threat of new entrants, and the threat of substitutes represent the horizontal threats. The vertical threats come from the increased bargaining power of suppliers and the increased bargaining power of buyers. Using the Five Forces framework, investors can determine the most viable threats to a company. With this information, they can evaluate whether the company has the resources and protocol in place to respond to likely challenges.

Key Takeaways

Porter's Five Forces is an analytical framework that helps investors evaluate a company based on its position within an industry and the kinds of horizontal and vertical threats it might face in the future.
A horizontal threat is a competitive threat, such as a new company entering the marketplace and gaining market share.
A vertical threat puts a company at a competitive disadvantage, such as buyers or suppliers gaining bargaining power.
In the airline industry, buyers have tremendous bargaining power because they can quickly and easily switch from one carrier to another using third-party trip-booking websites and apps.

Delta Air Lines, Inc. ( DAL ) is the oldest airline still in operation in the United States. The company was founded in 1928 and has its headquarters in Atlanta, Georgia. From May 2020 to April 2021, Delta ranked third in domestic market share for U.S. airlines at 14.3%. Delta's sheer size and status as a longtime leader in the airline industry have helped ensure its continued success. As of July 2021, the company's market capitalization was around $26.6 billion.

The level of competition in the airline industry is high. The big airlines essentially fly to the same places out of the same airports for about the same prices. The amenities, or lack of amenities, they offer are similar, and the seats in coach are just as cramped no matter which airline you choose. Delta's traditional rivals include United and American, but the company also faces major competition from the growing popularity of value carriers, most notably Southwest, but also JetBlue and Spirit.

The number of passengers Delta Air Lines carried in 2020.

Because the air travel experience for customers is remarkably similar no matter which airline they take, airlines are constantly threatened by the prospect of losing passengers to competitors. Delta is no exception. If a customer is planning to book a flight from Houston to Phoenix on Delta but a third-party price aggregator, such as Priceline , reveals a better deal from United, the customer can make the switch with a simple click of the mouse. Delta manages these competitive threats with extensive marketing campaigns that focus on brand awareness and the company's longstanding reputation.

Buyers have immense bargaining power over airlines because the cost and effort required to switch from one carrier to another is minimal. The emergence and raging popularity of third-party trip-booking websites and smartphone apps exacerbate this issue for the airlines. Most travelers do not contact an airline, such as Delta, directly to book a flight. They access sites or apps that compare rates across all carriers, enter their trip itineraries, and then choose the least expensive deal that accommodates their schedules.

Delta can respond to this market force by conducting market research and offering more direct flights at low prices to the destinations fliers search for most frequently on third-party platforms. Additionally, the company should strengthen relationships with credit card companies and strive to offer the best reward programs; customers are loath to switch carriers when they have accumulated what they view as "free" miles with a particular airline.

Potential new entrants to the marketplace represent a minimal threat to Delta. The barriers to entry in the airline industry are remarkably high. The operating costs are massive, and the government regulations a company must navigate are numerous and exceedingly complex. There is not a single airline founded during the 21st century that has even a 2% market share. JetBlue, founded in 1998, represents the newest airline to make a dent in the industry, and the company's market share is still less than one-third of Delta's.

The list of airline suppliers is actually quite long. The list of airlines for suppliers to sell to, however, is short. This asymmetry places the bargaining power directly in the hands of the airlines. Bargaining power is particularly strong for Delta, given its position as the world's largest airline by passenger revenue in 2019. Put simply, Delta's suppliers have a strong incentive to keep the relationship on good terms . Delta can likely find a replacement supplier without a problem if the relationship goes bad. The supplier, by contrast, is unlikely to find another buyer capable of replacing the sales volume represented by Delta.

A substitute , as defined by the Five Forces model, is not a product or service that competes directly with the company's offerings but acts as a substitute for it. Thus, a United flight from New York to Los Angeles is not considered a substitute for a Delta flight with the same start and endpoints. Examples of substitutes are making the trip by train, car, or bus. Unless a trip is very short, such as traveling from Los Angeles to Las Vegas, no methods of travel rate as viable substitutes for air travel. New York to Los Angeles is a 6.5-hour flight. The trip takes 41 hours by car or bus, and a train cannot get you there much faster. Until a new technology comes along that supplants air travel as the fastest and most convenient way to travel long distances, Delta faces little threat from substitute methods of travel.

Institute for Strategy and Competitiveness at Harvard Business School. " The Five Forces ."

Delta. " Corporate Stats and Facts ."

Bureau of Transportation Statistics. " Airline Domestic Market Share ."

Yahoo Finance. " Delta Air Lines, Inc. (DAL) ."

Delta Airlines. " 2020 Form 10-K ," Page 2.

Bureau of Transportation Statistics. " Airline Ranking 2019 ."

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Common Airline Business Models

As with any business, the main thing to consider when looking at airline business and airline management are the most commonly used airline business models. the business model, in general, determines the way one intends to make money with the airline. there are various possibilities and the ones outlined below only show a generic and most common set of business models available..

There are really 5 main airline business models which are being used by the majority of airlines around the world. Of course, those airlines tend to add their own tweaks to each model in hope to get ahead of competition, but still – the framework remains within one of those 5. I have also added a sixth airline business model, which I called a hybrid model, as some airlines lean towards combining two or more of the available models to their benefit.

I’ll present the list of typical airline business models here, and later on I’ll try to explain a bit on how they work and where they see possibilities of obtaining the revenue they need to make money and continue profitable operations. So those are the five models (+ the hybrid):

Legacy airlines (also known as Full Service Network Carriers)
Low cost airlines (Low Cost Carriers)
Charter Airlines (Holiday Carriers)

Regional Airlines

Cargo airlines.

Hybrid Airline

Legacy Airlines

A Legacy Airline is, at least in Europe, most often a former national airline which has been privatized to some extent over the years. Those airlines have generally a fairly large fleet, which is quite diversified as they are operating all sorts of routes, starting with long haul through medium range (short haul) and regional flights. Those airline business models have been around probably ever since airlines existed.

Legacy airlines have also the benefit of owning (at least a share) of relevant other aviation services such as handling companies at their hub airports, maintenance facilities, catering companies and the like. This may seem a benefit at first glance, but doesn’t always turned out to be one. I will write a bit more on why that is later.

Here are the main income drivers for legacy airlines:

Good reputation, which provides for good business with corporate and governmental clients
A broad set of connecting flights, allowing for long haul journeys from small airports on one ticket, with one airline
Increased comfort through on board meals, baggage charges which are included in the main fare and airport lounges for business and first class passengers
Very diversified fares, starting with almost low cost “last minute” or “first minute” tariffs and ending with really expensive business class and first class seats
Convenient loyalty programs which offer reasonable rewards for travelling with a given airline (or, more frequently, with a given airline alliance)
Reliable and slowly changing timetable, leaving passengers with a decent level of security with respect to flight connections they require

In general, legacy airlines and similar airline business models can be thought of as reliable, having good customer service, predictable and fairly decent on board service and on board entertainment and leaving some benefits in the form of loyalty programs for frequent flyers.

Low Cost Carriers

The idea of Low Cost Carriers started in the United States, but it’s certainly experiencing a rapid development in Europe at present. I can’t think of a single European who does not remember the advertisements of flights offered per 1 Euro before the legislation on advertising really kicked in on the LLCs. As the name suggests, Low Cost Carriers are huge on reducing costs to the bare minimum and making people believe (rightfully, in most cases) that they are being offered the lowest fare possible on a given route.

The low cost business models assume that price sells itself while, of course, being quite generous on advertising campaigns as the passenger needs to know that the given low fare is actually available on the market.

As all Low Cost Carriers need to comply with the airline regulations which apply to all airlines, regardless of airline business models used, they do not save money on things like maintenance (although they do to a certain extent in a legal way, which I will write about in a different post). Therefore, they need to save on other things. The savings are generally based on passengers not getting expected benefits from their ticket, but having to pay for them instead. This fact changes the way we perceive flight ravel quite dramatically, but again, this will become the subject of a different post.

Here’s what will generally not be included in a standard airfare and charged extra from passengers who actually need the service:

In-flight meals. There will be none served “for free” (meaning included in the airfare). Rather, many meals and drinks, including alcohol, are available for purchase during flight at prices significantly exceeding typical market value.
Reserved seating. Low cost airline business models generally assume what is called “free seating”, which means that the first passenger in gets the best seat. This means savings on the reservation and boarding system as well as additional income, because many Low Cost Carriers offer paid “priority boarding” which means that passengers who pay additional fees are allowed to board the aircraft before the other ones.
No baggage (or very limited baggage) included in the airfare. This means that passenegers generally need to pay additional fees to have their luggage transported with them.
Additional charges for things such as payment by credit card online. These things often seem obvious to airline passengers, but they are charged additional fees in low cost airline business models.

As you can see, as the result of the actions mentioned above, the overall cost of a transfer may not be too much different to that presented by legacy airlines. However, quite often this is still beneficial to most passengers as people are likely to resign of additional service for the purpose of a lower fare.

Most low cost airline business models also take advantage of other savings possibilities, which are not entirely associated with charging passengers for services, which for quite a long time have been considered as naturally included in the fare. Those savings come from:

A very unified monotype fleet, which allows for saving coming from maintenance, employer costs associated with type diversification and major discounts from aircraft manufacturers on new aircraft (which can be sold used for a price similar to the price of purchase)
Very extreme contracts with maintenance providers forcing them to pay penalties for many delayed or cancelled flights, regardless of what actually caused the technical issue
No connecting flights. The low cost airline business models assume that the only connection that is being offered is point to point. Passengers wanting to take advantage of connecting flights must re-check-in at their transit airport. This saves much on reservation software and check-in fees as well as reduces costs associated with delays and passengers who missed their connecting flight.
Special arrangements with regional or low cost airports, which gives the Low Cost Carriers a dramatic advantage in landing fees and other associated costs. This is possible due to the volume of passengers they are forwarding to and from those airports.

The low cost airline business models have caused a dramatic shift in the way air transport is being perceived today. They are a very important factor of local economics, assuming that by local we mean an area the size of the European Union.

Charter (Holiday) Airlines

Charter airline business models dwell on holiday excursions offered by several companies offering holiday trips all over the world. In most cases, they do not sell individual tickets. Rather, they sign appropriate contracts with travel agencies for the transport of a given number of passengers to a given location throughout a year. It becomes the travel agency’s responsibility to fill the aircraft with passengers.

In some cases, one aircraft may be chartered by more than one travel agency if the destination is rare enough to cause one tour operator not being able to fill the aircraft. However, also in that case, the charter airline is secured as the entire aircraft is being sold.

There are several advantages to such airline business models, such as:

No direct sales, which makes making investments into marketing and reservation systems unnecessary.
Secured cash-flow provided appropriate agreements with tour operators are signed before each fiscal year
Low cost customer service issues, as the charter operators often use the techniques applied by low cost airline business models such as no included meals on board or payment for additional luggage.

The main problem of charter carriers is to obtain proper contracts with tour operators. Supply quite often exceeds demand in this market, although this varies from country to country and is highly dependent on the travel characteristics of the given nation.

Regional airline business models, as the name suggests, aim at transporting people from smaller, regional airports to larger hubs or between those airports and thereby improving the given countries overall social movability.

The regional airlines tens to find their income streams from:

Tickets sold on minor routes with frequent travelers, especially in areas where alternative means of transport are difficult, costly, inconvenient or a mix of all of those attributes
Agreements with large companies which need to provide their employees with a viable means of transport from home to work
Government subsidies for local areas which need to be connected with the rest of the world despite of it being economically unviable
Flying in a franchise for other carriers (mainly legacy airlines) and “feeding” passengers to their hubs for further travel, especially on long haul flights.

It also needs to be said that those airlines generally encounter slightly smaller operating costs due to the usage of smaller aircraft, cheaper regional airports and a significantly smaller number of passengers which translates into much lower booking and ticketing costs.

Cargo airline business models are pretty self-explanatory. Those are airlines which make their living out of transporting good for forwarders or big shipping companies. Those airlines generally operate at night and do not have any costs associated with the transport of people. However, they are highly dependent on proper contracts with forwarding and shipping companies, which generally require a very high level of service. This in turn means for the cargo airlines additional costs associated with ensuring absolutely perfect reliability.

Hybrid Airlines

There are about as many hybrid airline business models as one could possibly imagine. Those include legacy airlines transporting cargo to their destinations, offering their own low cost carriers or franchising out their regional routes to other airlines in order to achieve proper feeder traffic.

There are still many options for new and unexplored airline business models. Let me know of any ideas you might have or other models which you have experienced and which do not fit to any of the ones described above.

13 comments on “ Common Airline Business Models ”

Thank you, well-written and useful article. Would be appreciated to have examples for each category.

Thank you, I’m glad that you enjoyed the article 🙂 Regarding examples, those could be:

Legacy airline: Lufthansa, Low cost carrier: Ryanair, Charter airline: Thomas Cook, Regional Airline: Etihad Regional, Cargo Airline: BlueBird Cargo, Hybrid Airline: Monarch

Many of the large players tend to invest in all other areas of aviation For example for Lufthansa we have also Lufthansa Regional, Lufthansa Cargo and Germanwings.

Hello Mike. I really enjoined reading this article. hope to see more from you. wondered if you can write a bit about Business model of air cargo players. kind regards

I’m not really an expert in cargo operations. I know that in many cases the operator is working for a large shipping company, like FedEx or TNT. This means that in some cases an aircraft with the shipping company’s livery is not actually operated by the shipping company, but by a third party who, basically, charters their aircraft on a regular basis. Such contracts can be quite strict, as of course delays and cancellations are out of the question 🙂

HI mike, crystal air cruises are lunching a new luxury world tour service in August, what category will that fall under?

Good way to promote an interesting product 🙂 Although probably not for my pocket at the moment 🙂 I would say that’s a charter holiday flight, although with a very specific customer range.

Great idea, by the way! Would love to try it!

Hello Mike, I am really interested and I have a question for you. Is it possible to get in touch by email?

Of course, just drop me a line at contact(at)airlinebasics.com

Looking forward to hear from you!

Hello Mike ,

Interesting arrival .

What about an airline servicing the nation as a domestic and performing for tourists for domestic travel targeted for leisure, while also serving International flight ( regional flights). And as well proving both cargo services .

Would it, still be hybrid or whah ??

Sorry “interesting article “ Typo error

Hi Mike, interesting. And if i may ask you, where would you put Etihad,Qatar and Emirates on those business models and would u be able to briefly explain why?

Thank you Ozman

Hey, I want to know more about the alternative models: (1) high fare full service network carriers. (2) low fare high service network carriers. (3) High fare high service carriers. (4) low fare low service carriers ( point-to-point)

Can I get the citation for your text? pls urgent

American Airlines Group: Business Model, SWOT Analysis, and Competitors 2023

Inside This Article

In this blog article, we will delve into an in-depth analysis of American Airlines Group, focusing on their business model, SWOT analysis, and key competitors for the year 2023. As one of the leading airlines in the United States, American Airlines Group has a vast network and a strong presence in the industry. By examining their business model, we will explore how they generate revenue and maintain their competitive advantage. Additionally, a SWOT analysis will provide insights into their strengths, weaknesses, opportunities, and threats. Lastly, we will identify their key competitors and analyze their strategies to understand the future landscape of the airline industry.

What You Will Learn:

Who owns American Airlines Group and the significance of its ownership structure
The mission statement of American Airlines Group and its core values
How American Airlines Group generates revenue and the key factors contributing to its financial success
An in-depth understanding of the American Airlines Group's business model canvas and its different components
An overview of the major competitors of American Airlines Group and their impact on the airline industry
A comprehensive SWOT analysis of American Airlines Group, highlighting its strengths, weaknesses, opportunities, and threats.

Who owns American Airlines Group?

Major shareholders.

American Airlines Group is a publicly traded company, so its ownership is distributed among various shareholders. The largest shareholders of American Airlines Group are primarily institutional investors, including mutual funds, pension funds, and other investment firms. These major shareholders hold significant stakes in the company and often have a significant influence on its strategic decisions.

One of the largest institutional shareholders of American Airlines Group is Vanguard Group, a renowned investment management company. Vanguard holds a substantial number of shares in the airline company, making it one of the most influential stakeholders. BlackRock, another prominent investment management firm, is also among the major shareholders of American Airlines Group.

Insider Ownership

Aside from institutional investors, American Airlines Group also has insiders who own shares in the company. Insiders typically include company executives, directors, and other individuals closely associated with the management. These insiders often hold shares as part of their compensation packages or as a reflection of their confidence in the company's future prospects.

Doug Parker, the CEO of American Airlines Group, is one of the notable insiders who owns a significant number of shares. As the leader of the company, Parker's share ownership reflects his commitment to its success and aligns his interests with those of other shareholders. Other top executives and board members of American Airlines Group also hold substantial stakes in the company.

Public Shareholders

American Airlines Group also has a broad base of public shareholders who own shares of the company. These shareholders can include individual investors, retail investors, and even small investment firms. As a publicly traded company, American Airlines Group offers its shares on stock exchanges, allowing anyone to buy and sell its stock.

Public shareholders play a crucial role in the ownership structure of American Airlines Group, as they provide the company with liquidity and contribute to its market valuation. Their interests are represented by the votes they cast during shareholder meetings and the influence they exert through their collective ownership.

American Airlines Group's ownership is a combination of major institutional shareholders, insiders, and public shareholders. The largest stakeholders are institutional investors such as Vanguard and BlackRock, while insiders like CEO Doug Parker also hold significant ownership stakes. Public shareholders, including individual investors, contribute to the ownership structure and influence the company's decisions through their collective ownership. This diverse ownership structure reflects the broad interest and participation in American Airlines Group.

What is the mission statement of American Airlines Group?

The mission statement of american airlines group: connecting people, cultures, and nations.

American Airlines Group, one of the largest airline companies in the world, operates with a clear and compelling mission statement. At its core, American Airlines Group aims to connect people, cultures, and nations through a seamless and exceptional travel experience. With a commitment to providing safe, reliable, and customer-focused air transportation, the company strives to bring people closer together, bridging geographical boundaries and fostering global connections.

Emphasizing Connectivity and Customer Satisfaction

American Airlines Group's mission statement underscores their dedication to connectivity. By offering an extensive network of flights to numerous destinations worldwide, the company seeks to enable individuals, families, and businesses to easily access and explore various parts of the globe. Whether it's a domestic flight within the United States or an international journey spanning continents, American Airlines Group aims to be the preferred choice for travelers seeking convenient and efficient transportation options.

Furthermore, customer satisfaction is a key element of American Airlines Group's mission. As they connect people from different walks of life, the company is committed to providing a positive travel experience that exceeds expectations. This entails ensuring the safety and well-being of passengers, offering exceptional customer service, and delivering on-time and reliable flights. By prioritizing customer satisfaction, American Airlines Group aims to build lasting relationships with its passengers and be recognized as a trusted and preferred airline.

Promoting Cultural Exchange and Understanding

American Airlines Group recognizes the importance of fostering cultural exchange and understanding between nations. Through their extensive flight network, the company plays a vital role in facilitating travel for individuals from diverse backgrounds, enabling them to experience new cultures, traditions, and perspectives. By connecting people across borders, American Airlines Group contributes to breaking down barriers and promoting a more interconnected and inclusive world.

Moreover, the company actively supports initiatives that promote cultural exchange and understanding. Through partnerships with various organizations and communities, American Airlines Group works towards creating opportunities for cross-cultural dialogue, education, and appreciation. By championing diversity and promoting cultural exchange, the company aligns its mission with broader societal goals of fostering global harmony and understanding.

In summary, American Airlines Group's mission statement centers around connecting people, cultures, and nations. By emphasizing connectivity, customer satisfaction, and promoting cultural exchange, the company strives to create a seamless and exceptional travel experience that brings people closer together. As American Airlines Group continues to shape the aviation industry, their mission statement serves as a guiding principle for their operations and their commitment to connecting the world.

How does American Airlines Group make money?

American Airlines Group, one of the largest airline companies in the world, generates its revenue through various sources. Let's delve into the primary ways American Airlines Group makes money.

Passenger Revenue

The main source of income for American Airlines Group is passenger revenue. This includes the fares paid by passengers for flights operated by American Airlines and its subsidiaries, such as American Eagle. The company offers a wide range of flight options, including domestic and international routes, catering to both leisure and business travelers. Passenger revenue accounts for a significant portion of American Airlines Group's earnings.

Cargo Revenue

In addition to passenger travel, American Airlines Group also generates revenue through its cargo services. The company operates a dedicated cargo division, American Airlines Cargo, which handles the transportation of various goods, including commercial products, perishable items, and live animals. American Airlines Cargo offers a range of shipping options and services, allowing businesses to transport their goods efficiently. This segment contributes to the overall revenue of the company.

Ancillary Revenue

Ancillary revenue plays a crucial role in American Airlines Group's financial performance. These are additional sources of income beyond passenger fares and cargo services. American Airlines Group offers various ancillary services, such as extra baggage fees, onboard food and beverage sales, preferred seating options, and in-flight entertainment purchases. By providing these optional services, the company generates additional revenue, enhancing its profitability.

Loyalty Programs

American Airlines Group operates a loyalty program called AAdvantage, which allows frequent flyers to earn miles for their flights and redeem them for various benefits, including free flights, upgrades, and access to airport lounges. The loyalty program not only fosters customer loyalty but also acts as a revenue generator. American Airlines Group partners with several companies, such as credit card issuers and hotels, who pay the company for miles that are awarded to their customers. This partnership revenue contributes to the overall earnings of American Airlines Group.

Codeshare and Alliances

Another significant way American Airlines Group generates revenue is through codeshare agreements and alliances with other airlines. These partnerships allow American Airlines Group to extend its reach and offer a wider range of destinations to its customers. By collaborating with other airlines, American Airlines Group can sell tickets for flights operated by its partners and earn a share of the revenue. Additionally, through alliances such as the oneworld Alliance, American Airlines Group benefits from revenue-sharing agreements with member airlines, further boosting its income.

In conclusion, American Airlines Group derives its revenue from passenger fares, cargo services, ancillary sales, loyalty programs, and partnerships. By diversifying its income streams and leveraging its extensive network and customer base, American Airlines Group continues to strengthen its financial position in the aviation industry.

American Airlines Group Business Model Canvas Explained

Introduction.

The American Airlines Group is one of the largest airlines in the world, operating both domestic and international flights. To understand the key elements of their business model, we can refer to the Business Model Canvas, a strategic management tool that provides a holistic view of how a company creates, delivers, and captures value. In this section, we will delve into American Airlines Group's business model canvas and explore each component in detail.

Key Partnerships

American Airlines Group relies on numerous key partnerships to ensure smooth operations and enhance customer experience. One of their primary partners is aircraft manufacturers such as Boeing and Airbus, which provide the fleet of planes that American Airlines Group operates. These partnerships are crucial to ensure the availability of modern, fuel-efficient, and reliable aircraft.

Furthermore, American Airlines Group collaborates with various airports and ground handling companies to facilitate efficient ground operations, including baggage handling, fueling, and maintenance services. Such partnerships are essential for seamless travel experiences and the timely departure and arrival of flights.

Key Activities

The key activities of American Airlines Group revolve around providing air transportation services to passengers and cargo. These activities include flight operations, aircraft maintenance and repair, ticketing and reservations, and customer service. By operating an extensive network of flights, American Airlines Group connects people and goods across the globe, contributing to economic growth and facilitating global trade.

Moreover, American Airlines Group focuses on continuously improving its operational efficiency and safety standards. This includes regular maintenance checks, crew training programs, and investments in technology systems to enhance the overall flight experience and ensure passenger safety.

Value Proposition

American Airlines Group's value proposition lies in its ability to offer safe, reliable, and convenient air travel options to its customers. They strive to deliver a seamless travel experience, from booking tickets to arriving at the final destination. With a strong emphasis on customer service, American Airlines Group aims to exceed customer expectations and build loyalty through personalized experiences and frequent flyer programs.

Additionally, American Airlines Group offers a wide range of flight options, including both domestic and international routes, catering to the needs of various customer segments. Their extensive route network and partnerships with other airlines enable customers to travel to numerous destinations worldwide, making American Airlines Group a preferred choice for both leisure and business travelers.

Customer Segments

American Airlines Group serves a diverse range of customer segments, including individual leisure travelers, business travelers, and cargo shippers. By understanding the unique needs and preferences of each segment, American Airlines Group can tailor its services and offerings accordingly.

For individual leisure travelers, American Airlines Group provides affordable fares, convenient flight schedules, and services that enhance the overall travel experience. They aim to make air travel accessible to a wide range of individuals, ensuring that they can explore new destinations and create lasting memories.

Business travelers, on the other hand, value efficiency, reliability, and flexibility. American Airlines Group offers a range of services tailored to their needs, such as priority boarding, access to airport lounges, and corporate travel programs. By catering to the specific requirements of business travelers, American Airlines Group strengthens its position in this lucrative market segment.

Revenue Streams

American Airlines Group generates revenue through various channels. The primary source of revenue is passenger ticket sales, both for domestic and international flights. Additionally, the company earns revenue through ancillary services, such as checked baggage fees, in-flight meals, and seat selection fees.

Furthermore, American Airlines Group has a dedicated cargo division that generates revenue by transporting goods and packages worldwide. Cargo services contribute to the overall revenue stream and help diversify the company's income sources.

American Airlines Group's business model canvas provides a comprehensive overview of how the company creates, delivers, and captures value. By focusing on key partnerships, providing a seamless travel experience, targeting diverse customer segments, and leveraging multiple revenue streams, American Airlines Group has established itself as a prominent player in the global aviation industry.

Which companies are the competitors of American Airlines Group?

Major competitors of american airlines group.

American Airlines Group faces competition from several major airlines in both the domestic and international markets. These competitors include:

Delta Air Lines: As one of the largest airlines in the world, Delta Air Lines competes directly with American Airlines Group. With an extensive network of routes and a strong presence in both domestic and international markets, Delta offers stiff competition to American Airlines Group.

United Airlines: United Airlines is another significant competitor for American Airlines Group. With a similar route network and a large fleet of aircraft, United Airlines competes head-to-head with American Airlines Group, especially in the domestic market.

Southwest Airlines: Although primarily a low-cost carrier, Southwest Airlines poses a competitive threat to American Airlines Group in the domestic market. Known for its affordable fares and extensive domestic network, Southwest Airlines attracts a significant number of passengers who might otherwise choose American Airlines Group.

International Carriers: American Airlines Group also faces competition from various international airlines, especially on international routes. Carriers such as Emirates, British Airways, Lufthansa, and Air France-KLM compete directly with American Airlines Group for passengers traveling to/from the United States.

Low-Cost Carriers: In addition to Southwest Airlines, other low-cost carriers such as JetBlue Airways and Spirit Airlines also compete with American Airlines Group. These airlines often offer lower fares and focus on specific routes or regions, providing an alternative choice for price-conscious travelers.

It's worth noting that competition within the airline industry is intense, and new players can emerge at any time. The ability to adapt to changing market dynamics, customer preferences, and industry trends is crucial for American Airlines Group to stay competitive in this challenging environment.

American Airlines Group SWOT Analysis

Strong brand recognition: American Airlines is one of the most well-known and recognized airline brands in the world. It has a long history in the industry and has built a strong reputation for providing reliable and efficient services.

Extensive route network: American Airlines operates an extensive domestic and international route network, connecting major cities across the globe. This allows the airline to cater to a wide range of customers and increases its market reach.

Strong alliances and partnerships: American Airlines has formed strategic alliances and partnerships with other airlines, such as British Airways and Japan Airlines, which provide it with access to additional routes and customers. These partnerships strengthen its competitive position and enhance its ability to serve customers globally.

High operating costs: American Airlines faces significant operating costs, including fuel expenses, labor costs, and maintenance costs. These high costs can put pressure on the airline's profitability, especially during periods of economic downturn or rising fuel prices.

Aging fleet: American Airlines has an aging fleet of aircraft, which can result in higher maintenance and repair costs. Additionally, older aircraft may lack the fuel efficiency and advanced technology of newer models, potentially impacting the airline's cost competitiveness and customer experience.

Reliance on the US market: While American Airlines has a strong presence in the US market, it is relatively less dominant in international markets compared to some of its competitors. This reliance on the US market makes the airline vulnerable to changes in the domestic economy and fluctuations in demand.

Opportunities

Growing demand for air travel: The global demand for air travel continues to rise, driven by factors such as increasing disposable incomes, globalization, and tourism. American Airlines can capitalize on this opportunity by expanding its route network and enhancing its services to attract new customers.

Expansion into emerging markets: Emerging markets, such as China, India, and Brazil, present significant growth opportunities for airlines. By expanding its presence in these markets, American Airlines can tap into the rising demand for air travel and gain a competitive advantage over its rivals.

Technological advancements: The aviation industry is witnessing rapid technological advancements, such as the development of more fuel-efficient aircraft and digital innovations in customer service. American Airlines can leverage these advancements to improve operational efficiency, enhance customer experience, and reduce costs.

Intense competition: The airline industry is highly competitive, with numerous airlines vying for market share. American Airlines faces fierce competition from both legacy carriers and low-cost airlines, which can put pressure on its pricing and profitability.

Volatile fuel prices: Fuel prices are a major cost component for airlines, and fluctuations in oil prices can significantly impact their financial performance. American Airlines is exposed to the risk of rising fuel prices, which could erode its profitability if it cannot pass on these costs to customers through fare increases.

Geopolitical and economic uncertainties: Political instability, terrorism, economic downturns, and natural disasters can disrupt travel patterns and negatively impact the airline industry. American Airlines is exposed to these external risks, which could lead to lower passenger demand and revenue losses.

Key Takeaways

American Airlines Group is owned by a diverse group of shareholders, including individual and institutional investors.
The mission statement of American Airlines Group is to provide safe, reliable, and convenient air travel to customers, while also ensuring profitability and maximizing shareholder value.
American Airlines Group primarily generates revenue through the sale of airline tickets, ancillary services such as baggage fees and in-flight purchases, and partnerships with other airlines.
The Business Model Canvas explains how American Airlines Group creates value for its customers by offering a wide range of flight options, maintaining a strong brand and customer loyalty, and optimizing operational efficiency.
American Airlines Group faces competition from other major airlines such as Delta Air Lines, United Airlines, and Southwest Airlines. A competitive analysis is crucial to understanding the market dynamics and positioning of American Airlines Group.
Conducting a SWOT analysis helps identify American Airlines Group's strengths (such as a large fleet and extensive route network), weaknesses (such as high operating costs), opportunities (such as expanding into new markets), and threats (such as rising fuel prices and intense competition).

In conclusion, American Airlines Group is owned by a diverse group of shareholders, with no single entity having a majority stake. The company's mission statement is to provide safe, reliable, and convenient air travel to its customers. American Airlines Group generates revenue through various sources, including passenger ticket sales, cargo services, and loyalty programs.

The Business Model Canvas of American Airlines Group highlights key aspects of its operations, such as value propositions, customer segments, and revenue streams. The company focuses on delivering exceptional customer experiences and building long-term relationships with its passengers.

Despite being a prominent player in the aviation industry, American Airlines Group faces fierce competition from other major carriers like Delta Air Lines and United Airlines. These companies are constantly striving to attract and retain customers through competitive pricing, convenient routes, and innovative services.

Conducting a SWOT analysis of American Airlines Group reveals its strengths, weaknesses, opportunities, and threats. The company's strong brand recognition, extensive route network, and loyal customer base are significant strengths. However, it also faces challenges such as intense competition, fluctuating fuel prices, and potential disruptions in the global economy.

In conclusion, while American Airlines Group has a solid foundation and a strong market position, it must continuously adapt to industry trends and customer preferences to stay ahead of the competition. By leveraging its strengths, addressing weaknesses, and seizing opportunities, American Airlines Group can continue to thrive in the dynamic aviation industry.

What is SWOT analysis of Airlines?

SWOT analysis of airlines refers to the evaluation of the strengths, weaknesses, opportunities, and threats of the airline industry. It helps in identifying the internal and external factors that can impact the performance and competitiveness of airlines. Here is a breakdown of each element in the SWOT analysis:

Strong brand recognition and reputation
Extensive route networks and global presence
Established customer base and loyalty programs
Advanced technology and infrastructure
Skilled workforce and experienced pilots
Cost-effective operations and economies of scale
Weaknesses:
Vulnerability to fuel price fluctuations and other external factors
High operating costs, including maintenance and staff expenses
Dependence on seasonal demand and economic conditions
Regulatory and legal challenges
Limited diversification and reliance on specific markets
Environmental impact and sustainability concerns
Opportunities:
Growing air travel demand, especially in emerging markets
Expansion to untapped or underserved regions
Strategic partnerships and alliances with other airlines
Introduction of new routes and destinations
Technological advancements for improved efficiency and customer experience
Development of eco-friendly and sustainable practices
Intense competition among airlines, price wars, and discount carriers
Economic downturns and fluctuations in consumer spending
Political instability and travel restrictions
Terrorism threats and security concerns
Volatility in fuel prices and environmental regulations
Changing customer preferences and demands

By considering these factors, airlines can develop strategies to leverage their strengths, mitigate weaknesses, capitalize on opportunities, and minimize threats. This analysis helps them make informed decisions and maintain a competitive edge in the industry.

What are the weaknesses of American Airlines?

Some potential weaknesses of American Airlines include:

High operational costs: American Airlines has higher operating expenses compared to some of its competitors. This can be attributed to various factors such as labor costs, maintenance expenses, and fuel prices.

Aging fleet: American Airlines has one of the oldest fleets among major U.S. carriers. The older aircraft require more maintenance and may not offer the same level of fuel efficiency and passenger comfort as newer planes.

Reliance on legacy systems: American Airlines still utilizes some legacy systems for its operations, which can lead to inefficiencies and limitations in terms of adapting to new technologies and customer demands.

Customer service issues: Like many airlines, American Airlines has faced customer service challenges in the past, including issues with delays, cancellations, lost baggage, and poor communication. These experiences can impact customer satisfaction and loyalty.

Competitive pressure: The airline industry is highly competitive, and American Airlines faces strong competition from other major carriers, low-cost airlines, and international airlines. This competition can affect pricing power and market share.

External factors: American Airlines is vulnerable to external factors that can significantly impact its operations, such as natural disasters, political instability, terrorist attacks, and global economic downturns. These events can disrupt flights, reduce demand, and increase costs.

Dependence on hubs: American Airlines relies heavily on its hubs, particularly Dallas/Fort Worth International Airport, for connecting flights. This concentration increases the risk of disruptions and limits flexibility in network planning.

Debt burden: American Airlines has a significant amount of debt, which can impact its financial flexibility and ability to invest in new initiatives or respond to market changes.

It is important to note that these weaknesses are not exhaustive, and the airline industry is subject to various internal and external factors that can impact any airline's performance.

What is the Pestel analysis of American Airlines?

PESTEL analysis is a framework used to analyze the external macro-environmental factors that can impact a business. Here is the PESTEL analysis of American Airlines:

Political Factors:
Government regulations and policies: Airlines operate in a heavily regulated industry, and changes in governmental policies and regulations can significantly impact their operations and profitability.
Political stability and geopolitics: Political instability, conflicts, terrorism threats, and geopolitical factors can affect air travel demand and safety, leading to disruptions in operations.
Economic Factors:
Economic stability: The overall economic conditions, including factors like GDP growth, inflation rates, and exchange rates, can influence the demand for air travel and the profitability of airlines.
Fuel prices: Fluctuations in oil prices can have a significant impact on the operational costs of airlines, as fuel expenses constitute a significant portion of their overall costs.
Economic downturns: During economic recessions or downturns, people tend to cut down on discretionary spending, including air travel, which can negatively affect airlines' revenues.
Sociocultural Factors:
Demographic trends: Shifts in population demographics, such as aging populations or changes in consumer preferences, can impact the demand for air travel and the types of services desired.
Social attitudes and behaviors: Changes in consumer preferences, such as increasing environmental consciousness or willingness to pay for premium services, can influence airlines' strategies and offerings.
Technological Factors:
Technological advancements: Advances in technology, such as more fuel-efficient aircraft, improved navigation systems, or innovative passenger services, can provide airlines with a competitive advantage and enhance operational efficiency.
Digital disruption: The increasing use of online platforms and mobile apps for flight bookings, check-ins, and customer service has reshaped the airline industry, requiring airlines to adapt their strategies to stay competitive.
Environmental Factors:
Environmental regulations: Airlines are subject to various environmental regulations regarding emissions and noise pollution, which can impact their operations and costs.
Sustainability and climate change: Growing concerns about climate change and sustainability have led to increased focus on reducing carbon emissions, which can impact airlines' operations and may require investments in more eco-friendly practices and technologies.
Legal Factors:
Airline industry regulations: Airlines are subject to a range of legal regulations, including safety standards, labor laws, and antitrust regulations, which can affect their operations and profitability.
Intellectual property and patent laws: Intellectual property rights and patent laws can impact airlines' ability to protect their innovations and technologies.

It's important to note that this analysis provides a general overview, and the specific PESTEL factors for American Airlines may vary depending on the specific market or geographical region they operate in.

What is the 4 piece in SWOT analysis?

The four pieces in SWOT analysis are:

Strengths: Internal factors or capabilities that give an organization a competitive advantage or unique selling proposition. These can include resources, expertise, brand reputation, or any other aspect that sets the organization apart from its competitors.

Weaknesses: Internal factors or limitations that put an organization at a disadvantage or hinder its performance. These can include lack of resources, outdated technology, poor brand image, or any other aspect that may hinder the organization's ability to compete effectively.

Opportunities: External factors or potential areas where an organization can capitalize on to achieve growth or gain a competitive advantage. These can include emerging markets, technological advancements, changes in consumer preferences, or any other aspect that presents favorable conditions for the organization.

Threats: External factors or challenges that pose risks or obstacles to an organization's success. These can include competition, economic downturns, changing regulations, or any other aspect that may negatively impact the organization's performance or market position.

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Navigating the Future of Air Travel: Insights for 2024

In the ever-evolving realm of air travel, the coming year holds a multitude of developments and challenges. Join us as we navigate through the trends and issues that will define the aviation landscape in 2024.

The skies may present challenges, but they also offer opportunities and innovations that will shape the future of air travel. Here’s what we anticipate will shape our journeys through the skies next year.

1) Soaring Prices or Smooth Sailing? Unpacking 2024 Fare Predictions

In 2024, expect a continuation of the status quo in flight prices, with minor fluctuations. Off-peak seasons may offer some relief due to softened demand, but the underlying factors, such as increased salaries and fluctuating oil prices, suggest a stable rather than cost-saving experience.

Keep an eye on routes with additional capacity, particularly in the transatlantic sector, as legacy carriers, led by United Airlines, open new routes, potentially influencing fare dynamics.

2) Turbulence Ahead: Persistent Disruptions and Global Issues

The year ahead won't be without challenges. Lingering disruptions from the previous year and global issues may impact the aviation industry. The Pratt & Whitney engine problem is expected to peak, potentially grounding up to 300 aircrafts globally at any given time.

Carriers like Lufthansa, Indigo, Delta Air Lines, Wizzair, and Virgin Atlantic may experience disruptions from these delays. Some airlines, however, might find opportunities with these engine delays. With reduced capacity, they have an opportunity to exert higher fares.

Boeing’s recent backlog issues add another disruption for airlines that simply don’t know when their new aircraft will be arriving next year, making planning a bit difficult for some.

3) Business Travel 2.0: Short-Haul Sector Faces Uphill Climb

The return of business travel has started post-pandemic, but not all sectors will recover at the same pace. Short-haul business travel may continue to lag behind, as video calling and conferencing options prove to be more time and cost-effective for many professionals.

Then in Europe, regulators are impacting short hall travel with new regulations. With a goal of cutting carbon emissions, new regulations have been put in place that ban short distance travel via plane. For example, in France, the Government has banned flights from domestic airports within a four hour train journey of Paris.

4) AI Takes the Pilot's Seat: Innovations in the Industry

Technological advancements will continue to take center stage in 2024. While drones and VTOLs remain on the horizon, Artificial Intelligence (AI) applications are set to revolutionize the aviation landscape.

We can expect transformative changes with AI, from optimizing operations to enhancing passenger experiences, AI will continue to be a driving force behind industry advancements.

5) The Dogfight for Dominance: Low-Cost Carriers (LCCs) vs. Legacy Giants

The struggle for market share and profitability continues in 2024 between Low-Cost Carriers (LCCs) and legacy giants. Both entities will compete vigorously, with legacy carriers challenging the LCCs. However, LCC’s will need to persevere to secure their market share and revenue.

Consumers will always come back for a low fare –and that’s helping LCC’s maintain a competitive stance. There is a growing share of capacity behind flights operated by LCC’s. Some of the U.S.’s largest airports have seen a huge boost in flights operated by LCC’s in the past 3 years, and that’s expected to grow.

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For the airline business model analysis, 28 key factors were selected in order to describe the structure, the size, the quality or the performance of airlines. Four different sources were used in order to identify these key factors: the current classification of airline business models (i.e. low-cost carrier, full-service network carrier ...
Southwest Airlines SWOT Analysis (2024)
Southwest Airlines, a major player in the airline industry, is known for its affordable fares, exemplary customer service, and unique business model. This Southwest Airlines SWOT analysis provides critical insight into the company's strategies, operations, and market position, making it essential for stakeholders, investors, and competitors. Southwest Airlines, founded in 1967 by Herb ...
Common Airline Business Models
The business model, in general, determines the way one intends to make money with the airline. There are various possibilities and the ones outlined below only show a generic and most common set of business models available. There are really 5 main airline business models which are being used by the majority of airlines around the world.
Business models in business aviation
Thus, our analysis dealt with those business aviation companies which in principle supply customers with "for hire" business aviation services. ... (ULCC) business model in the U.S. airline industry. Journal of Air Transport Management, 62 (2017), pp. 155-164. View PDF View article View in Scopus Google Scholar.
Airlines define their business models: a content analysis
irlines define their business models 149. Content analysis is a research method t hat is used to classify large amount of text data. in an effi cient number of categor ies that represent similar ...
American Airlines Group: Business Model, SWOT Analysis ...
An in-depth understanding of the American Airlines Group's business model canvas and its different components. An overview of the major competitors of American Airlines Group and their impact on the airline industry. A comprehensive SWOT analysis of American Airlines Group, highlighting its strengths, weaknesses, opportunities, and threats.
An empirical analysis of airline business model convergence
After introducing the airline business model framework and its underlying method of convergence calculation, we describe our data sample and present the empirical results of our analysis. The paper ends with management implications and an outlook for further research. 2. The airline business model framework.
Spirit Airlines: Headed Into A Potential Financial Disaster In 2025
Spirit has almost $2.0 billion in debt maturing within the next 2 years. First quarter revenue was down 6.2% and the airline reported a loss of $1.30 per share. There was a settlement in 2024 with ...
Navigating the Future of Air Travel: Insights for 2024
3) Business Travel 2.0: Short-Haul Sector Faces Uphill Climb. The return of business travel has started post-pandemic, but not all sectors will recover at the same pace. Short-haul business travel may continue to lag behind, as video calling and conferencing options prove to be more time and cost-effective for many professionals.

Evolution of Airline Business Models: The Case of Pegasus Airlines

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Back to the future? Airline sector poised for change post-COVID-19

1. Leisure trips will fuel the recovery

The call: Revisit flight economics

2. Staggering debt levels will lead to ticket price increases and a larger role for government in the sector

The call: Be a constructive collaborator

3. We will see a greater disparity of performance among airlines in the future

The call: Aim higher when it comes to IT and digital investment

4. Aircraft markets may be oversupplied for some time to come

The call: Act countercyclically now, if you can

5. Air freight will see undersupply for some time

The call: Bring back freighters, carefully

Explore a career with us

Airline data: What next beyond crisis response?

Will airline hubs recover from COVID-19?

‘Prepare for the marathon and be ready for the course to change’: An interview with the Boston Logan Airport CEO

Leisure rules

Full-service disadvantage

Staying near home

Increased competition

Changing schedules

Vaccine and stimulus

About the report

Proven Business Strategy

Shareholder Services

Investor Alerts

An Overview of Delta Air Lines

Analyzing Porter's 5 Forces Model on Delta Air Lines

Overview of Porter's Five Forces Method

Horizontal Threats and Vertical Threats

Key Takeaways

Common Airline Business Models

Regional Airlines

Legacy Airlines

Low Cost Carriers

Charter (Holiday) Airlines

Hybrid Airlines

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American Airlines Group: Business Model, SWOT Analysis, and Competitors 2023

What You Will Learn:

Who owns American Airlines Group?

Insider Ownership

Public Shareholders

What is the mission statement of American Airlines Group?

Emphasizing Connectivity and Customer Satisfaction

Promoting Cultural Exchange and Understanding

How does American Airlines Group make money?

Passenger Revenue

Cargo Revenue

Ancillary Revenue

Loyalty Programs

Codeshare and Alliances

American Airlines Group Business Model Canvas Explained

Key Partnerships

Key Activities

Value Proposition

Customer Segments

Revenue Streams

Which companies are the competitors of American Airlines Group?

American Airlines Group SWOT Analysis

Opportunities

Key Takeaways

What is SWOT analysis of Airlines?

What are the weaknesses of American Airlines?

What is the Pestel analysis of American Airlines?

What is the 4 piece in SWOT analysis?

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