Low Cost Concept for Long-Haul Destinations. A Feasibility Analysis of Eurowings' Strategies


Master's Thesis, 2016
163 Pages, Grade: 1,3

Excerpt

II
Executive Summary
On the March 4, 2015 during the ITB international tourism fair in Berlin, the management
board of directors of Lufthansa presented the "new" German low-cost, long-haul carrier
"Eurowings", which would be operated by SunExpress Deutschland. The "new"
Eurowings marked the first low-cost carrier in the history of Lufthansa to start its
operations for long-haul destinations from Cologne Bonn Airport. The last long-haul
destination from Cologne Bonn Airport was offered at the end of 1980s, between Cologne
Bonn and New York ­ Newark. Decreasing flight demand and financial crisis in the last
20 years forced Lufthansa Group to stop all long-haul connections from Cologne Bonn
Airport. At the present time, Cologne Bonn is again the airport where Eurowings starts
its long-haul flights to major tourist and business cities. Today, Eurowings is a subsidiary
company of Lufthansa, with headquarters in Dusseldorf and offers flights from Germany
and Austria to different cities in Europe and around the world. What is more, Eurowings
has received four wide-body aircrafts from Lufthansa for their long-haul destinations such
as Dubai, Bangkok, Phuket and tourist destinations in the Caribbean. After first successful
marketing campaigns and sold out aircrafts, Eurowings started its first long-haul flights
in company history to the Caribbean and Asia-Pacific regions. Nevertheless, Eurowings
ran into problems with respect to flight cancellations and unpunctuality. In this
connection, Eurowings has rapidly encountered image problems and was often criticised
by travel journals and German press. For Eurowings, a delay in flight or general flight
cancellations are connected with an increase in costs.
Above, the commercial aviation industry and its development is positively influenced by
external factors such as political, social, economic and technological developments. In
this connection, airlines are forced to adjust their business models to the external factors
and new market requirements, as well as to introduce new business concepts with the
objective to gain more market shares and competitive advantages. The European market
is divided into different low-cost carriers, which are fighting for more customers, image
and profits. What is more, the "new" Eurowings is a new player in this low-cost business,
in particular in the market for long-haul destinations, which could become an opportunity
to be the first successful low-cost German airline and the third biggest low-cost carrier in
Europe. Whether this opportunity works in reality will be shown in this paper.

III
Table of Contents
Executive Summary ... II
Table of Contents ... III
List of Figures ... VI
List of Tables ... IX
List of Abbreviations ... X
1
Introduction ... 1
1.1
Problem definition and current situation ... 2
1.2
Objective ... 3
1.3
Methodology ... 4
1.4
Structure of the thesis ... 4
2
Strategic Concepts of Macro- and Micro-environment ... 5
2.1
Macroeconomic strategic concepts ... 6
2.1.1 PEST
Analysis
...
7
2.1.2 Porter's 5 Forces ... 10
2.2
Strategic concepts ... 12
2.2.1 7S Framework by McKinsey ... 13
2.2.2 Advantages and disadvantages ... 14
3
Basics of Air Traffic and Aviation Industry ... 15
3.1
Commercial aviation industry ... 15
3.1.1 Historical
development
...
15
3.1.2 Technological
revolution
...
16
3.2
Different types of Air Transportation ... 17
3.2.1 Different types of Air Transport: Airline Business Model ... 17
3.2.2 Different types of Air Transport: Network of Operations ... 25
3.2.3 Different types of Air Transport: Types of flight routes ... 26
3.2.4 Different types of Air Transport: Types of Strategic Networks ... 27
3.2.5 Different types of Air Transport: Types of aircrafts ... 29
4
Research Methodology ... 30
4.1
Research questions ... 31

IV
4.2
Research design ... 33
4.3
Web survey ... 36
5
Eurowings' Assessment ... 38
5.1
Eurowings' connection to Lufthansa ... 40
5.2
Eurowings' operations network ... 41
5.3
Eurowings' product and service ... 46
5.4
Eurowings' sales and marketing campaigns ... 47
6
Strategic Analysis of Eurowings' Long-Haul Concept ... 49
6.1
Feasibility of Eurowings with PEST Analysis ... 49
6.1.1 Political
factors
...
49
6.1.2 Social
factors
...
51
6.1.3 Economic
factors
...
53
6.1.4 Technological
factors
...
54
6.2
Feasibility of Eurowings with Porter's 5 forces ... 57
6.2.1 Intensity of rivalry ... 58
6.2.2 Risk of entry by potential competitors ... 72
6.2.3 Power of buyers ... 74
6.2.4 Threat of substitute ... 74
6.2.5 Power of suppliers ... 79
6.3
Feasibility of McKinsey 7S Framework ... 82
6.3.1 Hard
elements
...
82
6.3.2 Soft
elements
...
84
7
Empirical Analysis of Eurowings Long-haul Concept ... 86
7.1
Pre-test ... 86
7.2
Assessment and implementation ... 86
7.3
Survey results and sample ... 87
8
Conclusion and Results ... 97
8.1
Macro and microeconomic results ... 97
8.2
Assessment results ... 100
8.3
Method discussion ... 106
9
Outlook and Recommendation ... 107
List of references ... XII

V
Attachments ... XXXIII
ITM Checklist... LIII

VI
List of Figures
F
IGURE
1:
M
ARKET SHARES
LCC
VS
.
FSC ... 1
F
IGURE
2:
P
ORTER
'
S FIVE FORCES
... 10
F
IGURE
3:
PEST
A
NALYSIS
. ... 8
F
IGURE
4:
7S
F
RAMEWORK BY
M
C
K
INSEY
... 13
F
IGURE
5:
F
ORMS OF
A
IR
T
RANSPORT
... 17
F
IGURE
6:
S
TRATEGIC
A
LLIANCES IN COMMERCIAL VIATION INDUSTRY
... 18
F
IGURE
7:
C
ODE SHARING IN
S
TAR
A
LLIANCE
N
ETWORKS
... 19
F
IGURE
8:
C
ABIN CONFIGURATION OF
A
IR
F
RANCE
A380
... 19
F
IGURE
9:
C
OMBINATION OF
C
HARTER
F
LIGHTS AND
V
ACATION PACKAGE
... 22
F
IGURE
10:
T
YPES OF FLIGHT ROUTES
... 26
F
IGURE
11:
H
UB AND
S
POKE SYSTEM
... 27
F
IGURE
12:
P
OINT
-
TO
-P
OINT SYSTEM
... 28
F
IGURE
13:
M
ULTI
H
UB
S
YSTEM
... 29
F
IGURE
14:
M
ACRO
-
BODY JET
... 30
F
IGURE
15:
R
ESEARCH PROCESS
... 31
F
IGURE
16:
B
USINESS DEVELOPMENT OF
E
UROWINGS
... 39
F
IGURE
17:
E
UROWINGS
E
UROPEAN NETWORK
... 41
F
IGURE
18:
E
UROWINGS DOMESTIC NETWORK
... 42
F
IGURE
19:
E
UROWINGS LONG
-
HAUL DESTINATIONS
... 42
F
IGURE
20:
E
UROWINGS BOOKING FLIGHT EXAMPLE
... 44
F
IGURE
21:
E
UROWINGS AND ITS INTEGRATED BOOKING SYSTEM
... 44
F
IGURE
22:
C
URRENT NUMBER OF
E
UROWINGS AIRCRAFTS
... 45
F
IGURE
23:
E
UROWINGS PRODUCT
... 46
F
IGURE
24:
E
UROWINGS
A
DVERTISING
... 48
F
IGURE
25:
F
LIGHT FEES
... 50
F
IGURE
26:
T
OURIST FORECAST
2020 ... 52
F
IGURE
27:
T
OURIST STATISTICS BY CONTINENT AND REGION
... 52
F
IGURE
28:
J
ET FUEL AND CRUDE OIL PRICE DEVELOPMENT
... 53
F
IGURE
29:
O
IL PRICE DEVELOPMENT FORECAST
... 54
F
IGURE
30:
E
NVIRONMENTAL PERFORMANCE OF
B
OEING
... 55
F
IGURE
31:
A
IRBUS
A320
AND
A350 ... 55
F
IGURE
32:
I
NTERNET
U
SERS
S
TATISTICS
... 56

VII
F
IGURE
33:
S
TATISTICS OF
I
NTERNET USERS IN
G
ERMAN
... 57
F
IGURE
34:
LCC
MARKET SHARES IN
G
ERMANY
... 58
F
IGURE
35:
R
YANAIR FLIGHT NETWORK
... 60
F
IGURE
36:
R
YANAIR
P
RODUCT AND
S
ERVICE
... 61
F
IGURE
37:
R
YANAIR
'
S
S
ERVICE BEFORE FLIGHT
... 61
F
IGURE
38:
E
ASY
J
ET FLIGHT
N
ETWORK
... 63
F
IGURE
39:
E
ASY
J
ET
F
LIGHT
F
ARES
... 64
F
IGURE
40:
E
ASY
J
ET
S
ERVICES BEFORE FLIGHT
... 64
F
IGURE
41:
N
ORWEGIAN
A
IR
-
FLIGHT NETWORK
... 66
F
IGURE
42:
N
ORWEGIAN
A
IR
F
ARES
... 67
F
IGURE
43:
E
UROWINGS MAJOR COMPETITORS
... 68
F
IGURE
44:
P
RICE ANALYSIS FOR LONG
-
HAUL DESTINATIONS
... 69
F
IGURE
45:
LHLC
DEPARTURES OVERVIEW
... 70
F
IGURE
46:
P
RICE ANALYSIS ON MEDIUM
-
HAUL DESTINATIONS
... 71
F
IGURE
47:
A
VERAGE PASSENGER LOAD FACTOR BY
E
UROPEAN
LCC ... 72
F
IGURE
48:
P
OSTBUS PRICES
... 75
F
IGURE
49:
F
LIXBUS PRICES
... 76
F
IGURE
50:
E
UROWINGS PRICES
... 76
F
IGURE
51:
S
UBSTITUTE
D
EUTSCHE
B
AHN
P
RICE
A
NALYSIS
... 77
F
IGURE
52:
E
UROWINGS
'
FLIGHT SCHEDULE TO
B
ERLIN
... 77
F
IGURE
53:
S
UBSTITUTE
S
HIP
-
PRICE ANALYSIS
... 78
F
IGURE
54:
T
RANSPORT DISTRIBUTION IN
G
ERMANY
... 79
F
IGURE
55:
D
ELIVERY DEMAND OF
B
OEING
... 81
F
IGURE
56:
E
UROWINGS FLEET STRATEGY
2020 ... 83
F
IGURE
57:
E
UROWINGS STRUCTURE
... 83
F
IGURE
58:
E
UROWINGS HOMEPAGE MISTAKE
... 84
F
IGURE
59:
N
UMBER OF
A
NSWERS OF WEB SURVEY
... 87
F
IGURE
60:
A
LLOCATIONS OF GENDER
... 88
F
IGURE
61:
A
LLOCATION OF AGE
... 88
F
IGURE
62:
A
LLOCATION OF FAMILY STATUS
... 88
F
IGURE
63:
A
LLOCATION OF PROFESSION
... 89
F
IGURE
64:
A
NALYSIS OF NEW
E
UROWINGS PROGRAM
... 89
F
IGURE
65:
F
REQUENCY ANALYSIS ABOUT FLYING WITH
E
UROWINGS
... 90
F
IGURE
66:
A
NALYSES RESULTS OF
LCC ... 90

VIII
F
IGURE
67:
R
ESULTS OF AIR
-
TRAVELLERS IN A YEAR
... 91
F
IGURE
68:
RESULTS OF MAIN REASONS TO FLY
... 91
F
IGURE
69:
RESULTS OF CHOOSING TYPE OF DESTINATIONS
... 92
F
IGURE
70:
R
ESULTS OF
E
UROWINGS FLIGHT DELAYED
... 93
F
IGURE
71:
R
ESULTS OF MOST IMPORTANT CRITERIA ON
LCLH
FLIGHTS
... 93
F
IGURE
72:
SWOT
M
ATRIX
... 101

IX
List of Tables
T
ABLE
1:
D
IFFERENTIATION OF COMMERCIAL CARRIERS
... 23
T
ABLE
2:
E
UROWINGS DETAIL SCHEDULES
... 44
T
ABLE
3:
A
IRCRAFT SUPPLIER PRICES
2014
­
2015 ... 80

X
List of Abbreviations
7S McKinsey
Framework
ABM
Airline Business Model
ACMI
Aircraft, Crew, Maintenance and Insurance
ASK
Available Seat Kilometres
ATAG
Ait Transport Action Group
CAI
Commercial Aviation Industry
CAI
Commercial Aviation Industry
CC
Charter
Carrier
CGN
Cologne-Bonn
Airport
DLR
German Institute of Air Transport and Air Research
DUS
Dusseldorf
EBIT
Earnings Before Interest and Taxes
ERA
European Regions Airline Association
FSC
Full Service Carrier
GDP
Gross Domestic Product
GDS
Global Distribution System
HAC
Higher Administrative Court
HaS
Hub-and-Spoke
System
IAG
International Airline Group
IATA
International Air Transport Association
ICAO
International Civil Aviation Organisation
JACDEC
Jet Airliner Crash Data Evaluation Centre
LCC
Low Cost Carrier
LCLH
Low-cost Long-haul
LHG
Lufthansa Group (includes SWISS, Austrian and Brussels Air)
MH
Multi-Hub System
P5
Porter's Five Forces
PEST
Political, Economic, Social and Technological Analysis
PtP
Point-to-Point System
RC
Regional
Carrier
RPK
Revenue passenger Kilometre

XI
SWOT
Strengths, Weaknesses, Opportunities and Threats Analysis
SWOT
Strengths, Weaknesses, Opportunities and Threats
TSA
Transportation Security Administration
UAE
United Arabic Emirates
UK
United
Kingdom
UNWTO
World Tourism Organizations
US
United States of America (USA)
WWW
World Wide Web

1
1 Introduction
We have a strategic plan. It's called doing things.
-- Herb Kelleher (2005), CEO Southwest Airlines.
The aviation industry in the 21
th
century has been changing continuously. Thus, airlines
have been offering their customers more flexibility, destinations and services. According
to the International Air Transport Association (IATA), in 2015 all the airlines worldwide
transported more than 3.5 billion passengers (IATA, 2015), which means that with respect
to the world's population of 7.3 billion people in 2015 (PRB, 2015), over 47 per cent of
the world population used the air transport services for whatever purposes.
The low-cost carrier (LCC) business model has revolutionised the commercial air
transport industry, first in the USA, followed by Europe and then the rest part of the world
(Maertens, 2015, p. 3). LCCs such as Ryanair, EasyJet, Norwegian, Air Asia, JetBlue, as
well as Air Asia and Scoot carry a growing number of passengers each year. However, in
2013, LCCs carried worldwide over 3.1 billion passengers on 33 million scheduled
departures. The market shares of LCC in comparison to the full service carriers (FSC) are
shown in the next figure (IATA - Air Transport , 2015).
Figure 1: Market shares LCC vs. FSC (Airlineprofiler, 2015)
With respect to figure 1, LCCs account for 23 per cent of market shares (worldwide, by
departures), while 77 per cent are FSC. In the European realm, LCCs have a market share
of 28 per cent (DLR, 2016, p. 8).

2
Historically, the first long-haul LCC idea in Europe was established at the end of the
1970s by Freddie Laker, the founder of Laker airways. Laker airways offered low-cost
long-haul (LCLH) destinations from London to different cities in the USA. In 1982, Laker
airways got into financial difficulties and was forced to liquidate (Cheng-Jui Lu, 2003, p.
175). Over 20 years later, Norwegian Air started successfully to quote LCLH flights,
which depart from London and Scandinavia and fly to various international destinations.
In Asia, LCCs like Malaysian Air Asia X, Singapore's Scoot Air, and Australian Jet Star
operate with wide-body aircrafts for LCLH flights in the Asia-Pacific regions (Maertens,
2015, p. 3). LCC Air Asia, has been given a new low-cost terminal in Kuala Lumpur.
Kuala Lumpur is a headquarter of Air Asia and one of the major hubs of other Asian-
Pacific LCCs (Lee & Carter, 2012, p. 490). With respect to Europe and Germany,
different costs and taxes force LCCs and other airlines to choose more profitable airports
in order to decrease costs and increase margins. Since 2002, Cologne Bonn Airport
(CGN) has been focusing on low-cost business and is now one of the largest continental
low-cost airports in Europe (Cologne Bonn Airport, 2016). Due to the autumn events in
2015 (Lufthansa presenting its subsidiary LCC Eurowings), Eurowings has started its
long-haul services from CGN, first to America than to Asia and the Middle East which
are operated by SunExpress under an Aircraft, Crew, Maintenance and Insurance (ACMI)
agreement (Maertens, 2015, p. 3).
1.1 Problem definition and current situation
With launching Eurowings on the first LCLH flight in November 2015 from CGN to
Varadero (Cuba), Lufthansa Group (LHG) management board of directors rapidly
introduced new destinations to the Caribbean. The first flights of Eurowings were
punctual, but after launching other long-haul destinations, Eurowings experienced
business chaos, permanent delays (over eight hours on average for every third flight) with
growth of delay costs as well as high compensation costs (Spiegel, 2016). Furthermore,
Eurowings suffered from company image problems and negative headlines in the German
press. After temporary stabilisation of punctuality problems, Eurowings received
additional one wide-body aircraft for flights between CGN and Asia. In May 2016,
Eurowings' flight from Phuket to CGN was delayed for over 30 hours and over 300
passengers were affected (WAZ, 2016). At the same time, another flight from the
Dominican Republic was delayed for over 25 hours simply because the flight crew did
not get enough layup (Frommberg, 2016). This begs the question as to how Eurowings

3
can stabilise its air traffic and schedule plan.
Currently, Eurowings operates to eleven LCLH destinations worldwide and deploys four
wide-body jets (aircrafts) for these long-haul destinations (LH Group - Eurowings, 2016,
p. 15). Moreover, the LHG faces the challenge of planning strategic Eurowings direct
connections (point-to-point) between CGN and the other eleven destinations without
using traditional airport hubs in Frankfurt or Munich. Additionally, Eurowings faces
challenges in consideration of different external and internal factors such as failure of
flight crews, delay, etc. (Brützel, 2015). What is more, Eurowings' unpunctuality, market
positioning in low-cost industry on LCLH flights, and loss of image are major problems.
The growing competition in LCLH business from Scandinavia, in particular from
Norwegian Air is rapidly influencing Eurowings' growth in terms of number of
passengers, fleet size and number of destinations. The factors (e.g. delay, growing
competition, etc.) mentioned lead to the question as to how Eurowings' defined strategy
"to be the 3
rd
biggest LCC in Europe" is going to be put into action (Airliners , 2016).
1.2 Objective
The purpose of this paper addresses various aspects. First, to analyse the Eurowings'
strategy by applying different macro- and microeconomic tools in order to consider
competition, political forces, environment influences and economic impacts. Second, to
examine in particular Eurowings' LCLH business model and which strategy was selected
by the LHG management board and how this strategy works ­ now and in the future.
Additionally, the objective is to analyse Eurowings European competitors, with the major
goal first to understand Eurowings' market position in Europe, and second, to answer the
research question with regard to strategy selected by the LHG.
Moreover, the empirical analysis, web survey, research questions and methodology may
help to understand what is thought about the new business concept of Eurowings and
which criteria are most important for the samples (participants) on the LCLH air routes.
Subsequently, the results of this strategic assessment should answer the defined research
questions and show Eurowings' strengths, weaknesses, opportunities and threats
(SWOT). The last objective of this paper is to offer a conclusion by presenting the survey
results and macro- and microeconomic results as well target-oriented recommendations.

4
1.3 Methodology
The thesis is based on a thorough research and analysis of contemporary books, scientific
articles, air transport case studies, international commercial aviation forecasts, and
aviation magazines. The core research idea and methodology design is taken from Philipp
Mayring's Qualitative Inhaltsanalyse, Helmut Kromrey's Empirische Sozialforschung
and Sabine Kirchhoff's Der Fragebogen, which deal with different qualitative and
quantitative research methods.
The articles from the leading airline organisations and commercial aircraft manufacturers,
such as IATA, ICAO, Boeing and Airbus, are used for the assessment as well. Practical
examples are illustrated by using the information, taken from Eurowings and Lufthansa
corporate websites, as well as annual reports and company publications. The analysis is
based on the different strategic tools, which are introduced in the second chapter and
approached in the practical part of this paper. Furthermore, different case studies form
the German Institute of Air Transport and Air Research (DLR) and Air Transport
magazine are applied for this assessment.
1.4 Structure of the thesis
This thesis is divided into nine parts. The first chapter starts with the introduction,
objective, problem definition and methodology. In the first chapter, the author offers a
short overview of the LCCs and describes Eurowings' current problems. The second and
third part of this thesis concern the theoretical foundations. The definitions of strategy,
macro- and microeconomic are showcased in the second part. Additionally, the strategic
tools applied in the analysis and for answering the research questions are demonstrated
in the second chapter. The major goal of the second chapter is to give a theoretical
overview of internal and external economic factors (macro- and microeconomic) and how
the tools can be applied for one specific industry.
The third part of this work is dedicated to the commercial aviation industry (CAI), starting
with the historical development of the CAI and following with industrial revaluation.
After introducing the CAI and its development, the next subchapter of the third part will
concentrate on airlines business models and its strategic approaches. Additionally, the
third part presents the airline business model, which includes types of carriers, types of

5
routes, strategic network and types of aircrafts. In this connection, the reader should get
a detailed appreciation of CAI and its business model.
The main part of this work is presented in the fourth, fifth and sixth chapters. Chapter
four begins with the methodology and research questions for this work, followed by
research design and introducing of applied research method. The target of the fourth
chapter is to show the research approach, in particular answering the question why a
definite approach was selected for this work. The fifth chapter of this paper starts with
the assessment of Eurowings, which includes a short historical development, the
connection to Lufthansa, network analysis, destinations and marketing and sales
strategies.
Following that, the sixth chapter applies strategic tools, which are presented in the
theoretical part of this paper. Additionally, to answer the research questions, the
competition of Eurowings is discussed in detail. After the main chapters, a reader can
understand who the major competitors of Eurowings are and which additional factors
(e.g., politics, fuel costs etc.) can rapidly influence Eurowings. Chapter seven starts with
the empirical analysis of Eurowings and includes the pre-test approach and discussion of
empirical results. The eighth chapter forms the conclusion, which includes the results of
the assessment and approach methods discussion. This thesis will finish with
recommendations and future outlook.
2 Strategic Concepts of Macro- and Micro-environment
The second chapter of this paper begins with theoretical background of strategic
management and its tools. Particularly in relation to the strategy and management, the
second chapter starts with introduction and definition of corporate strategy. After the
introduction and definition of strategy and its importance in the corporation, the first
subchapter represents the strategic concepts of macroeconomic environment, which
includes definition of macroeconomics, the concept of Porter's five forces (P5) PEST
analysis and McKinsey's 7S Framework (7S). Furthermore, microeconomics is defined,
followed by the integration responsiveness matrix.

6
The word `strategy' comes from the Greek word `strategos', which means `general'. At
that time, strategy meant the art and science of directing military forces (Sekhar, 2010, p.
72). Today, strategy is one of the important parts of a company's future and its
development. Often, strategy is defined as a planning process that includes a set of actions
that have to be taken to increase the company's performance relative to rivals (Hill &
Jones, 2012, p. 2). In particular, the board of general directors, often called top
management, are responsible for the overall performance of the company and the strategy
making process. According to Charles Hill, the strategic planning process includes five
important steps, starting with mission and goals, followed by external and internal
analysis, selecting the strategy built on the advantages offered by external opportunities,
and afterwards implementing a strategy (Hill & Jones, 2012, p. 7). One of the first and
most important points is to define the company's mission. The mission describes what
the company does with a focus on customer needs (Hill & Jones, 2012, p. 30). For
example, the LHG mission "is to be the first choice for customers, employees,
shareholders and partners" (Lufthansa Group, 2015). The external analysis, the second
component of the strategic planning process, is an analysis of the external operating
environment. The goal of the external analysis is to identify the opportunities and threats
in the organisation's operational environment. In comparison to external analysis, the
internal analysis identifies the strengths and weaknesses of the organisation. After the
external and internal analysis of an organisation, the result can become a competitive
advantage (Hill & Jones, 2012, p. 9).
For this thesis, the strategic internal and external analysis may help to understand the
Eurowings current and future strategy, as well as company's vision and mission.
2.1 Macroeconomic strategic concepts
Macroeconomics is an important field of economics and is differently defined in the
literature. Gregory Mankiw defines macroeconomics as study of an economy-wide
phenomena, which includes inflation, unemployment and economic growth" (Mankiw,
2011, p. 92). One of the important phenomena is the gross domestic product (GDP),
which represents the market value of all final goods and services produced by country in
a period of time. The increased GDP represents the economic growth of one country
(Mankiw, 2011, p. 94). The major goal of macroeconomics is to explain the economic

7
changes (global) which can influence companies and private households (Mankiw, 2011,
p. 92).
Concerning the macroeconomic factors, the strategic tools assist to dissect the external
influences of a company and identify risks and changes from the macroeconomic
environment.
For this paper, the author has chosen the P5 and PEST analysis (often called STEEP
Analysis). P5 is an important tool that is often used in strategy analysis and considers
opportunities and threats of one specific industry (in this thesis, CAI). In this regard, P5
results in an overview about CAI and competitors that serve the same customer needs.
The opportunities in the business industry arise when a company takes advantage of its
industrial environment and is able to become more profitable. The threats arise when
conditions in the environment jeopardize the integrity and profitability of the company
business. According to P5, the industry represents a group of companies that offer
products or services that are close substitutes for each other (e.g., Lufthansa, KLM-Air
France, British Airways are operating in the same aviation industry and offering service
in the form of "flights" to the customers) (Hill & Jones, 2012, p. 56). In comparison to
P5 industry analysis, the PEST analysis focuses on the political, social, economic and
ecological aspects. These environmental aspects can directly or indirectly influence the
competitiveness of companies (Bensoussan & Fleisher, 2013, p. 385).
The following subchapter 2.1.1 describes the PEST analysis model in detail, followed by
the P5 in subchapter 2.1.2.
2.1.1 PEST Analysis
The PEST analysis (Political, Economic, Social, Technology) is one of the most
important strategic management methods for analysing the microeconomics (external)
influences of a company. The main questions of the PEST analysis are:
What are the environmental factors, that can affect the company?
Which strategic steps will be most important in the next four years?

8
In addition, the PEST analysis is often used for the new opportunities in the market with
respect to the competitors in the same industry. Often the PEST analysis is used for the
evaluation of new market chances as well (Gregory, 2010, p. 52). The factors of PEST
analysis are shown in the figure 2.
Figure 2: PEST Analysis, source: Own assumption based on Gregory (2010), p. 52-53.
Political Factors
Political factors have a strong influence on economic change (Rugman, et al., 2006, p.
373). Politics defines the taxes in each country, political instability, critical situations and
wars. Changes and trends in political industry have a significant impact on an industry,
for example, the terrorist attacks of the World Trade Center in New York City and the
Pentagon in Washington D.C on September 11, 2011. The effects on the airline industry
were catastrophic. First, the airspace in the US was closed for four days. Second, the fear
of future terrorist attacks (worldwide) caused a steep decline in flight demand, in the US
and international flights, including from and to the US (Shaw, 2011, p. 54).
Economic Factors
Economic values such as GDP, interest rates, monetary and fiscal policy influence the
demand and supply of the product(s) of companies. According to the CAI, the economic
growth (worldwide or in one specific country), has an impact on airline profit. If the
economic growth is rapid in a particular year, so it increases flight demand (Shaw, 2011,
p. 71). Other important economic impacts are the oil costs and world financial situation.
The growing oil prices directly influence flight ticket costs and airline revenues. In
addition to oil costs, the country's flight taxes (e.g., landing and start taxes) impact
airlines (Paul & Wollny, 2014, p. 79).
External
factrors
Economic
Political
Technology
Social

9
Social Factors
Social aspects represent the customer and customer values influencing the demand for
products. Other aspects which might influence companies are on birth and death rates,
culture and demographic changes. The ageing population in Europe and the US in
particular is increasing steadily. In the time of globalisation and internationalisation, the
changing family structures impact the CAI as well. However, the family members (e.g.,
children, parents, etc.) are often living and working in different parts of the world.
Accordingly, family members look forward to meet often and using aviation services for
long or short destination flights. Another social factor is the female business traveller. Up
until recently, the business travel market has been overwhelmingly dominated by men
(Shaw, 2011, p. 76). The German board of travel management (VDR) analysed the
business travellers in the Europe and explicitly in Germany. The VDR calculated that
over 9.4 million business passengers flew in 2012. In 2013, the number of business
travellers increased by 6.4 per cent and was calculated to be over 10 million (VDR, 2014,
p. 2). In Europe, over 20 per cent of business travellers are female. Nowadays, it is usual
that women return to work after childbirth and start building a career. This change in
female business travel has forced airlines to rethink their marketing and make flight offers
more attractive to women (Shaw, 2011, p. 76).
Technology Factors
Technology profoundly affects all areas of life. Technological changes such as new PCs,
Internet, e-Commerce and e-Business motivate companies to make new changes in
information and science technology (Analoui, et al., 2003, pp. 75-77). The current
technology allows companies and families to use video conferencing for business or
private communication. Skype, a Microsoft company, is one of the most important tools
for conducting video conferences. In the early beginning of the 21th century, the business
meetings were organised on site and business people were dependent on airlines. Today,
meetings are mostly conducted via video conferences. Video conferences (e.g., via
Skype, etc.) have led to a decrease in air travel (Shaw, 2011, p. 76). Another important
technology factor is the new airline development. An example is the Airbus A380 aircraft
with large cabin volume, giving airlines opportunities to offer long-haul routes with more
comfortable seats and innovations. These technological developments by aircraft
manufacturers (e.g., Airbus or Boeing) are the results of major changes in technology.

10
Finally, airlines offer their new aircraft as a technological and innovation product to their
customers (Shaw, 2011, p. 79).
However, the major advantage of the PEST analysis is presented in identifying market
trends by regular application of this macroeconomic model. On the other hand, the model
is complex and applying it requires a lot of time. In most cases, PEST is sufficient to
analyse all of political, economic, social and technologic aspects (Siegfried, 2015, pp. 56-
59). The next subchapter represents the theoretical background of the P5.
2.1.2 Porter's 5 Forces
The framework of P5 was developed by Harvard Professor M. Porter in 1979. The major
goal of P5 is to gain an analysis and understanding of the opportunities and threats
confronting companies in order to identify a company strategy that will enable (at present
or in the future) the company to outperform its rivals (Hill & Jones, 2012, p. 56). The
following figure shows the framework of P5.
Figure 3: Porter's five forces (Hill & Jones, 2012, p. 57)
Intensity of rivalry
Industry rivalry describes current competitors and their market shares (e.g., competitors
of Lufthansa in Europe are KLM-Air France, British Airways and Iberia). The aim of first
force is to analyse rivalry in terms of different factors such as price (for one product or
service), product design, marketing campaign, advertising, promotion and service (Hill
& Jones, 2012, p. 55).
Risk of entry by potential competitors
The potential competitors are companies that are not competing at the moment, but they
have resources to develop the same business and to compete in the future. An example of
this is the Volkswagen Group. Currently, VW group does not produce motorcycles; but
in the future they possibly will manufacture them and thereby will compete with BMW.

11
The target of the second force is to analyse a competitor's investments and to be ready
for new strategic decisions. According to the CAI, the potential competitors can be
aircraft manufacturers, airports or airlines. An example of this is Mitsubishi (automotive
industry), which presented their new aircraft and entered the market in 2014 as the first
Japanese aircraft manufacturer (Cooper & Matsuda, 2014). On the other hand, every
airline can become a potential competitor by introducing a new business (e.g., LCC or
hub and spoke strategy).
Additionally, the P5 model defines five different entry barriers that make it costly for
companies or corporations to enter an industry (Besanko, et al., 2013, p. 262). These
barriers are:
Economics of Scale: The economics of scale occur when unit costs fall as a
firm expands its output (Hill & Jones, 2012, p. 58).
Brand Loyalty: Charles Hill defined brand loyalty as "Preference of
consumers for the products of established companies" (Hill & Jones, 2012, p.
58).
Absolute Cost Advantage: this is enjoyed by incumbents in a specific industry
(e.g., aviation industry) and that new entrants cannot expect too much (Hill &
Jones, 2012, p. 59).
Switching Costs: these are often defined as expenses that a company must
incur to switch from the products that are offered by one established company
to the products offered by a new entrant (Hill & Jones, 2012, p. 60).
Government Regulation: this is one of the most important barriers for many
industries, because government can directly influence the companies and
create competitive advantage (Mahon & McGowan, 1996, p. 50).
Bargaining Power of Buyers
Buyers can be subdivided into two types: individual end customers who consume industry
products, and companies that distribute industry products to the end consumer. The
purchasing power of consumer always influences the economic market. The target of the
third P is to analyse customer needs in consideration of demand quality and product price.
In the CAI, the power of buyers is presented in the passengers, mostly divided in business
travellers and tourists (Hill & Jones, 2012, p. 64).

12
Bargaining Power of Suppliers
The power of suppliers provides companies (or industries) with different financial and
material inputs such as material (oil, metal, gas, etc.), services and labour of organisations
or companies. The power of suppliers influences product costs and profits in the industry.
The objective of the fourth force is market stability. High prices of suppliers pose a threat
to most companies (Hill & Jones, 2012, p. 64).
Threat of substitutes
Substitute products are often defined as the products of different businesses that can
satisfy similar customer needs. The target of the threat of substitutes is to analyse the
different businesses in the same industry (Hill & Jones, 2012, p. 65). According to the
aviation industry, substitutes products can be other different transportation services such
as train, ship, bus, etc. (Hill & Jones, 2012, p. 65).
However, the major challenge of P5 is represented by understanding this model. If a
company understands these forces, then it can develop a business level strategy that
allows the business to create an advantage and protect itself from these forces (Ahlstrom
& Bruton, 2010, p. 131). On the other hand, P5 forces are extremely difficult to apply to
large multinational companies with synergies and interdependencies achieved from a
portfolio of core businesses, which is a disadvantage of P5 (Wilkinson, 2013).
2.2 Strategic concepts
In contrast to macroeconomic concepts, microeconomics is concerned with how the
individual households and companies make their decisions and how they interact in
markets. The major goal of microeconomics is to study internal economic factors
(Mankiw, 2011, p. 29).
With respect to strategic concepts, there are many different strategic tools that can help
to analyse the internal strategies. One of the most popular tools is the SWOT analysis.
The SWOT analysis is not discussed in the theoretical part and will be directly applied in

13
chapter 8. Another popular internal strategic tool is 7S (Sekhar, 2010, p. 72). The 7S will
be discussed in detail in the next subchapter.
2.2.1 7S Framework by McKinsey
The 7S was introduced at the end of the 1970s by Robert Waterman, Thomas Peters and
Julian Philips. The 7S was developed by McKinsey management consultants at the time
when changes were occurring in the management of Japan's most famous organisations.
The 7S are seven important forces which address an organisation as a whole at a particular
point in time (Witcher & Chau , 2010, p. 248). The 7S of the framework are shown in the
next figure and are segmented in the hard elements and the soft elements.
Figure 4: 7S Framework by McKinsey (Witcher & Chau , 2010, p. 249)
Hard Elements
Strategy is the first force of 7S and represents actions which an organisation plans in
response to or in expectation of changes in the external (macroeconomic) environment,
its customers and competitors (Witcher & Chau , 2010, p. 249).
Structure shows responsibilities and authorities in a company or organisation. A structure
is often defined as a design of organisation through which the enterprise is administrated.
A structure includes mostly two important aspects: first, the lines of authority and
administration between different business units and their managing directors. Second, the
information and data that flow through the lines of communication and authority (Sekhar,
2010, p. 72).
Systems include business processes, rules, regulations, procedures, formal and informal
(Witcher & Chau , 2010, p. 249). Systems are management tools or systems (e.g., SAP)
for planning, management decision-making, communication and control. The tools

14
include most importantly (IT) systems for cost accounting, performance valuation, capital
budgeting and corporate accounting (Sekhar, 2010, p. 72).
Soft Elements
Staff refers to an organisation's human resources. Staffing is often defined as a business
process for acquiring human resources for an organisation or a company and assuring that
they have the potential to contribute to the organisation's strategic goals (Sekhar, 2010,
p. 73).
Style describes how the managers and managing directors lead and motivate. Style is one
of the levers which top managers use to bring about organisational change. The aspects
of business most emphasized by members of top management may also convey the style
and working performance of an organisation (Sekhar, 2010, p. 73).
Skills characterize the organisation or company in terms of what it does best, its dominant
attributes or capabilities (Witcher & Chau, 2010). Mostly, skills are developed over a
period of time and show the results of the interaction of different factors. Some of these
factors are performing certain tasks over a period of time e.g. people in the company, top
management style and its leadership, company structure, etc. (Sekhar, 2010, p. 73).
The last force of the 7S is shared value, often called superordinate goals. The shared value
represents company strategic goals, objectives, ideas and values that the organisation
pursues to activate its purpose. Often, it is a set of values and aspirations that goes beyond
the conventional formal statement of corporate objectives (Sekhar, 2010, p. 73).
2.2.2 Advantages and disadvantages
The 7S microeconomic analysis represent different advantages and disadvantages. The
first advantage of the 7S provides a short inside into management constructs (Fleisher &
Bensoussan, 2015, pp. 374-375). Second, the 7S defines "hard" (strategy, structure and
systems) and "soft" (shared value, skills, style and staff) elements; moreover, the
organisation's leadership and management have direct influence and can control these
"hard" and "soft" elements, which can be more readily and swiftly changed (Wilcox &
Jenkins, 2015, p. 93).

15
On the other side, 7S is complex: when one part of the presented elements (e.g., structure)
is changed, all parts change because they are all interrelated (12 Manage, 2007).
Moreover, the disadvantage of 7S was identified by Morgan, N.D., where 7S ignores the
differences (Sumonova, 2007).
In accordance with the strategic tools applied in this paper, the next subchapter starts with
a short introduction and development of the CAI types of air transportation.
3 Basics of Air Traffic and Aviation Industry
After the theoretical introduction of strategic tools in macro- and microeconomics, this
theoretical subchapter gives an overview, definitions and development of air traffic and
the aviation industry. The major target of this subchapter is to show in which industry we
are, namely in the process of development of the aviation industry in the past and today.
Additionally, the subchapter shows different forms of air transportation.
3.1 Commercial aviation industry
Based on the assumption that air traffic includes both transport of passengers and goods,
as well as company organisation, relationships between organisations in form of
agreements, company strategies, national and international interests, etc. Generally, the
economic part of aviation is a generic term that includes air traffic, aviation industry and
aviation organisation. Air traffic is defined differently in the literature. One of the most
common definitions refers to air traffic as all of the events including passenger transport,
goods, post and other services, which are served by air traffic (Pompl, 2007, p. 17).
Aviation industry represents the total economics, technical organisations of air transport,
which includes development of aircrafts such as B747 and A380, infrastructure such as
airports and runways and air traffic security controls. Aviation organisation describes
institutions that decide and issue legal, economical regulations for air traffic and air
transport (Pompl, 2007, pp. 17-18).
3.1.1 Historical development
The history of CAI goes back to the 20
th
century. During the First World War between
1914 and 1918 and Second World War (1939-1945), aircraft manufacturers concentrated
on the development of military jets (Niccoli, 2002, p. 146). The world wars and the
massive destructions throughout Europe (1945) led to a decrease in the demand of CAI.

16
The wars contributed to considerable changes and new technological developments in the
CAI. The transport of military, medicals and other human humanitarian aid took a long
time. In this connection, the political forces and aircraft manufacturers joined to develop
new aircraft for the long-haul destinations between USA and Europe. The first aircraft in
the aviation industry as such were military jets and transport jets (Niccoli, 2002, p. 146).
After the two world wars, the manufacturers (Boeing, Douglas and Lockheed) started to
produce long-haul aircrafts and this led to the establishment of long-haul aircrafts at the
end of 1950 (Niccoli, 2002, p. 147).
The first airline in Germany was "Luft Hansa" (today, Lufthansa) and got established in
1926. In that year, Lufthansa offered their customers flights between Frankfurt and some
European cities such as London, Stockholm, Amsterdam and Rome (Berger, 2006, p. 15).
At the same time, the US airlines were formed. The first airline in the USA was Pan
American Airways, which was established at the end of 1920. Pan American offered
flight services between Miami ­ St. Petersburg (USA) and Key West in Florida (Davies,
1987, p. 3). The "forming boom" and establishing of the commercial airlines started with
new technological progress and development of new Boeing 707 in 1954. The Boeing
707 was a long-haul aircraft with a flight range of over 9,200 km and a capacity of 147
passengers (Niccoli, 2002, p. 151).
3.1.2 Technological revolution
The fast innovation and economic growth forced airlines and aircrafts manufacturers to
make technological advances. After introducing the Boeing 707 in the 1950s, followed
by the development of wide-body aircrafts "jumbo jets (Boeing 747)" in the 1970s, the
biggest airlines in the USA and Europe were established. At the same time, the airlines
were regulated throughout the world, creating an environment in which technological
advances and government policy took precedence over profitability and competition
(Belobaba, et al., 2009, p. 1). At the end of the 1970s, airline deregulation started in the
US. Prior to this, air routes in the USA were allocated by the US-Government, with the
result that many airlines operated as monopolies or shared the routes with just one other
airlines. After deregulation in the USA, the new "open sky" policy was introduced. The
consequences of deregulation were dramatic, with lower fares, many flight routes and
greater choice of airlines. Due to this fact, consumers saved over $100 billion in the
deregulation period between 1970s and 1990s. Another consequence was the failure and

17
insolvency of over 30 American airlines. One of these was the nation's first, Pan
American Airways in 1992 (Sloman, 2005, p. 174). The deregulation in Europe started in
1993. Both throughout the USA and in Europe the airlines and airlines air-routes were
regulated by government. Since 1993, the commercial airline industry has been
progressively deregulated and competition was increased, with a growing of availability
of discounter fares such as LCC. In current time, the European airlines are free to charge
whatever they like, and they can fly on any air routes and to many world destinations
(Sloman, 2005, p. 148).
3.2 Different types of Air Transportation
The different types of air transport are categorised according to various criteria, which
are represented in the next figure (5). Due to the fact that this thesis deals with the CAI
in particular, the following discussion elaborates on various types of air transport, aircraft,
airline business models and types of networks.
3.2.1 Different types of Air Transport: Airline Business Model
Nowadays, the CAI calculates that there are over 265 airlines in 117 countries (IATA
Facts & Figures, 2016, p. 1). Generally, these 265 airlines are categorised in four different
airline business models (ABM), measured by type of service, aircraft types, network
management structure and ticket prices. These ABMs are full service carriers (FSC) or
often referred to as network carriers, low cost carriers (LCC), regional carriers (RC) and
charter carriers (CC). All of these ABMs are discussed in succession, starting with FSC
(Pompl, 2007, p. 32).
Figure 5: Forms of Air Transport, source: own assumption based on (Pompl, 2007, p. 32-45) and (Sterzenbach,
et al., 2009, p. 230-250)
Types of Air Transport
Airline
business
model
FSC,
LCC
RC,
CC
Network of
Operation's
Intercontinental,
Continental, National
Type of
flight
routes
long-haul, medium-
haul, short-haul
Types of
startegic
network
Hub and Spoke,
Point to Point,
Multihub
Types of
aircrafts
Wide-body, Narrow-
body, Macro-body

18
Full Service Carriers
Mostly, FSCs are the biggest world airlines such as Lufthansa, Emirates, Delta Airlines,
Singapore Airlines, etc. An airline is in the literature often variously defined. In general,
an airline represents a logistic service, which includes passenger transportation, cargo
transportation and maintenance (Jacquemin, 2006, p. 6). The first FSCs were formed in
the USA and Europe and offered their customers "full service" pre-flight and in-flight.
Some of these services are seat reservation, baggage claim, meals and drinks during the
flight and lounge entries before flight (Jacquemin, 2006, p. 7). The FSCs are mostly
global players and members of different strategic airlines alliances (e.g., Star Alliance,
One World or Sky Team ­ see figure 6). The first strategic alliance in the CAI was formed
in the second half of the 1990s (Cento, 2009, p. 5). An alliance in the CAI includes more
than one airline partner with the same business objectives (Cento, 2009, p. 18). Strategic
alliances are so named because cooperation is evident in a wide range of activities ranging
from sales and marketing to purchasing and maintenance.
Figure 6: Strategic Alliances in commercial aviation industry, source: own, based on (Airline Analyst, 2012),
(Sky Team, 2016) (Star Slliance, 2015), (One Worls, 2016)
When the strategic alliances are formed and airlines enter the alliances, partners cooperate
by offering of code sharing flights and frequent traveller programmes (e.g., Miles and
More, Flying Blue, etc.) (Iatrou & Oretti, 2007, p. 76). Code sharing flights refers to two
or more airlines, usually strategic partners or airlines alliances, that share the same
identification code on flight schedules (Wensveen, 2011, p. 293). One example of code
sharing is shown in the next figure 7, where Lufthansa sells the flight tickets on its
homepage. However, the flight (in the example to Orlando, 20 November 2016) will be
provided by the Lufthansa strategic alliance partner United Airlines.
Star Alliance
· 28 airlines partners
· Established in 1997
· Biggest airlines:
Lufthansa, Air
Canada, United,
Sinagapoe and
Turkish
Sky Team
· 20 arilines partenrs
· Established in 2000
· Biggst airlines:
KLM-Air France,
Delta, Korean Air
and Aeroflot
One World
· 15 airlines partners
· Establsihed in 1999
· Biggest ailrines:
American, Qantas,
Catahy, British,
Ibria and Qatar

19
Figure 7: Code sharing in Star Alliance Networks (Lufthansa, 2016)
However, the FSC offer their customers different cabin configurations, classes of service.
An airline seeking the lowest costs of operation will configure its aircraft in a single class
(e.g., economy class), and will place as many seats as possible in each plane. Cabin
configuration depends on an airline marketing strategy. If an airline develops
multiproduct philosophy, one of the main objectives is the need to provide different
classes of service and seats on board of their aircrafts (Shaw, 2011, p. 180). Those classes
of service are often first class, business class and economy class. The classes are offered
with diverse types of quality (seat comfort, meals on board, etc.) and different price levels
(Belobaba, et al., 2009, p. 65). In terms of price, first class prices are the most expensive
and are available on premium airlines such as Emirates, Lufthansa, Etihad, Qatar, etc.
Today, the first class cabin has seats which fold down into horizontal beds and own
apartments on the aircraft (e.g., by Etihad Airways). One example (Air France, A380) of
the cabin configuration is shown in the next figure.
Figure 8: Cabin configuration of Air France A380 (Air France, 2016)
In terms of aircraft, FSCs possesses wide-body aircrafts from the best-known aircraft
manufacturers Boeing and Airbus. The long-haul aircraft such as Airbus A-380 or Boeing
B-747 can transport over 400 passengers to different parts of world (Shaw, 2011, p. 36).

20
Low-Cost Carriers
The LCC concept revolution was born in the USA during the deregulation period of the
air transport in the early 1980s. The first pioneer of LCC was Southwest Airlines in the
USA. Southwest Airlines focused on keeping down operating costs to efficiently compete
with the incumbent players (Christ, 2009, p. 6). In Europe, the Southwest concept was
copied in the early 1990s by Irish traditional carrier Ryanair, which transformed itself
into an LCC, followed by other LCC EasyJet in 1995. The LCC concept is distinctly
defined. In general, the LCC is an airline which has competitive advantages in terms of
costs over network carriers (Cento, 2009, p. 19). The LCC business model includes only
single product "flight service" without additional services such as meals or snacks on
board, seat reservation and hold luggage. Usually, the LCC operates from regional
airports (often called secondary airports) without high costs in terms of landing, starting
and taxes (Pompl, 2007, p. 104).
However, the main pillars of LCC are presented in cost reduction, ancillary revenues and
dynamic pricing. First, cost reduction is represented by using small (secondary) airports
with the goal to increase daily flights and hence aircraft productivity. Some examples of
secondary airports in Germany are Weeze-Airport and Frankfurt-Hahn. Neither of these
airports have a direct geographical connection to the exampled cities (Dusseldorf and
Frankfurt), because of the long distances (over 70 km) between secondary and primary
airports. In Dusseldorf (DUS), the primary airport is DUS international, secondary airport
is 80 km away (Weeze-Airport). An additional cost-reducing factor is turnaround time at
the airport. The major LCCs select automatically passengers seats during the check-in
process (Passengers don't have opportunities to select other seat). Using the automatic
allocation of seats, LCC makes passenger boarding quicker and yields shorter
turnarounds as well as higher aircraft utilisation and hence lower aircraft and airport costs
(Maertens, 2015, p. 4). What is more, LCC does not offer its customers any frequent flyer
programmes such as Miles and More (Lufthansa) or Flying Blue (KLM-Air France) or
use of airline lounges. With respect to the ancillary revenues, traditional LCC sales of
catering (often during a flight) and additional pre-flight services (seat reservation, fast
track etc.). The last aspect of LCCs is the often dynamic and flexible pricing model.
However, traditional LCCs apply in most instances a similar price formula: "if you want
to benefit from cheap tickets, book early; while late-bookers have to pay much more"
(Maertens, 2015, p. 4).

21
With respect to the aircraft and its capacity, LCCs operate in general with one or two
types of aircraft. Mostly these aircrafts are Boeing 737s or ones from the Airbus family
(A-319, A-320 or A-321), often called narrow-body aircrafts (Belobaba, et al., 2009, p.
154). One exception are the LCCs from the Asia-Pacific region. Malaysia's Air Asia X
and Singapore's Scoot Air operate with A330s and Boeing Dreamliners (B787) in Asia
and Australia (Taneja, 2008, p. 53).
The narrow-body aircraft which are used by LCC have in general only one class
configuration (economy) and on average 149 seats. The fleet composition also depends
on the fact that LCC operate only short- or medium-haul routes (Cento, 2009, p. 70), with
the exception of Air Asia X and Scoot Air. Due to this fact, the high aircraft utilisation
allows LCC to generate more flying time from its fleet every day. This is based to a large
extent on fast turnarounds, using PtP and secondary airports (Holloway, 2008, p. 33).
Regional Carriers
RCs were formed in the late 1980s. Most of RCs were formed during the boom in the
1980s and increasing flight demand. The European Regions Airline Association (ERA)
defined RC and regional transport as an air transport, where RC connect two regional
airports or connect one regional and one international airport in form of an air shuttle
(Schulz, 2009, p. 112). In general, RCs are specialized in short-haul flights within limited
geographical areas. The core business of RCs is currently to serve small cities, connecting
them with national or international capitals. The RCs are typically equipped with macro-
body aircrafts such as turbojets or regional jets (Bombardier, Fokker etc.) having seats
capacity between 19 and 120 (Hill, et al., 2015, p. 549).
However, at the present time RCs typically cooperate with FSCs. Cooperation in this case
is an advantage for both carriers. First, FSCs cannot carry regional destinations, because
of unavailability of regional aircrafts and high costs. Initially, RCs profit from the strong
image of FSCs and increasing flight demand (Schulz, 2009, p. 113). On the other hand,
this type of cooperation leads to disadvantages for both carriers. Firstly, the flight demand
of RC flight routes depends on the necessity of FSC. Previously, RCs carried flight routes
which could not be carried by FSCs (Schulz, et al., 2014, p. 38). The target group of RCs
are primarily business passengers (Schulz, 2009, p. 113).

22
Charter Carriers
CC or leisure carriers are airline companies that operate flights outside normal schedules.
The historical development of CCs dates back to the end of the 1950s. The first CCs were
formed in the UK (Woodley, 2006, p. 85). In Europe, the first charter airlines were formed
in 1955 when Condor offered the first charter flights to their customers (Condor, 2015).
After deregulation in the USA and Europe and increasing flight demand, CCs were
formed rapidly. Some of these charter carriers in German market are Germania, TuiFly
and Condor. Those airline companies are not major players in the CAI and do not apply
any strategic network planning strategies. Mostly, the flights and routes are organised
seasonally. In the summer months and during school vacations, the airlines offer more
flights (daily or weekly) to popular destinations (e.g., in Europe: Turkey, Egypt, Spain,
Italy, etc.). In general, charter flights are offered as a part of the so-called `holiday
package' in which the price paid includes flights, accommodation and other individual
services (e.g., transporting air passengers to hotel resorts, cities or walking trips) (Cento,
2009, p. 21). One example of a `holiday package' is shown in the figure below from
Thomas Cook. The travel company (agency) offers on its main webpage holiday
packages, which include hotel and flight.
Figure 9: Combination of Charter Flights and Vacation package (Thomas Cook, 2016)
Currently, most European CC are integrated in organisations, incorporating a tour
operator, travel agency chain, airline and, more often hotels and ground transportation
companies (Cento, 2009, p. 22). One example is the Thomas Cook Group, which includes
charter airline, travel agency and hotels (Thomas Cook, 2016). Furthermore, charter
carriers frequently operate from small, regional and international airports; e.g., in
Germany: Münster, Bremen, Dortmund, Kassel, Erfurt, CGN, Stuttgart etc., or dedicated
i
9 C
i
i
f C

23
terminals, where there is no scheduled service. Much of the traffic through small- and
medium-sized airports in Germany consists of charter flights, and the survival of these
airports often depends on the airline landing fees they get from the charter companies
(Cento, 2009, p. 22).
The CCs own small and long-haul aircraft, depending on the operating region. For
example, the German Airline Germania operates only continentally and owns only small-
haul aircrafts such as B737 or A320 (Germania, 2016). On the other hand, there are CCs
that operate their flights with long-haul aircrafts (e.g., B767).
After the short introduction of the different carrier types and its business models, the next
table reveals the major differences between FSC, LCC, CC and RC, using Conrady's
airline business model differentiations (Conrady, et al., 2013, p. 226). The table is
categorized in eight services (table 1), representing the biggest airlines in Europe.
Airline Carrier
Type
Free
Baggage
included?
Operating
Region
Network
Type
Aircraft
Types
Seat
Reservation
costs
Meal
on
Board?
Other
Services
Lufthansa FSC
(NC)
Only
hand
luggage
(depend
on route)
Intercontinental,
Continental,
National
HaS, MH
Macro body
Wide body,
Narrow body,
10
yes
Upgrades,
Lounge
Entry,
Miles
Earning
KLM-Air
France
FSC (NC)
Only hand
luggage
(depend
on route)
Intercontinental,
Continental,
National
HaS
MH
Macro body
Wide body,
Narrow body,
5­10
yes
Upgrades,
Lounge
Entry,
Miles
Earning
International
Airline
Group
(IAG)
FSC (NC)
Only hand
luggage
(depends
route)
Intercontinental,
Continental,
National
HaS
MH
Macro body
Wide body,
Narrow body,
free
yes
Upgrades,
Lounge
Entry,
Miles
Earning
Germania
Charter
Carrier
(CC)
Hand +
Hold
luggage
Continental PtP
Narrow
body
free
yes Web
check
in
EasyJet Low
Cost
Carrier
(LCC)
Only hand
luggage
Continental,
National
PtP Narrow
body
4.99
no
Web
Check in
Ryanair
Low Cost
Carrier
(LCC)
Only hand
luggage
Continental,
National
PtP Narrow
body
4
no
Web
Check in
BMI
Regional
Regional
Carrier
(RC)
Hand +
Hold
luggage
Continental,
National
HaS, PtP
Narrow body
for free
yes
Web check
in, Lounge
Entry
Table 1: Differentiation of commercial carriers, source: own based on (Gössling & Upham, 2009), p.114,
(Conrady, et al., 2013), p.226, (KLM, 2016), (British Airways , 2016), (Germania Airlines , 2016), (Lufthansa ,
2016), (EasyJet, 2016), (Ryanair, 2016), (BMI Regional , 2016)
Excerpt out of 163 pages

Details

Title
Low Cost Concept for Long-Haul Destinations. A Feasibility Analysis of Eurowings' Strategies
College
University of Applied Sciences Essen
Grade
1,3
Author
Year
2016
Pages
163
Catalog Number
V374775
ISBN (eBook)
9783668526549
ISBN (Book)
9783668526556
File size
4242 KB
Language
English
Tags
Eurowing, Airlines, Strategic, Lufthansa, Europa, Flight, Low cost
Quote paper
Maxim Lachmann (Author), 2016, Low Cost Concept for Long-Haul Destinations. A Feasibility Analysis of Eurowings' Strategies, Munich, GRIN Verlag, https://www.grin.com/document/374775

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