04 - Network Management Flashcards
What was the problem with the Austrian Commercial?
Good commercial, but doesn’t really differentiate them from other airlines. It is linked to a national / states airline but not the international image –> especially not the entrepreneurial / business focused airlines. No clear USP
What were economic problems for the Austrian network?
(1) lot of different aircrafts
(2) instead of being the best in CEE, they should’ve looked into Eastern and Western EU
(3) for leisure travellers: could never keep up with low cost carriers
What was the problem with PanAm?
No feeder network, too large planes, deregulation of the market came
What was the good strategy of Quantas?
Good network expansion with emirates, constant network development - reach Europe !
they show premium aspets in the ads
What are some effects of the deregulation and liberalization?
Systematic Network Management is CORE to manage airline! Actually every good business is organized through good networks.
What’s the key figure of hubbing?
Connectivity!! ZRH Airport guarantees a connectivity when you have 40min to every flight! (Minimum Connecting Time)
How can you classify Hub-And-Spoke Networks?
They are underlying a logistics network, traffic network and a airline-networks
Which other types of Networks besides Hub and Spoke do exist?
Line Nets (Trains) and Raster Nets (often low cost carriers –> why we need the freedom of airspace)
Which forms of airline networks do exist?
Basically everything between point to point and hubbing (see slide 21)
Which networks do have economies?
- Stop & Go –> Transfer passengers
- Single Routes from one center –> economies of scale in operations
- Point to Point high frequency –> incomplex operation
- One Hub -> Hub economies
- Multihub -> Hub Economies
Why is the size of the network important?
The number of connections rise exponentially.
Why does a natural monopoly occur because of Net effects?
Supply side: Marginal costs decline the bigger the network gets
Demand side: the marginal utility rises the bigger the network gets
If airlines can create natural monopolies through network effects, why did prices not rise?
e.g. Switzerland: market entries in Switzerland were pretty easy –> LCC enter and price models get destroyed
Hub economies (Supply Side)
- Production: lower costs per unit
- Marketing: better market coverage
- Strategy: dominance in the market
Hub economies (Demand Side)
Economies of density (lounges and other services)
Mileage programs
Standardized operations
Hub diseconomies
Supply side: tendency to price at marginal costs to be competitive, high delay-sensitivity, production of hub-load-peaks, high risk because of investments
Demand side: time of waiting, long distance, partly capacity overload
What is the logic behind internalizing net effects by airlines?
first cooperations, then strategic alliances, then mergers –> the more you do alliances it makes sense to do the merger
Proportion of cost and revenue synergies in airline cooperation types
Codeshare = minimal
joint venture = 10%
Full merger = 30%
Alliances vs. Mergers
With alliances you increase your revenue synergies, with mergers you have cost synergies.
What are Gains and Costs of the Airline Alliance in the future?
Gains: sales support worldwide, increasing consumer choice, revenue integration
Costs: coordination, slow implementation, trust to partners
Why did the British Airways + Iberia merger function so well?
BA –> english speaking part
Iberia –> South america coverage
= HIGHLY complementary
Ryanair Case - How does the revenue model work?
Ancillary revenues, low airport charges, fast turnaround times
What’s the problem with the ryanair model?
No loyalty to employees and customers
Why is Ryanair successful anyway?
growth in tourism, people do not understand the pricing
Is the Ryanair model sustainable?
Probably not in the very longterm because a lot of carriers are catching up
Which airline business models do exist today?
- Full Service Network Carrier
- Niche Carrier / Regional Carrier
- Point to Point
Which airline business models do exist in the future?
- Network Value Carriers (innovators)
- Hybrid Network Carriers (Unbundlers)
- Point to Point (No Frills)
–> see airline examples
What are the forces of the airline industry?
Supplier power = high Threat of substitutes = medium Buyer Power = medium / high Threat of Entry = high Industry competitiveness = high
Airline Business Model Live Cycle
Network carriers need to relaunch, low cost carriers are entering the maturity phase and private jet are entering the growth phase
