04 - Network Management

Question 1

What was the problem with the Austrian Commercial?

Answer 1

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

Question 2

What were economic problems for the Austrian network?

Answer 2

(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

Question 3

What was the problem with PanAm?

Answer 3

No feeder network, too large planes, deregulation of the market came

Question 4

What was the good strategy of Quantas?

Answer 4

Good network expansion with emirates, constant network development - reach Europe !

they show premium aspets in the ads

Question 5

What are some effects of the deregulation and liberalization?

Answer 5

Systematic Network Management is CORE to manage airline! Actually every good business is organized through good networks.

Question 6

What’s the key figure of hubbing?

Answer 6

Connectivity!! ZRH Airport guarantees a connectivity when you have 40min to every flight! (Minimum Connecting Time)

Question 7

How can you classify Hub-And-Spoke Networks?

Answer 7

They are underlying a logistics network, traffic network and a airline-networks

Question 8

Which other types of Networks besides Hub and Spoke do exist?

Answer 8

Line Nets (Trains) and Raster Nets (often low cost carriers –> why we need the freedom of airspace)

Question 9

Which forms of airline networks do exist?

Answer 9

Basically everything between point to point and hubbing (see slide 21)

Question 10

Which networks do have economies?

Answer 10

• 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

Question 11

Why is the size of the network important?

Answer 11

The number of connections rise exponentially.

Question 12

Why does a natural monopoly occur because of Net effects?

Answer 12

Supply side: Marginal costs decline the bigger the network gets

Demand side: the marginal utility rises the bigger the network gets

Question 13

If airlines can create natural monopolies through network effects, why did prices not rise?

Answer 13

e.g. Switzerland: market entries in Switzerland were pretty easy –> LCC enter and price models get destroyed

Question 14

Hub economies (Supply Side)

Answer 14

• Production: lower costs per unit
• Marketing: better market coverage
• Strategy: dominance in the market

Question 15

Hub economies (Demand Side)

Answer 15

Economies of density (lounges and other services)

Mileage programs

Standardized operations

Question 16

Hub diseconomies

Answer 16

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

Question 17

What is the logic behind internalizing net effects by airlines?

Answer 17

first cooperations, then strategic alliances, then mergers –> the more you do alliances it makes sense to do the merger

Question 18

Proportion of cost and revenue synergies in airline cooperation types

Answer 18

Codeshare = minimal

joint venture = 10%

Full merger = 30%

Question 19

Alliances vs. Mergers

Answer 19

With alliances you increase your revenue synergies, with mergers you have cost synergies.

Question 20

What are Gains and Costs of the Airline Alliance in the future?

Answer 20

Gains: sales support worldwide, increasing consumer choice, revenue integration

Costs: coordination, slow implementation, trust to partners

Question 21

Why did the British Airways + Iberia merger function so well?

Answer 21

BA –> english speaking part
Iberia –> South america coverage
= HIGHLY complementary

Question 22

Ryanair Case - How does the revenue model work?

Answer 22

Ancillary revenues, low airport charges, fast turnaround times

Question 23

What’s the problem with the ryanair model?

Answer 23

No loyalty to employees and customers

Question 24

Why is Ryanair successful anyway?

Answer 24

growth in tourism, people do not understand the pricing

Question 25

Is the Ryanair model sustainable?

Answer 25

Probably not in the very longterm because a lot of carriers are catching up

Question 26

Which airline business models do exist today?

Answer 26

• Full Service Network Carrier
• Niche Carrier / Regional Carrier
• Point to Point

Question 27

Which airline business models do exist in the future?

Answer 27

• Network Value Carriers (innovators)
• Hybrid Network Carriers (Unbundlers)
• Point to Point (No Frills)

–> see airline examples

Question 28

What are the forces of the airline industry?

Answer 28

Supplier power = high
Threat of substitutes = medium
Buyer Power = medium / high
Threat of Entry = high
Industry competitiveness = high

Question 29

Airline Business Model Live Cycle

Answer 29

Network carriers need to relaunch, low cost carriers are entering the maturity phase and private jet are entering the growth phase