vs. A Comparison of Aviation Business Models
History & General Company Information.
Emirates Airline & Group First operations in 1985
Fully owned by the Government of Dubai Sheikh Mohammad Bin Rashid Al Maktoum is Chairman and Chief Exekutive of the Emirates Airline & Group
Emphasize on high-quality flights for passengers and Cargo to big cities as well as to regional airports In 2011 34 mio. passengers were carried to 122 destinations in 72 countries.
62.000 employees ensure smooth operations on the ground and in the sky. Huge importance of Emirates Airlines on Dubai‟s economy as the Emirates turnover contributes 20% to Dubai’s GDP
(Annual Report Emirates 2011, O‟Connell 2011)
Founded in 1926 as „Deutsche Lufthansa A.G.“
Global aviation group that operates in five high-quality business segments with more than 400 subsidiaries
Provision of 21.900 flights to 194 destinations every day thanks to the Star Alliance Membership Europe’s biggest Airline measured by passenger numbers and revenue
Lufthansa Group employed about 120.000 personnel and generated a total operating revenue of EUR 28.7 billion in 2011
(Lufthansa Company Information 2011)
An Approach to Business Model Comparison.
Definition Business Model
„It is a description of the value a company offers to one or several segments of customer and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship
capital in order to generate profitable and sustainable revenue streams.“ (Osterwalder 2004)
Business Model Structure
(Kapeleris without year)
Value Proposition.
„A fast-growing international airline with one of the youngest fleets in the sky and more than 400 awards for excellence worldwide.“
Emirates provides commercial air transportation services via a constantly expanding network of more than 120 primary and regional destinations in over 70 countries with more than 180 aircrafts.
Business segments
Airline, Destination & Leisure Management, Sky Cargo, Skywards, Official Store, EmQuest, Emirates Aviation College, Engineering (About Emirates 2012, O„Connell 2011)
Europe„s full-service airline that connects Europe with the World
The membership of Star Alliances allows the provision of 21.900 flights to 194 destinations every day.
Focus on Quality & Innovation, Safety & Reliability Aim to grow profitably and to develop sustainable
Business segments
Passenger Airline, Air Cargo, Technology for Maintenance & Repair, Catering, IT Services
(Annual Report Lufthansa 2011, Lufthansa Company Information)
Customer Segments.
No specific Target Group is outlined
Huge mass of potential customers 4.5 billion people live within an 8-hour flight distance of the hub Dubai
Lifestyle oriented Market Segmentation Ambitions to attract „globalista‘s“, the experienced global travellers Further segmentation criteria like demographics, geographics and economic aspects are not considered.
(O„Connell 2011, O„Reilly 2012)
Different Target Groups for each Sub-Brand
Lufthansa
Business Travellers 2011 65 mio. passengers
Germanwings
Price sensitive Businessmen & VFR 2011 7,85 mio. passengers
Condor
Holiday Travellers & Families 2011 6 mio. passengers
(Airlinewerbung 2012)
Distribution Channels.
Provision of possibilities to book directly and online Despite of emphazising the internet as booking platform, Emirates still incentifies travel agencies especially in Australia and India. Emirates still rely on Travel Agencies due to low internet accessability and low tendency to use credit card in their main markets of the Middle East, Africa and West Asia
Strict refusal to join a strategic aviation alliance avoid the access to additional booking platforms (O„Connell 2011)
Provision of an online booking platform to meet the needs of Business Travelers and to respect the overall development of booking behaviour.
Attemptions to bypass the GDS fees by encouraging European customers to book directly or by aportioning it to travel agencies or to the customers
Enourmous distribution synergies due to the membership of Star Alliance
(Annual Report Lufthansa 2011, Pilling 2010)
Customer Relations.
A lot of efforts are put in the creation and distribution of customized services and in excellent service quality (Emirates, Bob Kabli 2012)
Customer Loyalty Programme „Skywards“ „With Skywards, it's not just about earning and spending Miles - it's about managing your journey, going beyond the travel experience and enjoying the real privileges of a more rewarding frequent flyer programme.” Multiple ways to spend miles. Flights & Upgrades of Emirates and 8 Partner Airlines, Hotels, Car Rentals, Leisure & Lifystyle Activities located in UAE, Donation to the Emirates Airline Foundation, Raffling Miles Limited attractivity of the programme caused by the little number of participating airlines (Skywards)
Special status for frequent flyers Access to Lounges, preferred choice of seats, booking guarantees, priority check-out, free additional luggage and further more
Divers and numerous possibilities to spend miles on flights & upgrades with Lufthansa and 36 global and regional airlines, hotels, car rentals, Shopping & Lifestyle, Finance & Credit Card, Donation of Miles and other partners
(Miles and More)
Key Resources.
The hub Dubai and the network of Emirates which connects primary as well as regional airports on six continents.
Competitive low cost structure due to the access to cheap fuel and labour force which enables Emirates to charge low fares to attract new customers.
Strong brand thanks to huge brand awareness arising mostly from sponsorships and commercials
(O„Connell 2011)
Membership of the Star Alliances and affiliate companies like Austrian Airlines and Swiss Airlines enable Lufthansa to reach and serve more potential customers, create greater brand awareness and a stronger customer loyalty on a global level.
Three major hubs (Frankfurt, Munich, Zurich) to serve the global destinations.
Subsidiaries like Germanwings and Condor allows Lufthansa to target different kinds of customers and exhaust synergy effects.
Vertical Diversification through the different business segments
Loyalty of the employees which is reflected in the long-term and constant perception of Lufthansa as reliable, safe and high-quality. (Annual Report Lufthansa 2011, Lufthansa Company Information)
Key Activities.
Provision of full-service, long-haul connection flights of primary and regional destinations for passengers and Cargo. Ensuring the smooth operation through combining many parts of the supply chain in the subsidiary Dnata. Increasing weekly frequency in fast growing markets (e.g. from 2004 to 2009: India +238% und China +444%) Optimizing operations through the controlling of the profitability of every single route every week (Emirates, Rob Kabli 2012). Raising brand awareness through advertisements and especially through sponsorships for a range of sports teams and events, e.g. football (Arsenal FC, Hamburger SV, AC Milan, Paris Saint-Germain), Rugby, Tennis, Horse Racing, Golf, Sailing and further more
(About Emirates 2012, Oâ€&#x;Connell 2011)
Divers business models of the subsidiaries (Lufthansa, Condor, Germanwings, Swiss, Austrian) allow Lufthansa to serve customers with a wide wange of different needs.
Aviation synergies of the Star Alliance through code sharing strategies and corporate distribution and customer targeting enable Lufthansa to optimize its operations.
Constant network expansion based on the leading position of network density in Europe.
Continous development and improvement of technologies and services (FlyNet WiFi in the sky, new Business Class with added comfort, ‌)
Profitability is favoured over growth! (Annual Report Lufthansa 2011)
Partnerships & Networks.
Strict refusal to join a strategic alliance to maintain ist independence (Emirates, Bob Kabli 2012).
Only eight Airlines do have partnerships with Emirates South African Airways, easyJet, Japan Airlines, Jet Airways, JetBlue, Kingfisher Airlines, Korean Airlines, Alaska Airlines
Strong connections with the Government of Dubai
(About Emirates 2012)
Membership as mean to extend market opportunities and growth options
Entry of new members to expand the spoke system and the presence especially in Latin America
Joint Ventures: Atlantic ++ Japan +
(Annual Report Lufthansa 2011, Star Alliance)
Cost Structure.
Overall low cost structure creates an comparative advantage Expenses for fuel
40% of total expenses which is low owing to the proximity of oil production and lower consumption of fuel of the relatively new aircrafts
Labour cost
Two-tier free tax salary system Tie 1 immobile, labour intensive tasks operated by West Asian expatriates while mobile labour intensive tasks like accouNting were outsourced mainly to India Tie 2 generously paid professionals mainly Emiratis and Western specialists
Airport Charges
low aircraft and passenger related fees at Emirates Hub - Dubai International Airport due to synergy creation caused by multi-faced management (Government, Emirates, Airport Authority) and the establishment of a huge duty-free facility which generates gross-subsidies
Ground handling
Dnata as subsidiary of Emirates has a monopoly on ground handling at DXB
MRO
10% of total expenses thanks to the young fleet
Distribution
higher cost due to incentives given to Travel Agencies & the refusal to join an alliance to profit by synergies
Finance cost
heavy burden of repayment for aircrafts which can be considered as the main weakness Debt that is based on a strong relationship of economic, financial and political linkages
Marketing
4% of revenues and US $380 mio in total in 2008 (O„Connell 2011)
Highest cost factors are labour and fuel.
Annual Report Lufthansa 2011
Revenue Streams.
Results 2010-2011
Emirates is operating profitable for 24 years 33,9 m passengers carried High productivity (passenger seat factor 80%) Revenues 2011
US $18.9 billion which means an 21% increase compared to the preceding year
Net Profits 2011
US $629 million 61% loss compared to the preceding year due to higher fuel costs
Annual Business Report 2010-2011
Results 2011
Highlights Group Lufthansa 2011
Conclusion.
The Business Model of Emirates Airline & Group allows to create comparative advantages due to lower costs of fuel and labour which are the highest cost items of the Lufthansa cost structure.
The woven structures of the Airline, the Government of Dubai and the Airport authority guarentee short decision making processes and an easy access to financial resources. In addition to that the dedicated focus on offering high-quality services and the great variety of served destinations via the strategic geographical hub Dubai constitutes a competitive advantage for Emirates Airline & Group.
The strategic direction focuses on maintaining the competitiveness and the independence by refusing to join an aviation alliance.
Lufthansa„s Business Model is highly dependent on external driven factors like the financial crisis and rising fuel cost as the past few years had shown.
In addition the negotiating power of the employees can cause problematic effects like increased salary requirements and strikes which affect the cost structure tremendously as labour costs are the greatest item in the cost structure.
Its historic grown image of reliability, safety and quality as well as the ability to serve a dense worldwide network of destinations through code sharings with Star Alliance members create a competitive advantage for Lufthansa compared to Emirates.
The diversified business segments minimize the entreprenuerial risk and can support the awareness of the brand Lufthansa.
References.
About Emirates www.emirates.com/de/english/about/ Airlinewerbung 2012 http://www.airlinewerbung.com/ Annual Business Report Emirates 2010-2011 http://content.emirates.com/de/english/images/Annual_2011-2012_tcm254-926013.pdf
Annual Report Lufthansa 2011 http://reports.lufthansa.com/2011/ Emirates, Bob Kabli (2012): About Emirates. Presentation on 15.10.2012
Kapeleris, J. (without year): Business Model Structure http://johnkapeleris.com/blog/wpcontent/uploads/2010/09/Business-Model-Elements1.jpg Highlights Group Lufthansa 2011 http://reports.lufthansa.com/2011/ar/highlightsgroup.html?cat=m Lufthansa Company Information http://konzern.lufthansa.com/de/unternehmen/
Miles and More http://www.miles-and-more.com/online/portal/mam/de/homepage O„Connell, J. (2011): The rise of the Arabian Gulf carriers. An insight into the business Model of Emirates Airline. Journal of Air Transport Management. 17 (2001). pp. 339-346. O„Reilly, L. (2012): Emirates introduces new brand prositioning. http://www.marketingweek.co.uk/news/emirates-introduces-new-brand-positioning/4000869.article Osterwalder, A. (2004): The Business Model Ontology. A Propositional in a design science approach. Université de Lausanne. Ècole des Hautes Études Commerciales. http://www.hec.unil.ch/aosterwa/PhD Pilling, M. (2010): Lufthansa and Amadeus sign Distribution Peace Pact. http://www.flightglobal.com/news/articles/lufthansa-and-amadeus-sign-distribution-peace-pact-337267/ Star Alliance http://www.staralliance.com/en/ Skywards https://www.skywards.com/
vs. A Comparison of Aviation Business Models