Charter Airline Business Models

The airline business is crucial to the economic growth of any country through creation of global connections. The initiation of a new airline company requires adequate planning to ensure that the enterprise succeeds through maximization of revenues from its operations. The first critical consideration is the type of business model the start-up will apply to ascertain the achievement of positive outcomes in the long term. There are various models in the airline business including charter, low-cost carriers, hybrid, cargo, legacy, and regional. Notably, many start-ups incorporate the hybrid model to guide their operations because it combines various advantages of the other five unique models. Therefore, the hybrid model will be most suitable for the new airline start-up on the proposal. Secondly, an airline base forms the headquarters of organizational operations thus considerations regarding the cost of land, availability of skilled power, and the accessibility of the location are essential. Thirdly, management of a new airline start-up must determine the routes and destinations of air travel by structuring traveling and maintenance schedules that target to reduce the aircraft turn time and consequently increase revenue outcomes. Two airplanes are sufficient for five-day operations between two destinations. Finally, the airline start-up can use ancillary services such as onboard internet access to generate additional income that will enable the company operate profitably.

Airline Management

Introduction

            The aviation industry plays a pivotal role in supporting the global business and tourism development. The airline operations are crucial in provision of both social and economic benefits. Furthermore, aviation increases revenues in form of tax and creates jobs (Cook and Billig, 2017, p. 3). One notable advantage of air travel is the efficiency in the transportation of cargo and passengers to worldwide destinations. Also, use of airlines facilitates people to encounter new cultural and leisure experiences in different regions of the world owing to affordability the industry offers (Cook and Billig, 2017, p. 31). Over the years, there has been significant growth in the use of commercial airlines because of several factors.

            First, many people sought to explore new opportunities in different parts of the globe as a result of improved quality of lives and increase in the amount of disposable income. Secondly, intergovernmental arrangements and agreements on deregulations of aviation rules facilitate opening of new airline markets thus making air transportation affordable (Wensveen 2012, p. 321). Thirdly, air transport has become the safest mode of transportation hence the increased demand over the years (Bölke 2014, p. 5). Finally, the number of airlines have augmented significantly leading to stiff competition and consequently affecting the costs of travel (Jimenez et al. 2014, p. 949). The said factors affect the way airlines management operate to maintain good business performance.

            The increase in the number of airline companies contributes to evolution of the management practice (Kwakkel et al. 2010, p. 249). As a result of the development of new innovative communication technologies and computational advances, management strives to increase revenues while reducing operational costs (Wensveen 2012, p. 18). Therefore, prior to setting up a new airline start-up, it is crucial to examine some of the crucial aspects of management that surround the aviation industry. The paper focuses on providing a proposal report for a new airline start-up. The section shall cover the business models, an outline of the airline base, the networks and destinations, the airline’s fleet, and the use of ancillary revenues.

The Choice of Business Model

            Before commencing on a new airline business and management, it is essential to analyse some of the various models that define the intention of how the company will generate income. There are five types of airline business models namely charter, low cost, legacy, regional, and cargo airlines (Vidović et al., 2013, p. 69). Majority of airlines globally utilise the above-mentioned models. Notably, the industries modify the model of choice to serve a competitive advantage; however, the frameworks defining the model remain the same (Sujith et al., 2011, p. 48). The instance where an airline industry incorporates two or more business models in its operations yields a hybrid model essential in boosting its operations. The section of the paper discusses various business models to provide a justification of the most appropriate business model for the airline start-up.

Charter Airlines Business Models

            Aviation industries that offer holiday trips to international destinations utilise this model. Charter airlines engage in contractual agreements with the travel agencies that hold the responsibility of organising the passengers intending to travel (Vidović et al., 2013, p. 73). The model eliminates the sale of individual travelling tickets. Some travel destinations have few passengers and the travel agency may fail to fill the aircraft with the desired number of travellers, therefore, more than one travel agency may charter a single aircraft (Vidović et al., 2013, p. 74). Charter airline model bears a number of merits. First, the model applies techniques that limit meals offering on board and the costs on additional luggage thus offering an advantage of fewer customer service related concerns. Secondly, the model ensures continuous cash flow for the enterprise as long as contractual agreements are sealed before the end of the financial year. Finally, the model does not facilitate direct sales thus will not incur costs in investing and maintaining reservation and marketing systems (Vidović et al., 2013, p. 76). The model also suffers from some few limitations such as (1) It is dependent on the nations travelling behaviour; (2) The demand for charter airlines is often lower compared to the available supply; and (3) Charter carriers face the problem of attaining lasting contracts with the travel agencies (Reichmuth, 2008, p. 11).

Low-Cost Carriers (LCC) Business Model

            The LCC characteristically reduce the costs of travelling to significant values that convince the consumer that the airline industry offers the minimum cost in travelling to a specific destination (Vidović et al., 2013, p. 72). The LCC model operates under the assumption that the pricing strategy sells the company’s reputation to the customers while the advertisements function to notify the consumer of the existent low-cost travelling carrier (Bölke, 2014, p. 20). LCCs manage to attain savings through not offering the passengers the benefits they expect from the low-cost budgets. The standard LCC air-tickets exclude some services that should the passengers need, they have to pay additional charges (Reichmuth, 2008, p. 8).

            First, the model ascertains that the passenger has a very limited baggage allowance in the air-ticket, therefore, the passenger needs to pay for additional luggage. Secondly, passengers using LCC do not have the advantage of reserving seats because the model operates on the first-come-first-served basis whereby the first person gets the opportunity to take the best seat available (Mason and Miyoshi, 2009, p. 15). Thirdly, the carriers do not offer free in-flight meals but the passengers incur these costs and are often raised beyond the normal market value. Finally, the LCC charge for online credit card payments (Reichmuth, 2008, p. 10). The passengers often opt out from the additional services for the minimal travelling costs.

            LCC obtain their savings from different operational perspectives. First, the carriers charge the maintenance providers hefty penalties from the cancelled flight operations because of the technical issues experience. Secondly, LCC garner savings from aircraft manufacturers through maintenance savings and discounts. Thirdly, the carriers save from significantly reduced landing fees incurred from arrangements with the airports because of the high number of passengers they circulate in and out of the airport. Finally, the airlines save on check-in and reservation costs because they do not offer connecting flight services thus the model does not suffer from delays (Reichmuth, 2008, p. 11; Vidović et al., 2013, p. 73). Notably, the LCC model significantly applies to local flights thus essential in promoting internal economics (Sujith et al., 2011, p. 51).

Legacy/ Full Network Service Airlines (FNSA) Business Model

            The application of this model has been in existence since the beginning of airline services. Legacy airlines operate large fleets of that transport passenger to diverse destinations globally (Reichmuth, 2008, p. 5). The use of this model benefits the industry with significant incomes that emanate from different operational aspects of the flights. The airlines have a broad spectrum of air-tickets ranging from low first-come costs to expensive first-class seats on board (Sujith et al., 2011, p. 51). The flights operate on a well-stipulated timetable that maintains the confidence of the passengers who are using flight-connections (Vidović et al., 2013, p. 70). Also, legacy airlines provide services such as onboard meals and baggage fees all covered in the airplane ticket. Furthermore, legacy airlines have a broad connection of flights offering the passenger the convenience of using a single airline service on a single ticket (Bölke, 2014, p. 17). Finally, the carriers maintain a good reputation thus acquire an opportunity to work with clients from the government and corporations (Reichmuth, 2008, p. 7). The advantage of implementing this model is that it influences the customers’ perceptions of the airline as a reliable, exemplary onboard service, and good customer service (Vidović et al., 2013, p. 71).

Regional Airlines Business Model

            The primary objective of the business model is to promote internal mobility through local transportations from regional airfields to larger airports (Mason and Miyoshi, 2009, p. 16). The application of the above business model benefits the airlines operating under it through various channels. First, regional airlines act as commercial links that provide passengers to other carriers for further travel. Secondly, these flights benefit from governmental subsidies that target to connect the economically non-viable regions to other areas in the nation and around the globe (Sujith et al., 2011, p. 51). Thirdly, these airlines engage in corporate agreements in accomplishing the efficient transportation needs of the corporate personnel. Finally, the airlines garner income from the sale of tickets in areas with deficient alternative transportation but with a high frequency of travellers (Reichmuth, 2008, p. 11). Notably, regional airlines utilise small aircraft, transport a minimal number of passengers, and use cheap airport services thus incur the advantage of reduced operational, ticket, and booking costs.

Cargo and Hybrid Airlines Business Models

            Cargo Airline business model finds its application in the transportation of goods only. The airlines function as forwarders of goods, for instance, from big businesses. Notably, these airlines incur no passenger costs. The model requires a reliable contractual agreement with the company requiring the shipping or forwarding services for efficient operations (Reichmuth, 2008, p. 12). Hybrid airlines business model, on the other hand, involves an airline company offering additional services such as cargo transportation or providing LCC services to increase traffic in their operations (Reichmuth, 2008, p. 13).  The model applies a combination of saving methodologies, charges on additional services, and flexibility in route structures thus maintaining a high standard of comfort to the travellers (Vidović et al., 2013, p. 78).

            From the examination of the above business models, the new start-up airline should use the hybrid model. The exemplar will help alleviate the common problems of hiking prices of fuel and the airport taxes the aviation industry faces (Reichmuth, 2008, p. 13). Also, the hybrid model will enable the airline to compete favourably in the current market. Notably, the hybrid template combines the features of chartered and low-cost carrier airlines models such as en-route structures and the cost-saving techniques respectively (Mason and Miyoshi, 2009, p. 7). Future predictions show that there will be more adoption of the hybrid model framework in the development of new airlines (Sujith et al., 2011, p. 57; Vidović et al., 2013, p. 80).

The Airline’s Main Base

            Choosing a suitable location and jurisdiction are for airline operations is one of the vital considerations when establishing an airline (Wensveen, 2012, p. 57). There are various factors that drive the choice of an airline base (Vigar-Ellis, 2012, p. 98). First, the airline must accomplish the national requirements that enable aviation operations between different routes worldwide such as passage through the multilateral and bilateral open skies. Secondly, the airline must have knowledge of regulations stipulated by the relevant aviation authority within the location of choice (Peneda et al., 2011, p. 1). Thirdly, an analysis of the market for the chosen main base will also be essential (Peneda et al., 2011, p. 5). Other considerations include taxation, public relations, and the availability of qualified staff and suppliers (Jacobs et al., 2012, p. 36). The cost of occupying the location selected for the base is essential because it includes the expenses of setting up the airline and operations, for instance, cost of leasing land, wages, and technological infrastructure. The initial determination of the availability of labour is crucial in conducting a projection of the approximate labour costs to be incurred (Kwakkel et al., 2010, p. 250). Other factors when selecting an airline base include the access to other means transportation, the distance of the base from the customers and the suppliers, and the availability of well-related communication network (Wang et al., 2015, p. 3). Therefore, following the considerations and the various factors listed above, the appropriate location for the airline base will be in High Wycombe.

Route Network and Destinations

            The process of determining the route that every aircraft will follow is called aircraft routing (Halpern and Graham, 2015, p. 214). The course of an airplane, for instance within seven days, should consist of alternating sequences of scheduled maintenance undertakings and flights. Appropriate selection of flights is crucial in ensuring that adequate time exists to accomplish the maintenance tasks or complete an airplane turn (The difference between the flight’s time of arrival and the next flight’s time of departure) (Song and Yeo, 2017, p. 118). When routing a plane, it is recommended that the aircraft turn time is sufficient enough to enable successful completion of various activities. The undertakings include unloading arrival and loading departure cargo and baggage, exchanging the plane crew, fuelling the aircraft, catering, boarding and alighting of outbound and inbound passengers respectively, and cleaning the airliner (Jacobs et al., 2012, p. 36). However, it is important to note that long plane turns time subjects the aircraft to remain idle for many hours and this will consequently decrease the airline’s throughput thus having a significant impact on the revenue of the company (Bazargan, 2016, p. 62).

            Every aircraft must undergo the maintenance activities following the recommended procedures by the manufacturer (Halpern and Graham, 2015, p. 215). Maintenance schedules specify the range at which the activity is to be conducted, for instance, after a given number of operational hours, flying hours, or departures (Jacobs et al., 2012, p. 37). The maintenance activities are often performed overnight in a facility set by the airline. Therefore, the airline start-up will operate from High Wycombe to Dublin as the main destinations.

The Airline’s Fleet

            Capital limitations tend to be significant barriers to new airline start-ups because the financial institutions avoid taking the huge risks associated with such investments. For this new start-up, it is essential that the acquisition of the aircraft is on purchase rather than on lease and their condition is brand new. Adding the cost of fuel into considerations, the airline can approximate its operational costs in addition to obtaining their customers. The choice of new aircraft would be the most appropriate strategic decision because new planes are more effective than used airplanes. Purchasing new airplanes is very expensive but on operation basis, they tend to last long and significantly reduced maintenance and operational expenses. Therefore, the proposed number of aircraft is two and the models will be Boeing 737-900 and the Airbus A380.  

The Use of Ancillary Revenues

            Airlines derive their income from various sources such as ancillary revenues have a significant role in the profitability of an airline. Waguespack and Curtis (2015, p. 2) define ancillary revenue as income derived from non-ticket services such as onboard catering and baggage fees, that are included to promote and enhance the main services offered by the airline. Hao (2014, p. 2) outline that the high costs of fuel, the stiff competition in the aviation industry, and the reduction in yields have resulted in an increased rate of airline dependency on the ancillary revenues (Jimenez et al., 2014, p. 948). Ancillary revenues are derivable from various sources as explained in the following text. The first source is the revenues from the sale of tickets to the passengers as a necessary requirement for air travel (Avram, 2017, p. 55).Ticket code sharing is another revenue supply whereby two airlines agree upon marketing a connecting itinerary across a route that both companies share (Hao, 2014, p. 11). Thirdly, an airline can outsource regional airlines to acquire ancillary revenue (Waguespack and Curtis, 2015, p. 2). Fourthly, airlines earn revenue through mail and cargo transportation along with passengers especially in aviation companies applying the hybrid airlines business model (Avram, 2017, p. 53). Finally, add-ons, which are the additional services the airlines offer such as car rentals, hotel bookings, and priority boarding serves as significant sources of ancillary revenue (Warnock-Smith et al., 2017, p. 43).

            The introduction of ancillary services in the new airline start-up under the hybrid business model will promote passenger satisfaction which is crucial in developing the customer base (Waguespack and Curtis, 2015, p. 8). To succeed in implementing and operating on the business model, the company shall focus on providing add-on services to its clients beyond the normal channels such as check-in fees by including onboard internet access, retail sales, and entertainment (Warnock-Smith et al., 2017, p. 44). Notably, customers will tend to compare the value of the ancillary services when making their travelling choices and the incorporation of ancillary revenue sources will help the start-up survive the competition apparent in the aviation market (Hao, 2014, p. 4). Therefore, the inclusion of supporting ancillary services enables the airline to operate at a profitable margin because the revenues incurred to enable the company to alleviate costs of maintenance and other operational expenses that cannot otherwise be obtained through ticket sales only.

The Fleet Schedule

QRS Airlines

Flight Time-Table

Flight

From

To

Departures

Arrivals

Boeing 737-900

High Wycombe

Dublin

Mon to Fri 0630h

Mon to Fri 0745h

Airbus A380

Dublin

High Wycombe

Mon to Fri 1600h

Mon to Fri 1715h

The planes will operate five times a week during the morning and the evening hours. The frequency will allow the airline to increase its revenue output. The maintenance activities will be performed at 1900h to 2100h. Each plane will have five crew members.

Conclusion

            Planning is crucial before initiation of a new venture in the aviation industry. Airlines undertake various forms of planning with an aim of driving a successful enterprise. The design process involves determining how the aircrafts will operate on daily basis while focusing on specific goals developed by the investing company. To ascertain success of an airline, the management opts to align itself with a specific business model as a guide for its operations. The choice of model influences the ability of the start-up to cater for maintenance and fuel costs as well as thrive within the competitive environment. Depending on the aims of the airline start-up, the hybrid model is suitable because of its wide array of advantages which includes combining more than a single model and modifying them to suit the operability of the organization. The location of an airline base is crucial in many aspects including access by consumers and communication. Also, incorporating ancillary sources of revenue will enhance the airline profitability. Therefore, the effectiveness of an airline management is dependent on planning, business model applied, and the usage of ancillary revenue sources.

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