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Innovation: The winning formula to regain profitability in aviation?

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  • Franke, Markus

Abstract

Most airlines have overcome the immediate effects of the recent global aviation crisis partly because of economic upturn and partly because of massive restructuring. Legacy network carriers had to take on the challenge of low-cost carriers, and regain competitiveness in short- and mid-haul business through considerable cost cutting and more flexible pricing models and are now profitable. On the other hand, many airlines do not make a reasonable profit, and the majority of carriers do not earn their capital cost. Airlines claim that they are still squeezed between their neighbors in the aviation value chain that leverage local monopolies (such as airports) or oligopolies (such as aircraft equipment manufacturers). Many legacy carriers, however, have not properly prepared for an era of deregulated and changing markets. They have not yet taken appropriate steps to escape from there positions between the few successful premium carriers and low-cost carriers. This middle position has little differentiation potential, an unsatisfactory growth perspective, and poor profitability prospects. Further, despite ongoing liberalization, the regulatory framework still does not enforce far-reaching consolidation, leaving the industry in a fragmented status with massive overcapacities. Consequently, the industry needs to further leverage external deregulation as well as internal restructuring to establish more efficient and competitive business models. Aside from basic cost cutting, innovation may become the decisive driver of progress, comprising advanced business models, customer segmentation, and technologies (Franke, M., 2006. Innovation: the winning formula to regain profitability in aviation? Speech at the Hamburg Aviation Conference, Hamburg).

Suggested Citation

  • Franke, Markus, 2007. "Innovation: The winning formula to regain profitability in aviation?," Journal of Air Transport Management, Elsevier, vol. 13(1), pages 23-30.
    • Handle: RePEc:eee:jaitra:v:13:y:2007:i:1:p:23-30
    DOI: 10.1016/j.jairtraman.2006.11.003
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    Citations

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    Cited by:

    1. Fageda, Xavier & Suau-Sanchez, Pere & Mason, Keith J., 2015. "The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 289-296.
    2. Renold, Manuel & Vollenweider, Janik & Mijović, Nemanja & Kuljanin, Jovana & Kalić, Milica, 2023. "Methodological framework for a deeper understanding of airline profit cycles in the context of disruptive exogenous impacts," Journal of Air Transport Management, Elsevier, vol. 106(C).
    3. Diaconu (Maxim) Laura, 2012. "The Evolution of the Low-Cost Airlines Between 2000 and 2011. Comparative Analysis Across American and European Low-Cost Operators," Annals - Economic and Administrative Series -, Faculty of Business and Administration, University of Bucharest, vol. 6(1), pages 115-128, December.
    4. Nicolau, Juan Luis & Santa-María, María Jesús, 2012. "Gauging innovation worth for airlines," Journal of Air Transport Management, Elsevier, vol. 20(C), pages 9-11.
    5. Zuidberg, Joost, 2019. "Network geographies and financial performances in low-cost carrier versus network carrier competition: The case of Norwegian versus SAS," Journal of Transport Geography, Elsevier, vol. 79(C), pages 1-1.
    6. Pereira, Bruno Alencar & Caetano, Mauro, 2015. "A conceptual business model framework applied to air transport," Journal of Air Transport Management, Elsevier, vol. 44, pages 70-76.
    7. Gillen, David & Gados, Alicja, 2008. "Airlines within airlines: Assessing the vulnerabilities of mixing business models," Research in Transportation Economics, Elsevier, vol. 24(1), pages 25-35.
    8. Torres, Ann M. & Barry, Chris & Hogan, Mairéad, 2009. "Opaque Web practices among low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 15(6), pages 299-307.
    9. Cohen, Maurie J., 2010. "Destination unknown: Pursuing sustainable mobility in the face of rival societal aspirations," Research Policy, Elsevier, vol. 39(4), pages 459-470, May.
    10. Alessandro V. M. Oliveira & Thiago Caliari & Rodolfo R. Narcizo, 2024. "An empirical model of fleet modernization: on the relationship between market concentration and innovation adoption in the Brazilian airline industry," Papers 2401.06876, arXiv.org.
    11. Nicolau, Juan Luis & Santa-María, María Jesús, 2012. "Effect of innovation on airlines' operating leverage: A Spanish case study," Journal of Air Transport Management, Elsevier, vol. 25(C), pages 44-46.
    12. Tretheway, Michael W. & Markhvida, Kate, 2014. "The aviation value chain: Economic returns and policy issues," Journal of Air Transport Management, Elsevier, vol. 41(C), pages 3-16.
    13. Fabio Domanico, 2007. "The European airline industry: law and economics of low cost carriers," European Journal of Law and Economics, Springer, vol. 23(3), pages 199-221, June.
    14. Pereira, Bruno Alencar & Lohmann, Gui & Houghton, Luke, 2021. "Innovation and value creation in the context of aviation: a Systematic Literature Review," Journal of Air Transport Management, Elsevier, vol. 94(C).
    15. Never, Jan & Suau-Sanchez, Pere, 2020. "Challenging the interline and codeshare legacy: Drivers and barriers for airline adoption of airport facilitated inter-airline network connectivity schemes," Research in Transportation Economics, Elsevier, vol. 79(C).
    16. Sun, Xiaoqian & Wandelt, Sebastian & Zhang, Anming, 2022. "STARTUPS: Founding airlines during COVID-19 - A hopeless endeavor or an ample opportunity for a better aviation system?," Transport Policy, Elsevier, vol. 118(C), pages 10-19.
    17. Halpern, Nigel, 2010. "Marketing innovation: Sources, capabilities and consequences at airports in Europe's peripheral areas," Journal of Air Transport Management, Elsevier, vol. 16(2), pages 52-58.

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