Airline Market Structure

The Aviation market is classified by the international authorities on the basis of annual revenues earned from operations. Operations are also divided into two major branches of passenger and cargo airlines. Airlines are classified as major, national and regional.

It is more suitable to start from the definition of regional airlines and proceed to the majors. Regionals are airlines that are only capable of and/or choose to operate on short regional routes. They are mainly restricted with a single geographic or legal area and provide connection to the bigger cities from surrounding smaller communities. This segment is more profitable and growing since the deregulation of the global industry.

The segmentation of airlines has sub-chapters depending on their annual operational revenues: Large, medium and small. Small airlines are the vast majority of this segment, their revenues are significantly low when compared with the rest of the group but the main distinction is that they all operate aircrafts with less than 61 seats. This provides these airlines the agility and flexibility to use small and mid-sized airports which allows contact with the suburban passengers. Medium airlines are defined as capable of earning annual revenues of up to 20 million USD, operating on the same routes as the large regional airlines. Large regional airlines are commercial carriers which generate operating revenues of 20 to 100 million USD. The majority of their aircrafts seat more than 60 passengers.

The second type of airlines is classified as nationals. Their annual revenues vary from 100 million USD to 1 billion USD. Many of these airlines serve extended routes in their home countries and also serve international long-haul routes.    

The last classification is the major airlines also called trunk airlines. Their annual operating revenues exceed the 1 billion USD limit and they provide nationwide and global long-haul service. Their total number of destinations generally exceeds 100.

Although many commercial airlines provide cargo and freight service, there are also major cargo carriers within the above mentioned airline classifications. The mainstream of cargo is transported within the passenger jets, located beneath the feet of the commercial passenger; however the market is big enough to also accommodate cargo carriers. Cargo carriers mainly use stripped down commercial aircrafts, which are readjusted to maximize the load capacity and also restructured for more endurance. The largest cargo carriers of today started out as door-to-door delivery services in the past. Fed-ex is a very good example of such a cargo carrier. 

Main Structure of the Major Carriers

The market standard airline structure involves the following departments in an airline. The line personnel, operations, technic and maintenance, sales and marketing, reservation and ticketing, staff personnel and sub-contractors.

Line Personnel:

Line personnel account for the majority of an airline’s employees. These personnel are directly involved with producing services; such as pilots who fly the aircraft, flight attendants who serve passengers and perform in-flight safety procedures, mechanics, reservation clerks, airport personnel, ground handling personnel, security guards, et cetera.

Operations Department:

This department maintains that the aircrafts are safely, securely and efficiently operated. The flight, network and crew planning are responsibilities of this department. Their goal is to prepare a mistake-proof organization where all flight related actions are taken according to the international and governmental rules, regulations and procedures.

Maintenance and Technic:

Maintenance is very critical especially with the fact that it prepares aircrafts for flights by keeping them safe, in working order also ensuring passenger comfort, maximum utilization and maintaining good form on the aircrafts. Some larger airlines not only provide this maintenance, repair and overhaul (MRO) service internally but also sell this service to other airlines. This is also a source of profit if a company can invest enough time and capital to excel at MRO services.

Sales and Marketing:

If line personnel are the hands and feet of an airline, sales and marketing is the heart. It provides services from pricing, scheduling, customer service, catering, advertising, marketing and commercial and cargo sales. While every aspect is important, pricing and scheduling is what establishes differences between airline revenues. An airline could enjoy hefty benefits with a well managed pricing and scheduling system, it is accurate to say that these facts are what makes or breaks an airline.

Reservations and Ticketing:

The use of web services has placed enormous ease on airline sale and reservation systems, the simplicity is enabled by sophisticated computer systems written by engineers, offering easy to use and understand interfaces. The customers can now easily search for tickets, create reservations, purchase online tickets, use online check-in services, et cetera. The volume of electronic commerce has increased significantly in the sector and is playing a more significant role each day. Airlines prefer online service because of easier tractability, lower costs and speed of processes. Passenger are also benefiting from these systems which removed the necessity of carrying flight coupons, and worrying about not losing their tickets. Online systems are also more convenient for a passenger due to the fact that they remove the necessity to visit ticket sales offices. The number of air travelers making reservations, shopping and purchasing electronic tickets is increasing on a daily basis. Self-ticketing and self-check-in machines are very popular in major airports which provide speed and convenience for both the passengers and the airlines. Mobile ticketing applications are also a growing market of opportunities.

Staff Personnel:

This division includes personnel with supportive duties such as insurance, law, accounting, finance, corporate relations, human resources, et cetera. They function as a tool for efficiency by supporting line personnel and maximizing efficiency and effectiveness of company actions. The majority of this division is located in the company headquarters and is divided into separate categories: finance and accounting, personnel, information services and medical could be given as examples.

Sub-contractors:

Many major airline choose not to outsource however, it is not uncommon for many airlines to purchase services from sub-contractors. These services mainly include, aircraft fueling, airport security, MRO services, catering services and aircraft cleaning. Outsourcing front-line duties are risky since direct contact with the customers is one of the main sources of establishing brand equity and any lack of quality in those services would result with lowered overall customer satisfaction. Therefore airlines should choose to outsource backstage operations which do not have direct contact with the customers.  

I have prepared this definition as a guide to my dissertation on Turkish Airlines and hope that you find it somewhat beneficial.

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One response to “Airline Market Structure

  1. Pingback: Airline Market Structure (via serdarcaskurlu) « Calgary Recreational and Ultralight Flying Club (CRUFC)·

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