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Southwest Airlines business model innovation

Where should an airline be on the business model transformation spectrum?

FOR REASONS I OUTLINED IN THE PREVIOUS EDITION OF AIRLINE LEADER, airline executives have been taking action to introduce increasing levels of innovation in their products and processes with the aim of reducing costs, enhancing revenues and managing risk. Some innovations relate to products like upgrading features in the business-class cabin in long-haul markets. Some involve changes in processes such as improvements relating to self-check-in and intra-line and interline connections.

A few airlines have also started to think about innovating their airline business models:

  • Legacy airlines in Europe (for example, Air France) are exploring ways of developing viable models for short-haul operations to compete more effectively with lower-cost airlines
  • Full-service airlines are examining different ways to enhance their ancillary revenues (without diluting their brands) and making it a core source of revenue
  • Full-service airlines are looking at how they can deliver a better product for greater value for money, for example Delta, by enhancing the digital experience
  • Full-service airlines are exploring business models that enable higher sales through the web, particularly the sale of unbundled products and services. American Airlines is a case in point
  • Low-cost airlines (for example, Southwest) are exploring different ways of capturing corporate travellers using different channels and serving conventional airports
  • Low-cost airlines (such as Spirit) are looking into the critical success factors relating to revenues from third party sales and commission-based services
  • Small airlines in the Balkan region (Montenegro Airlines, JAT Airways, Adria Airways, B&H Airlines) have begun to think about consolidation to achieve economies of scale, scope and density
  • Airlines in Africa are exploring business models to develop and sell low-cost/low-fare services
  • Ultra-low-cost airlines (such as Allegiant) are exploring different ways to develop and market their services to stimulate – rather than divert – traffic from existing sectors within the airline industry.
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