Airline Business Models and Tourism Sector

Airline Business Models and Tourism Sector

Cláudia Ribeiro de Almeida (CinTurs, University of the Algarve, Faro, Portugal), Vânia Costa (Polytechnic Institute of Cávado and Ave, Barcelos, Portugal) and Jorge Abrantes (Escola Superior de Hotelaria e Turismo do Estoril, Portugal)
DOI: 10.4018/978-1-5225-9936-4.ch012

Abstract

The new century brought innovation, creative business environments, and above all, new competitors to some sectors. One of them is the airline sector that besides being very dynamic is highly competitive and vulnerable to external factors. The new changes impact directly in the way the product/service is presented and sold with consequences for the demand and tourism flows. After the deregulation process that happen in USA on the '70s and in Europe in the late '90s, the airline sector adjust their business models to the new trends and market changes, regulations, new competitors, and above all, to the new demand profile. This new business models brought new perspectives with more flexible and innovative services and products in order to follow market trends and to attract new boosting tourism demand. Despite the business model, air transportation is essential for some tourism destinations, mainly the ones that are very dependent on one single airline typology or with particular geographical features and needs.
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The Airlines Business Models

According to UNWTO (2015), air transport is the primary mode of transport for international leisure travel and an important influence on destination development. Duval (2013) and Forsyth (2006, 2008), consider that exist a dependency between air transport and tourism, with airlines often involved in the planning and development of tourist destinations, while, as stated by Lohmann and Vianna (2016) tourism destinations may invest in local airports or the development of new routes.

In the last decades, the airline industry across the world has undergone major changes due mainly to the new challenges of the market and above all to the liberalization process that occurred firstly in USA (70’s), followed by Europe and after that for many other countries in different continents.

Europe was one of the continents that present a more complex process of liberalization has it occur between 1987 and 1997, through 3 sets of regulations (Almeida & Costa, 2012), due to the huge number of countries evolved in the process and most of all because of different national policies that need to be covered.

This process offers the opportunity of a European Union (EU) airline to operate all the routes without any restrictions within the European territory (Francis, Fidato & Humphreys, 2003). Besides the liberalization process arrived to some countries in 1997, as it happens in Portugal, some routes maintain the Public Service Obligation (PSO) (Graham & Shaw, 2008) for some years, as for example the islands of Madeira and Azores (Portugal) where the liberalization process only happened in 2008 and 2015 respectively (Almeida & Costa, 2017).

The liberalization process brought new opportunities for airlines and increased competition with profound effects in the market structure and in the operational patterns of the airline industry (Doganis, 2006). The air space is now much more dynamic and competitive, offering some freedom for the airlines to choose fares and routes (Carmona-Benítez & Lodewijks, 2008), creating new market opportunities, competitive prices and new destinations for tourists. According to Spasojevic, Lohmann and Scott (2018) airline liberalization has led to new strategic partnerships between airline companies and destination management organisations (DMOs), as well as other tourism stakeholders, like hotels, rent-a-car companies or travel agencies.

All over the last years the market knew some fusions, acquisitions and different types of alliances between airlines which allow the entry of new business models (Barrett, 2004; Button, 2001; Carmona-Benítez & Lodewijks, 2008; Dobruszkes, 2009; Doganis, 2006; Neufville & Odoni, 2003). Based on cost minimization and operating tariffs in order to maximize profits based on cost leadership, differentiation strategy and focus, these business models are much more flexible than before due to the market changes and the need to offer innovative services and products to market and tourists.

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