vs.

A Comparison of Aviation Business Models

History &

General Company Information.

First operations in 1985

Fully owned by the Government of Dubai

Sheikh Mohammad Bin Rashid Al Maktoum is Chairman and Chief Exekutive of the

Emirates Airline & Group

Emphasize on high-quality flights for passengers and Cargo to big cities as well as

to regional airports

In 2011 34 mio. passengers were carried to 122 destinations in 72 countries.

62.000 employees ensure smooth operations on the ground and in the sky.

Huge importance of Emirates Airlines on Dubai‟s economy as the Emirates turnover

contributes 20% to Dubai’s GDP

(Annual Report Emirates 2011, O‟Connell 2011)

Emirates Airline & Group

Founded in 1926 as „Deutsche Lufthansa A.G.“

Global aviation group that operates in five high-quality business segments with more

than 400 subsidiaries

Provision of 21.900 flights to 194 destinations every day thanks to the Star Alliance

Membership

Europe’s biggest Airline measured by passenger numbers and revenue

Lufthansa Group employed about 120.000 personnel and generated a total operating

revenue of EUR 28.7 billion in 2011

(Lufthansa Company Information 2011)

An Approach to

Business Model Comparison.

Definition Business Model

„It is a description of the value a company offers to one or several

segments of customer and the architecture of the firm and its network of

partners for creating, marketing and delivering this value and relationship

capital in order to generate profitable and sustainable revenue streams.“

(Osterwalder 2004)

Business Model Structure

(Kapeleris without year)

Value Proposition.

„A fast-growing international airline with one of the youngest fleets in the

sky and more than 400 awards for excellence worldwide.“

Emirates provides commercial air transportation services via a

constantly expanding network of more than 120 primary and regional

destinations in over 70 countries with more than 180 aircrafts.

Business segments Airline, Destination & Leisure Management,

Sky Cargo, Skywards, Official Store,

EmQuest, Emirates Aviation College,

Engineering

(About Emirates 2012, O„Connell 2011)

Europe„s full-service airline that connects Europe with the World

The membership of Star Alliances allows the provision of 21.900 flights to

194 destinations every day.

Focus on Quality & Innovation, Safety & Reliability

Aim to grow profitably and to develop sustainable

Business segments Passenger Airline, Air Cargo, Technology for

Maintenance & Repair, Catering, IT Services

(Annual Report Lufthansa 2011, Lufthansa Company Information)

Customer Segments.

Huge mass of potential customers

4.5 billion people live within an 8-hour flight distance of the hub Dubai

Lifestyle oriented Market Segmentation

Ambitions to attract „globalista‘s“, the experienced global travellers

Further segmentation criteria like demographics, geographics and

economic aspects are not considered.

(O„Connell 2011, O„Reilly 2012)

No specific Target Group is outlined

Lufthansa Business Travellers

2011 65 mio. passengers

Germanwings Price sensitive Businessmen & VFR

2011 7,85 mio. passengers

Condor Holiday Travellers & Families

2011 6 mio. passengers

(Airlinewerbung 2012)

Different Target Groups

for each Sub-Brand

Distribution Channels.

Provision of possibilities to book directly and online

Despite of emphazising the internet as booking platform, Emirates still

incentifies travel agencies especially in Australia and India.

Emirates still rely on Travel Agencies due to low internet accessability and

low tendency to use credit card in their main markets of the Middle East,

Africa and West Asia

Strict refusal to join a strategic aviation alliance avoid the access to

additional booking platforms

(O„Connell 2011)

Provision of an online booking platform to meet the needs of Business

Travelers and to respect the overall development of booking behaviour.

Attemptions to bypass the GDS fees by encouraging European customers

to book directly or by aportioning it to travel agencies or to the customers

Enourmous distribution synergies due to the membership of Star

Alliance

(Annual Report Lufthansa 2011, Pilling 2010)

Customer Relations.

A lot of efforts are put in the creation and distribution of customized services and in

excellent service quality (Emirates, Bob Kabli 2012)

Customer Loyalty Programme „Skywards“

„With Skywards, it's not just about earning and spending Miles - it's about managing

your journey, going beyond the travel experience and enjoying the real privileges of a

more rewarding frequent flyer programme.”

Multiple ways to spend miles.

Flights & Upgrades of Emirates and 8 Partner Airlines, Hotels, Car Rentals, Leisure &

Lifystyle Activities located in UAE, Donation to the Emirates Airline Foundation, Raffling

Miles

Limited attractivity of the programme caused by the little number of participating airlines

(Skywards)

Special status for frequent flyers

Access to Lounges, preferred choice of seats, booking guarantees, priority

check-out, free additional luggage and further more

Divers and numerous possibilities to spend miles

on flights & upgrades with Lufthansa and 36 global and regional airlines,

hotels, car rentals, Shopping & Lifestyle, Finance & Credit Card, Donation

of Miles and other partners

(Miles and More)

Key Resources.

The hub Dubai and the network of Emirates which connects primary as

well as regional airports on six continents.

Competitive low cost structure due to the access to cheap fuel and

labour force which enables Emirates to charge low fares to attract new

customers.

Strong brand thanks to huge brand awareness arising mostly from

sponsorships and commercials

(O„Connell 2011)

Membership of the Star Alliances and affiliate companies like Austrian Airlines and

Swiss Airlines enable Lufthansa to reach and serve more potential customers, create

greater brand awareness and a stronger customer loyalty on a global level.

Three major hubs (Frankfurt, Munich, Zurich) to serve the global destinations.

Subsidiaries like Germanwings and Condor allows Lufthansa to target different kinds of

customers and exhaust synergy effects.

Vertical Diversification through the different business segments

Loyalty of the employees which is reflected in the long-term and constant perception of

Lufthansa as reliable, safe and high-quality.

(Annual Report Lufthansa 2011, Lufthansa Company Information)

Key Activities.

Provision of full-service, long-haul connection flights of primary and regional destinations

for passengers and Cargo.

Ensuring the smooth operation through combining many parts of the supply chain in the

subsidiary Dnata.

Increasing weekly frequency in fast growing markets (e.g. from 2004 to 2009:

India +238% und China +444%)

Optimizing operations through the controlling of the profitability of every single route

every week (Emirates, Rob Kabli 2012).

Raising brand awareness through advertisements and especially through sponsorships

for a range of sports teams and events, e.g. football (Arsenal FC, Hamburger SV, AC

Milan, Paris Saint-Germain), Rugby, Tennis, Horse Racing, Golf, Sailing and further more

(About Emirates 2012, O‟Connell 2011)

Divers business models of the subsidiaries (Lufthansa, Condor, Germanwings, Swiss,

Austrian) allow Lufthansa to serve customers with a wide wange of different needs.

Aviation synergies of the Star Alliance through code sharing strategies and corporate

distribution and customer targeting enable Lufthansa to optimize its operations.

Constant network expansion based on the leading position of network density in Europe.

Continous development and improvement of technologies and services (FlyNet -

WiFi in the sky, new Business Class with added comfort, …)

Profitability is favoured over growth!

(Annual Report Lufthansa 2011)

Partnerships & Networks.

Strict refusal to join a strategic alliance to maintain ist

independence (Emirates, Bob Kabli 2012).

Only eight Airlines do have partnerships with Emirates

South African Airways, easyJet, Japan Airlines, Jet Airways,

JetBlue, Kingfisher Airlines, Korean Airlines, Alaska Airlines

Strong connections with the Government of Dubai

(About Emirates 2012)

Membership as mean to extend

market opportunities and growth

options

Entry of new members to expand

the spoke system and the

presence especially in Latin

America

Joint Ventures: Atlantic ++

Japan +

(Annual Report Lufthansa 2011, Star Alliance)

Cost Structure.

Overall low cost structure creates an comparative advantage

Expenses for fuel 40% of total expenses which is low owing to the proximity of oil production and lower

consumption of fuel of the relatively new aircrafts

Labour cost Two-tier free tax salary system

Tie 1 immobile, labour intensive tasks operated by West Asian expatriates while

mobile labour intensive tasks like accouNting were outsourced mainly to India

Tie 2 generously paid professionals mainly Emiratis and Western specialists

Airport Charges low aircraft and passenger related fees at Emirates Hub - Dubai International Airport due to

synergy creation caused by multi-faced management (Government, Emirates, Airport Authority)

and the establishment of a huge duty-free facility which generates gross-subsidies

Ground handling Dnata as subsidiary of Emirates has a monopoly on ground handling at DXB

MRO 10% of total expenses thanks to the young fleet

Distribution higher cost due to incentives given to Travel Agencies & the refusal to join an alliance

to profit by synergies

Finance cost heavy burden of repayment for aircrafts which can be considered as the main weakness

Debt that is based on a strong relationship of economic, financial and political linkages

Marketing 4% of revenues and US $380 mio in total in 2008

(O„Connell 2011)

Annual Report Lufthansa 2011

Highest cost factors are labour and fuel.

Revenue Streams.

Results 2010-2011

Emirates is operating profitable for 24 years

33,9 m passengers carried

High productivity (passenger seat factor 80%)

Revenues 2011 US $18.9 billion which means an 21% increase

compared to the preceding year

Net Profits 2011 US $629 million

61% loss compared to the preceding year due

to higher fuel costs

Annual Business Report 2010-2011

Results 2011

Highlights Group Lufthansa 2011

Conclusion.

The Business Model of Emirates Airline & Group allows to create comparative

advantages due to lower costs of fuel and labour which are the highest cost items of the

Lufthansa cost structure.

The woven structures of the Airline, the Government of Dubai and the Airport authority

guarentee short decision making processes and an easy access to financial resources.

In addition to that the dedicated focus on offering high-quality services and the great

variety of served destinations via the strategic geographical hub Dubai constitutes a

competitive advantage for Emirates Airline & Group.

The strategic direction focuses on maintaining the competitiveness and the

independence by refusing to join an aviation alliance.

Lufthansa„s Business Model is highly dependent on external driven factors like the

financial crisis and rising fuel cost as the past few years had shown.

In addition the negotiating power of the employees can cause problematic effects like

increased salary requirements and strikes which affect the cost structure tremendously

as labour costs are the greatest item in the cost structure.

Its historic grown image of reliability, safety and quality as well as the ability to serve a

dense worldwide network of destinations through code sharings with Star Alliance

members create a competitive advantage for Lufthansa compared to Emirates.

The diversified business segments minimize the entreprenuerial risk and can support

the awareness of the brand Lufthansa.

References.

About Emirates

www.emirates.com/de/english/about/

Airlinewerbung 2012

http://www.airlinewerbung.com/

Annual Business Report Emirates 2010-2011

http://content.emirates.com/de/english/images/Annual_2011-2012_tcm254-926013.pdf

Annual Report Lufthansa 2011

http://reports.lufthansa.com/2011/

Emirates, Bob Kabli (2012): About Emirates. Presentation on 15.10.2012

Kapeleris, J. (without year): Business Model Structure

http://johnkapeleris.com/blog/wpcontent/uploads/2010/09/Business-Model-Elements1.jpg

Highlights Group Lufthansa 2011

http://reports.lufthansa.com/2011/ar/highlightsgroup.html?cat=m

Lufthansa Company Information

http://konzern.lufthansa.com/de/unternehmen/

Miles and More

http://www.miles-and-more.com/online/portal/mam/de/homepage

O„Connell, J. (2011): The rise of the Arabian Gulf carriers. An insight into the business Model of

Emirates Airline. Journal of Air Transport Management. 17 (2001). pp. 339-346.

O„Reilly, L. (2012): Emirates introduces new brand prositioning.

http://www.marketingweek.co.uk/news/emirates-introduces-new-brand-positioning/4000869.article

Osterwalder, A. (2004): The Business Model Ontology. A Propositional in a design science approach.

Université de Lausanne. Ècole des Hautes Études Commerciales.

http://www.hec.unil.ch/aosterwa/PhD

Pilling, M. (2010): Lufthansa and Amadeus sign Distribution Peace Pact.

http://www.flightglobal.com/news/articles/lufthansa-and-amadeus-sign-distribution-peace-pact-337267/

Star Alliance

http://www.staralliance.com/en/

Skywards

https://www.skywards.com/

vs.

A Comparison of Aviation Business Models