The comparison of financial performance of airlines with different business model operated in long-haul market

Abstract

The competition between low-cost carriers (LCC) and full-service network carriers (FSNC) has been focused exclusively on short to medium-haul markets for a long time. The launch of new aircraft generation combined with further liberalization of intercontinental air transport market presents the backbone of the recent extension of LCCs’ service into long-haul sector. Thus, the emergence of this new concept triggered the changes in the landscape of competition, since it tremendously affects the operations of incumbents, mainly FSNCs. The aim of the paper is to examine the overall profit performance of airlines with different business models (LCC vs. FSNCs) that compete in some portion of long-haul market in terms of different competitive parameters. The paper proposes the method that incorporates the major factors affecting airline profit. The method enables the construction of high level causal multidimensional plane that illustrates the behavior of profits in terms of different indicators (such as fuel costs, other operating costs excluding fuel, average stage lengths, average load factor, etc.). The conversion of these tridimensional graphs into two-dimensional one enables the researchers to easily compare the airlines’ profits under different selection of dependent variables. The results obtained in this way may have practical benefits to academics, but moreover to airline management and operations that can easily detect the major competitive advantages/disadvantages in contrast to its rival(s).