Strategic Threats and Opportunities for European Legacy Carriers – The Fairytale of the Big Ships

By Christoph Brützel

Airneth column
April 2011
By Cristoph Brützel

Airline business models in our days get more and more hybrid and subject to change. Yesterday Flag Carriers, like Aer Lingus, today see themselves in the league of LCC and former Charter operators, like Air Berlin, tap into Global Network Carriers playgrounds. In the following European »Legacy Carriers« are understood to be the passenger airline members of the Association of European Airlines (AEA), mostly former or even actual National Carriers, also, however, including some later and private foundations like BMI, Virgin Atlantic, and Air Berlin. What most of them have in common is, that they are part of one of the three global network carrier alliances: Star, One World, and Sky Team. Within Europe, Legacy Carriers are competitors, even when acting within the same alliance. Though mergers and acquisitions drive consolidation, the Legacy Carriers still act along the traditional business model operating domestically (as far as the territory is big enough) or out and into their country of origin. Lufthansa Group, for example, is rather a portfolio of national carriers than a truly European one. Following the idea that small ships operate more flexible and smarter than big steam ships, Legacy carrier groups compete with Low Cost Carriers following the opposite paradigm. Ryan Air alone operates more than 40 home bases all over Europe, each flight leaving and returning there scheduled and marketed out of Dublin central offices.
Best practice? Product management in airline business is about providing a most efficient network of flights between origins and destinations. The more the origins and destinations the more network efficiency and effective coverage depend on integrated planning and control and are not fostered by internal competition among spiders. So far it has been a great idea leaving Legacy Carriers with their national pride and not challenging their willingness to integration and subordination – and the willingness of their former public national owners. Competing with the LCCs, in the long run this will rather lead to threats then to opportunities. Ryanair, recently being faced with passenger taxes in Germany, quickly shifted resources to neighboring countries. Lufthansa, in the same situation, was caught with its domestic bases. Ryanair from its home bases easily sets up a portfolio of nonstop flights from all over Europe into new destinations like Memmingen (or »Munich West«). Lufthansa Group would have to coordinate a major effort between its Legacy Carriers – and still would be limited to their home countries.
The size of the »ship« in airline business is the reach of the network and the critical success factor to control the ship in shallow water is the number and location of thrust spending turbines that follow an out of one hand control. Thus the opportunity for the Legacy Carriers will arise from understanding the need to further change: Consolidate network management and, at the same token, centralize respon­sibility for product profitability at market level. However, exploit individual Legacy Carriers brand value but focus them on managing operational performance, reliability and cost of operation. This will, at the same time, enhance opportunities of the European players within the global network alliances. Internal competition among European alliance partners – or even within one airline group – certainly does not increase shareholder wealth but rather cultivates cannibalism. From the Asian and American alliance partners’ point of view a truly European partner is by far more at – or even above – eye level than a portfolio of national legacy carriers. 

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