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Suggested Books On The Airline Biz

Mon May 28, 2001 1:49 am

I have read:

Hard Landing
Worst to First

Any other books out there you would recommend? I am more interested in books about the industry than I am about planes themselves.

Thank you

RE: Suggested Books On The Airline Biz

Mon May 28, 2001 3:13 am

I haven't actually any in my possession, but am thinking about getting one or two for background reading purposes.

Here is an extract from The Airline Business in the 21st Century available at

In 2000 most of the world's airlines watched helplessly as their financial performance deteriorated. A doubling of fuel prices, compared to 1998, growing over-capacity in key markets and falling yields appeared to be the root causes. Unless at least one of these three trends can be reversed, a further deterioration is inevitable. It remains to be seen whether the downturn, if it worsens, will be as severe and painful as that of 1990 to 1993. But whatever the short-term economic outcome, airlines are facing numerous problems and uncertainty in the coming years.

The regulatory environment will be one cause of uncertainty. Deregulation will spread to regions of the world hitherto untouched. The ownership rule requiring airlines to be substantially owned and effectively controlled by nationals of their country of registration will be under pressure and is likely to be progressively abandoned. In Europe, the expansion of the European Civil Aviation Area to encompass an additional 10 or 11 states will create new opportunities but also threats for many of Europe's airlines. The airlines of the new member states, largely government-owned, will be facing the full force of open and free competition domestically and internationally for the first time. Some are already in trouble and may not survive.

The current frenzy for alliances will continue. But as the nationality rules begin to be relaxed, a new period of instability and change will occur as cross-border acquisitions and even mergers begin to replace the more traditional alliance agreements. Old partners may be abandoned and new partnerships created. The industry will move from an era of concentration to a period of consolidation.

On medium and long-haul routes, competition will increasingly be between alliances and their hubs rather than between individual airlines. On short-haul routes, the low-cost carriers of North America and Europe will capture an increasing share of the market by growing more rapidly than the conventional scheduled and charter airlines. New low-cost carriers will also emerge in other regions such as East Asia and South America. Not all the new entrant low-cost carriers will survive. This too is an unstable sector. Airlines will compete more aggressively as regulations are relaxed by adding more frequencies and building up their own and their alliance partners' hubs. Periodic overcapacity in many markets will be endemic. Downward pressure on fares and yields is almost certain to continue. The accelerating switch to e-commerce and on-line ticket sales will also create market instability.

The internet will give consumers instantaneous and easy access to airline price and service data thereby enhancing consumers' market power. This will aggravate the downward pressure on tariffs and fares. There is a risk that the airline product will be commoditised. If this happens, price will emerge as the crucial, perhaps the only, competitive variable. Branding and product differentiation will become increasingly necessary for airlines but at the same time progressively more difficult and costly.

In a climate of continuous change and uncertainty what business model can best meet the challenges ahead? The traditional airline model is that of a business that itself provides in-house most of the services and functions it requires. Its departmental structure reflects this. There were and still are, in most airlines, separate departments dealing with engineering and overhaul, in-flight catering, ground handling, cargo, reservations and ticketing, sales, IT and so on. All these functions are considered so important and critical for the efficient running of the business that airline managements have felt they had to control them directly. This is very much the US airline model.

The danger is overstaffing and higher costs than can be achieved by competitive outsourcing. Some work may be contracted out, usually in locations away from an airline's home base, or to very specialist suppliers. But the overall aim has been self-sufficiency in most areas. During the 1990s two further and different business models have emerged.

British Airways epitomises the one and Lufthansa, Swissair and Singapore Airlines the other. In the mid-1990s as a reaction to the crisis years of 1990 to 1993 and the need to reduce costs, senior managers at British Airways, among others, launched the notion of the 'virtual airline'. The concept was simple. An airline should focus on its core competence, which is operating a network of air services, and outsource to others as many non-core activities and functions as possible. By doing this it could significantly reduce its own costs, especially in areas where traditionally it was overstaffed, and at the same time achieve low future costs by putting out certain functions to competitive bidding from alternative suppliers.

In the years that followed British Airways outsourced its ground transport services at Heathrow and Gatwick to a US company, Ryder; it sold off its in-flight catering at Heathrow to Swissair's Gate Gourmet; and also divested itself of its heavy engine maintenance facility in South Wales. It also more or less withdrew from providing ground handling services to third parties at Heathrow and Gatwick. BA would have gone further in its outsourcing strategy but for union opposition.

While outsourcing worsened industrial relations, British Airways failed to make significant inroads in its staff numbers. It was still employing 56,000 staff at the beginning of 2000, about 8,000 more than five years earlier. Other airlines have also started progressively to outsource different functions such as revenue accounting. The virtual airline strategy appears to be much more effective for new start-up airlines that are not encumbered with existing facilities and practices. Some of the low-cost airlines, such as EasyJet and especially Go, are close to being virtual airlines. In fact when EasyJet started in 1995 it even outsourced the provision and the flying of aircraft as well as all ground handling, though it subsequently took these in-house.

The third business model is one that sees airlines as being engaged in a wider aviation business. The latter consists of much more than flying. In-flight catering, aircraft maintenance, ground handling, air transport related informatics and other activities are all parts of the aviation business. Many airlines are too small to provide all of these services economically in-house and are now looking for outside suppliers. Even larger airlines may wish to outsource some of these functions, for instance, ground handling, when and where it can be done more cheaply. Some of these services can also be supplied to non-airline customers. Thus there is a whole host of services and activities that can be separate and profitable business activities in their own right.

A few airlines, have set about transforming what were previously internal departments into separate specialist companies, bidding aggressively for outside contracts. Lufthansa has identified seven activities that effectively operate as separate businesses. These are passenger services, cargo operations, aircraft maintenance and overhaul, catering, ground services, informatics and leisure travel, which encompasses tour operating and charter flights. Each of these businesses was set a tough corporate objective by the Lufthansa group board - for each to become one of the top three providers in the world in its own particular business area. By the end of 2000 most of the businesses were achieving this. The Swissair approach has been very similar, though there are only five separate business areas, one of which is an aircraft leasing company.

The virtual airline model makes sense in terms of reducing costs through outsourcing but it does carry a major risk. The airline business is very cyclical. Concentrating purely on the core activities and abandoning the provision of peripheral services makes an airline more susceptible to any sustained economic downturn. There are no countervailing sources of revenue from, say, catering or ground handling services, to offset the revenue fall. Revenues from these areas may also be adversely affected by a cyclical downturn but much less so than the core airline revenues. After all, other airlines' aircraft, as well as one's own, still have to be handled or maintained, and passengers continue to require in-flight meals and catering. It was the absence of any countervailing revenues from other sources that lead to the dramatic drop in BA's profitability from a net profit of $330 million in 1998 to a loss of $34 million in 1999. Airlines such as Lufthansa or Swissair also saw profits from their airline business decline that year. But revenue in their ancillary businesses held up better and helped cushion the shortfall in airline revenues. Overall their profits were cut by only $101m and $55m respectively.

The Lufthansa-Swissair paradigm also involves some risks. If, as seems most likely, the core airline business is required to buy all the services it needs, such as catering or maintenance, from its own non-core business units, can one be certain that it is always obtaining the best and cheapest deal possible? On the other hand it could be argued that because these specialist business units are likely to be large they will enjoy economies of scale, and since they are constantly in competitive bidding for external third-party work they are likely to be more efficient than an airline's internal supplier who does not face real competition. But what if, in the longer term, the non-core businesses prove consistently profitable while the airline business itself is marginal?

This was the dilemma facing Swissair in February 2000. While its non-flying business performed reasonably well, its airline division was in crisis largely because of a policy of buying minority stakes in other smaller European airlines, most of them government-owned and increasingly unprofitable.

So, in a decade of uncertainty airlines will have three business models to choose from. Which business model should airlines adopt in order to survive? Which is most likely to generate the highest profits but also enable airlines to overcome any cyclical downturn? In a couple of years we will know.

This paper is extracted from Professor Doganis's new book The Airline Business in the Twenty-First Century published by Routledge, January 2001 (ISBN 0-415-20882-3)

BTW, nothing to do with the airline business, but I can recommend Beyond the Blue Horizon by Alexander Frater-who retraces the routes flown by the old Empire Flying boats-extremely enjoyable.


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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 3:32 am

I am currently going through Prof. Doganis' book. Very interesting reading, and easy to understand even to outsiders or laymen enthusiasts.

In addition to this book, I hope to hunt down articles in the Journal of Air Transport Management (Elsevier). If you have access to the library of a technical university, you'd have a pretty good chance of finding those journals.

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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 6:26 am

I know that "Nuts" is about Southwest Airlines (good and funny book). But what is "Hard Landing" and "Worst to First" about?
Its better to be on the ground wishing you were in the air than be in the air wishing you were on the ground. Fly safe!
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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 6:59 am

Hard Landing is about the industry in general. Worst to First is about CO and Gordon Bethune.
Topic Author
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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 7:01 am

Worst To First is the story of Continental and Hard Landing is a great read about the airline industry from its inception until 1995
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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 12:54 pm

Here's a few:
Legend & Legacy; Robert Serling (Boeing)
Twenty-First-Century Jet; Karl Sabbagh (777)
The Electra Story; Robert Serling (Electra)
Soviet SST; Howard Moon
Skygods: Robert Gandt
The Anatomy of an Airline; Brad Williams (National)
From The Captain to the Colonel; Robert Serling (Eastern)
Grounded; Aaron Bernstein (Eastern)
Eagle: Robert Serling (American)
High Horizons; Frank Taylor (United)
The Chosen Instrument; Bender/Altschul (Pan Am)
Splash of Colors; John Nance (Braniff)
Howard Hughes' Airline; Robert Serling (TWA)

Have several hundred more but these (at least that you can find) will keep you busy. Besides, that's all I can see from my desk.

Good Hunting.
The day you stop learning is the day you should die.
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RE: Suggested Books On The Airline Biz

Mon May 28, 2001 1:07 pm

I read a book about Frank Lorenzo and the demise of EAL. It was pretty good. I don't remember the title.
Get your patchouli stink outta my store!

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