January 23, 2019

What is an airline?

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Singapore Airlines (SIA/SQ) Airbus A380 (9V-SK...

(Photo credit: Wikipedia)

Most of us travel regularly by air and we are used to the endless process of air travel – from the glossy adverts portraying the airline as ‘friendliest’, ‘world’s favourite’ or ‘best for service’ to the purchase of tickets, the check-in, the security, the boarding … and so on. When you look at it this way the time spent on board the aircraft is only one link in a long chain. But how many of us ever stop and ask ourselves ‘what is an airline?’ Here is a link to the Economist that highlights the low returns gained by airlines since 2000 and the lucrative ‘middleman’ businesses that surround airlines.

Not only can the airlines outsource ticketing and the management of their websites, they can lease the aircraft and outsource catering and check-in staff; the airports provide services such as security and baggage handling. So what does an airline actually need to own? It can be argued all it needs are the take-off and landing slots and all the rest can be obtained on the open market. For example, the decision on whether to purchase or lease aircraft is a standard lease or buy finance decision.

It is not just airlines that you need to puzzle over. Think of any organisation, including the one you work for, and ask yourselves the same question: What is a supermarket? What is a bank? What is a restaurant? You will no doubt be aware of the debate regarding outsourcing – the definition of the firm lies at the heart of it.