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Business models in business aviation – An empirical analysis with a focus on Air Charter Companies
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Research in Transportation Economics journal homepage: http://www.elsevier.com/locate/retrec
Business models in business aviation – An empirical analysis with a focus on Air Charter Companies � b, Anna Tomova �b Frank Fichert a, *, Ivana Kirschnerova a b
Hochschule Worms, Germany � University of Zilina, Slovak Republic
A R T I C L E I N F O
A B S T R A C T
Keywords: Business aviation Business models Airlines Cluster analysis
The paper contributes to the research on business models in business aviation by presenting the results of an empirical analysis focusing on air charter companies. Combining the Canvas concept with cluster analysis, we use data from more than seventy air charter operators from five world regions. The cluster analysis produced three clusters of companies which were large full-range business aviation supply groups, medium sized business aviation firms, and small business aircraft operators. The findings confirmed the diversity of the sector and indicated the presence of more business models. Our findings also call for the development of sector specific research tools and methodologies aimed at business models in business aviation to comprehensively answer the question how the sector works.
1. Introduction The term “business aviation” covers a broad scope of aviation ac tivities and there are several definitions of the term which confirm that “business aviation belongs to more than one category” (IAPBA, 2018). The definition of the FAA (2019) emphasizes that “business aviation is the use of any general aviation aircraft – piston or turbine – for a business purpose”. According to EUROCONTROL (2017), business aviation is “an air transport option that includes some commercial for hire or fractional oper ations, flying corporate-owned jets and owner-operated flying for business purposes” what reflects miscellaneous operations performed within the business aviation sector. Similarly, this diversity of operations within business aviation is contained in the International Business Aviation Council’s definition which deems business aviation as “that sector of aviation which concerns the operation or use of aircraft by companies for the carriage of passengers or goods as an aid to the conduct of their business, flown for purposes generally considered not for public hire and piloted by individuals having, at the minimum, a valid commercial pilot license with an instrument rating“ (ICAO, 2018). According to IAPBA (2018) the position of business aviation is “somewhere between commercial air transport and general aviation”. One might build several cases in order to demonstrate the difficulties
in separating business aviation from general aviation.1 For example, two individuals might hire an aircraft in order to fly from A to B, one of them headed for a business meeting, the other one visiting his family. Also, in the case of fractional ownership models, companies and private in dividuals might jointly own an aircraft, using it for different purposes. Similarly, a business aviation company may offer sightseeing flights within its product portfolio which might be considered a typical ‘on demand’ service. However, the motivation of the customer for pur chasing this service does not have to be business related. To separate business aviation from commercial air transportation, the easiest – although not very precise – way is to consider aircraft types. Further more, business aviation is often thought of as the segment of aviation which delivers specific air services which are not open to the public, and which are designated for time-sensitive as well as comfort-sensitive customers with a high willingness to pay. Individual customisation of air services is a further feature typical for the product of business avia tion companies. In the long-term, business aviation is a major contributor to the growth of aviation, especially with respect to air transport movements. As Budd and Graham (2009) noted, the liberalisation of air transport markets had contributed to the expansion of business aviation because business aviation copes successfully with several negative phenomena of
* Corresponding author. E-mail addresses: [email protected] (F. Fichert), [email protected] (I. Kirschnerov� a), [email protected] (A. Tomov� a). 1 Analysing the trends in general aviation in the US, Shetty and Hansman (2012) mention that the term general aviation covers different aviation activities (personal, business, corporate, instructional, air medical, aerial observation, aerial application, sightseeing etc.). https://doi.org/10.1016/j.retrec.2019.100794 Received 18 December 2018; Received in revised form 14 November 2019; Accepted 21 November 2019 0739-8859/© 2019 Elsevier Ltd. All rights reserved.
Please cite this article as: Frank Fichert, Research in Transportation Economics, https://doi.org/10.1016/j.retrec.2019.100794
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liberalisation, mainly delays of flights as well as insufficient comfort and on-board services. The market share and the dynamics of business aviation are remarkable. According to EUROCONTROL (2017), business and general aviation is the third largest segment in Europe with a market share about 7% of all flights over the previous ten years. According to GAMA (2016), two-third of 24 million general aviation flight hours were performed for business purposes in the US in 2015. In China, the general aircraft population is expected to reach 20,000 by 2023 (AVIC, 2018), although, as Zhu et al. (2017) noted, in comparison to the US China’s general aviation just started. Globally, between 2017 and 2018, the world business aircraft fleet grew by 1.4%, from 37,284 units to 37,792; this includes 22,273 jets and 15,519 turboprop-powered aircraft (Fleet Report 2018: The state of the industry, 2019). Despite the above-mentioned facts, the research on business models in business aviation is rather narrow if we compare it with numerous papers focusing on the business models of traditional, low cost, regional, holi day and cargo airlines. This paper contributes to the research on business models in business aviation by presenting the results of an empirical analysis focusing on air charter companies. After the literature review, we outline the method ology of our research as well as the approach to data gathering. In order to analyse business models, we combine the Canvas concept with cluster analysis. As a result, we identified three clusters of air charter operators which belong to the sector of business aviation, representing the so called commercial for hire operations. Although our survey only covered air charter operators (74 firms from five world regions), the results suggest that future research on business models in business aviation will need to develop sector specific research tools and methodologies which would better reflect the diversity of business aviation. In this context we fully agree with the statement of Oxford Economics (2012), that the term business aviation itself “is something of a simplification, covering a range of operator and airline types“.
aircraft ownership modes (for instance on-demand business aviation charter, fractional ownership, in-house operation). Such an approach can be found in Nigam, Singh, and Singh Pahwa (2012) who subdivide business aviation into commercial, corporate, owner operated and fractional aircraft ownership; not referring explicitly to the term busi ness model. Similarly, GBTA (2011) distinguished the following types of operation in business aviation: on-demand charter, jet card programs, fractional aircraft, joint aircraft ownership and full aircraft ownership. NBAA (2010) – in the Business Aviation Fact Book, which is also referred to in other publications on business aviation – explain business aircraft utilisation options, which were on-demand charter, block charter, fractional ownership, jet-card programme, time-share and interchange agreements, again not referring to the term business model. An Oxford Economics (2012) study identified charter services, fractional owner ship schemes and in-house aviation as main operating models in busi ness aviation. Krane and Orkis (2009) conducted a survey of companies using general aviation aircraft to better understand business aviation in the US; the survey showed that small companies operate the largest share of business aircraft. Furthermore, managers and other mid-level employees are the typical passengers on board of a business aircraft. Referring to this literature review, business aviation may be denoted as a sector in aviation which has been relatively neglected by economic research in comparison with commercial air transportation.2 There are some suggestions on how to categorize different activities within busi ness aviation, but the different business models of service providers have not been analysed in depth. With our study, we want to contribute to closing this gap. 3. Methodology Since a comprehensive set of information on business aviation companies is not publicly available, we decided to use an electronic questionnaire. The respondents could stay anonymous. The question naire was distributed in January 2017 to 1,239 companies all over the world with the deadline for return stated at the end of February 2017. The list of companies – potential participants in our questionnaire – was compiled using the list of charter business aviation carriers available at web pages of Air Charter Guide and Handbook of Business Aviation. Then, an official public contact point of the companies was used to start communication. Finally, we received 74 returns; nine respondents expressed their will to stay anonymous. Although the response rate was low (less than six percent), we gathered data and information about 74 charter business aviation companies from five world regions (see Table 1). Thus, our analysis dealt with those business aviation com panies which in principle supply customers with “for hire” business aviation services. To design the questionnaire, we used a concept of Osterwalder and Pigneur (2010) called Canvas. The Canvas concept is based on nine interrelated components of business models which are key partners (1), key resources (2), key activities (3), customer relationship (4), customer channels (5), customer segments (6), and value proposition for cus tomers (7) as a central part of Canvas. Thus, in the concept of a business model Canvas the overall organisation and architecture of conducting the respective business is included. Moreover, within the Canvas framework, the business model is reflected in cost structures (8) as well as revenue streams (9). The Canvas concept was used in aviation research for instance by �rio (2013) to explore the main types of airport busi Kalakou and Maca ness models. Pereira and Caetano (2017) used the Canvas concept to analyse the business models in commercial aviation. In general, the
2. Literature review As mentioned above, relatively few academic papers deal with the business aviation sector. However, several reports prepared by consul tants or industry associations have been published that will also be summarized in this section. Business aviation has attracted the interest of the research commu nity mainly in terms of its economic and social impact. A PwC (2008) study prepared for the European Business Aviation Association (EBAA) quantified the contribution of business aviation to the Gross Domestic Product (GDP) of the European Union plus Norway and Switzerland corresponding to €19.7 bn (0.2%). Oxford Economics (2012) high lighted the role of business aviation in Europe, which was recognized mainly in the facilitation of business deals, the creation of airport clus ters, the promotion of local labour markets, the support of investment in local infrastructure. Another PwC study (2015) aimed at the US and evaluated the remarkable values of direct, indirect, induced and enabled impacts of general aviation (including business aviation) for the US economy in 2013, amounting to 0.65% of GDP. The strategy to prioritise the investment in business aviation was presented as crucial for the Middle East region (Global Aerospace Summit, 2016). On a country level, FNAM (2013) elaborated the first study on the socio-economic impact of general and business aviation in France. InterVISTAS (2017) found that business aviation contributes an estimated $5.8 billion in total domestic product of Canada in 2017. At the airport level, the importance of business aviation to Farnborough airport was identified by Nathaniel Lichfield & Partners Ltd. (2009), similarly Berster, Gel hausen, and Wilken (2011) investigated the role of business aviation for the economic vitality of regional airports in Germany. Regarding business models in business aviation, the topic is tackled in several studies and papers. According to our findings, there are some statements about how the sector conducts business; they are usually built upon a list of basic modes of business aircraft operation and/or
2 From numerous papers devoted to the research on business models in commercial aviation we mention Heinz and O’Connell (2013), Bachwich and Wittman (2017), Jean and Lohman (2016), Reis and Silva (2016).
2
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of clusters is not pre-defined, and clusters are generated “naturally” without an artificial input of researchers. The variables for clustering were elaborated using the answers of respondents within the questionnaire.
Table 1 Number of distributed questionnaires according to the world regions and respective response rates. World region
Number of distributed questionnaires
Number of returned questionnaires
Response rate
Europe North America South America Asia and Pacific Africa Total
385 427
36 12
9.4 2.8
103
5
4.9
195
16
8.2
129 1,239
5 74
3.9 5.9
4. Results Before presenting the results of the cluster analysis, key character istics of the responding operators will be discussed in this section. In addition, Table 3 provides an overview of selected structural informa tion. The data shows that 33.8% of the companies included in our research were daughter companies or belonged to a group of companies, while the rest, i.e. 66.2% were single companies. In most of the cases, the respective mother companies of the analysed companies had their core business in the provision of air services. 43.2% of the companies mentioned different modes of cooperation with other business aviation companies (alliance, marketing cooperation, cooperation in aircraft charter, aircraft leasing). Six companies even cooperate with scheduled airlines. Within the sample, companies with a fleet size reaching from 1 to 42 aircraft were recorded.4 In 37 companies, business jets were the pre vailing aircraft type. The number of companies in which piston aircraft prevailed was approximately the same as the number of companies with prevailing helicopters in the fleet. Fleet composition can be analysed by using different indices, in particular the Herfindahl-Hirschman Index (HHI), and the Fleet Stand ardisation Index - FSI (de Borges Pan & Espirito Santo, 2004).5 Whereas the HHI has been applied in the literature primarily – but not only – to market shares, the FSI has been developed specifically for analysing airline fleets. However, calculating the FSI requires detailed information on fleet composition, which could not be obtained with our survey. Consequently, the more general HHI was used. In the sample, the HHI values range from 0.19 to 1.00 what indicates the different levels of fleet commonality within the analysed group of air charter companies. Moreover, 21.6% of the companies mentioned fleet sharing with other companies. 51.4% of the companies had aircraft based only at one airport, 24.3% companies had aircraft based at two airports, and 10.8% at three airport bases. Ten was the highest number of airports recorded in this regard. Most of the analysed companies (77.0%) had their aircraft based within one country, the highest number of countries in this regard was seven (one respondent). The provision of executive business air services was dominantly named as the core business by the respondents what is in line with the focus of our research on the air charter portion of business aviation. However, we recorded that some of the analysed companies also referred to the provision of unscheduled and scheduled cargo air ser vices, scheduled passenger services and even scheduled passenger air services provided in public interest under public service obligation or other similar schemes as their core business. 71.6% of the companies operated aircraft for the purpose of rescue activities, areal works, adventure flights, medical flights, sightseeing flights and/or other spe cific air services. Half of the responding companies did not offer aircraft possession related services, such as the purchase and/or sale of aircraft, the leasing of aircraft or fractional ownership. Slightly more than half of the companies provide pilot training. Training of on-board crew was recorded only in 9.46% cases. All this indicates that even the air charter segment within the business aviation sector shows some diversity. The diversity was noticed also with respect to procurement models within which technical services are ensured by the companies. In our questionnaire, we differentiated between line and heavy maintenance, ground handling services, aircraft cabin modification and aircraft
Source: Authors.
Canvas concept is a suitable starting point to understand and/or analyse business models. Our questionnaire contained 51 questions. Table 2 shows the questions which were the most relevant for clustering. The questions are linked to the respective components of the Canvas concept of business models. Moreover, the questionnaire included some more general questions (e.g., company size) as well as on success factors.3 Within the component “Key partners” we examined cooperation as well as integration, both on the horizontal and the vertical level. Within this component we also asked for the geographical pattern of business activities and the number of airports at which the companies had their aircraft based. Within the component “Key activities” the questions were aimed at mapping the core business as well as other services and/or activities. Within the component “Key resources” we explored em ployees and aircraft as the most significant production resources of business aviation companies. Thus, our questionnaire covered three components of the Canvas concept of business models which are linked to the component “Value proposition”. Within the component “Chan nels” we aimed at identifying main distribution channels of the com panies. It would be useful to have information belonging to the components “Customer relationship” and “Customer segments”, how ever, the respective questions were not included in the questionnaire as such questions could be perceived as too sensitive to be answered by the companies. Similarly, we did not ask for cost and revenue data for the same reason. Subsequently, we performed a cluster analysis. There are several papers using cluster analysis with respect to business models in different industries; recent examples include banks (Farn� e & Vouldis, 2017), credit unions (Stowe & Stowe, 2018), and journals (Claudio-Gonz� ales et al., 2016). Moreover, cluster analysis has also been used with respect to other aviation markets. Wen and Chen (2011) analysed international airlines operating routes in Japan. Heinz and O’Connell (2013) clustered business models of African airlines. Urban et al. (2018) clustered airlines belonging to commercial aviation. Vogel and Graham (2013) built airport clusters for the purpose of economic benchmarking, while €es, Reis, and Maca �rio (2015) clustered 140 airports to reveal Magalha relationships between flexibility factors and the performance of airports. In our research, we used two clustering criteria – Schwarz’s Bayesian Criterion (BIC) and Akaike’s Information Criterion (AIC). In the litera ture, pros and cons of these two criteria are discussed (see for example Gu et al., 2018). However, in our analysis both criteria have basically led to the same clusters. Therefore, we will only report the results of the BIC approach. All clustering exercises were performed using PASW Statistics 18 software. As the data were of continuous as well as categorical nature, we decided for a two-step clustering. Within this approach, the number
3 Transport statistics, the year of establishment, the country of registration, the core business at the beginning after the establishment, the factors of con ducting successful business as perceived by respondents.
4
One respondent did not provide this information. A comparison between the two indices can also be found in Zou, Yu, and Dresner (2015). 5
3
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Table 2 Overview of questions allocated to four components of the Canvas concept of business models Canvas component
Questions
Options to answer
Key partners
Does your company cooperate with another business aviation airlines(s)? What is the type of cooperation with other business aviation airline(s)? Does your company cooperate with scheduled airline(s)? What is the type of cooperation with scheduled airline(s)? Is your company part of another company (or group of companies)? Your company is … What is the core business of your parent company?
Yes –No Cooperation in marketing, Joint-venture, Alliance, Other Yes – No Cooperation in marketing, Joint-venture, Alliance, Other Yes – No Daughter company, Parent company Air services, Value chain services in the air transport industry, Services outside the air transport industry Air services, Value chain services in the air transport industry, Services outside the air transport industry Open Open Open Executive jet services, Medical and/or rescue flight services, Flight school, Maintenance, Aircraft sale/purchase, Other … Non-scheduled (charter þtaxi) passenger flights, Non-scheduled passenger flights (except of PSO services), Scheduled flights of PSOs, Scheduled cargo flights Ambulance flights, Rescue flights, Flights for aerial works, Flights for filming and photographing, Sightseeing flights, Adventure packages flights, Other … Yes – No PPL, CPL, ATPL,IR, FI, MEP, Type and Class rating, other… Yes – No (Open) Line maintenance, Heavy maintenance, Ground handling, Aircraft dealing, Aircraft completion (outfitting interior) open
What is the core business of your daughter company?
Key Activities
What is the total number of airports where your company’s aircraft are based? What is the total number of the countries where your company’s aircraft are based? Name the three airports where you have the most important bases of your company. What is the core business of your company at present? What type of flight services related to passenger and cargo flights does your company offer? What further types of specific flight services does your company offer?
Key resources
Channels
Does your company provide training of pilots? What type of pilots training does your company offer? Does your company provide any other training, services? (Specify.) Regarding technical services, choose whether you provide sale and/or purchase of the following services. Specify whether there are any other technical services your company provides, sale and/or purchase. Regarding financial and administrative services, choose whether you provide, sale and/or purchase of the following services. Specify whether you provide sale and/or purchase of any other financial and administrative services. What is the number of your company’s employees? What is the number of your company’s pilots (except of pilots for flight school)? What is the total number of aircraft in yourcompany’s fleet and the number of aircraft in the fleet according to different business aviation aircraft categories: very light jets, light jets, midsize jets, super midsize jets, large jets, bizliner, turboprop aircraft, piston engine aircraft, helicopters, other.ᵅ Name three aircraft with the highest share in the fleet. Does your company share aircraft with other companies? Which distribution channels does your company use?
Financial accounting, Aircraft administration and management, Consultancy services Open Open Open Open
Open Yes – No Own websites, Other websites (of partners, advertisement on other websites …), Social media, Executive jet brokers websites, Exhibitions, Open house, Other
ᵅNote: The aircraft categories were defined using the capacity of pax and range in nm. Source: Authors.
the services. Interestingly, some of the analysed companies were engaged in consultancy services. In the past, some of the companies had started their business as aviation training schools; or offering brokerage of charter flights or aerial works. There were also some cases in which the provision of ex ecutive business air services as a key business in the past had been transformed to the core business of aircraft management or aviation training school. This finding shows that the sector of business aviation is in a state of flux. All companies in the sample used their own webpages, webpages of partners, social media, webpages of executive jet brokers, but also brochures, exhibitions, and Open Day events. Most of the companies used between two and four channels for distributing their products. In Table 4, we present the results of the cluster analysis. The level of importance of the chosen 15 variables within the components of the Canvas concept is indicated in Table 4 as i.6 The analysis is a result of several clustering exercises which were performed to find the clusters of the best quality. Referring to the PASW Statistic silhouette measure of cohesion and separation, the quality of the presented clusters in Table 4
Table 3 Key characteristics of business aviation operators in the survey. Criterion
Survey results
Integration
66.2% Independent companies 33.8% Members of a group 43.2% Cooperation with other business aviation operators 8.1% Cooperation with scheduled airlines 51.4% One airport 24.3% Two airports 10.8% Three airports 13.5% Four or more airports
Cooperation Number of airport bases
cleaning; and also, whether the services are provided only for own operation, sold to other companies, bought from other companies, or in combination of the mentioned options. As Fig. 1 show, the analysed companies in business aviation are miscellaneous in terms of their technical service procurement models. Similarly, we found the different modes of administrative and management services. 47 companies pro vided aircraft administration and management services in-sourced, but only for own needs, while the rest of the companies also purchased or offered the services, in several cases as an add on to the own provision of
6
4
i ¼ 1.00 means the most important variable for clustering.
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Fig. 1. Technical services of the companies in the survey. Source: Authors.
was stated as good. The results presented in Table 4 show three clusters of air charter business aviation companies, based on our sample.
business models for air charter companies. Due to the number of com panies we worked with, the results may not be generalized. The models of line maintenance and heavy maintenance procurement as well as the size of key resources (employees, pilots and fleet) were determined by us as the most significant variables for clustering and, potentially for identifying the business models within the sector by future research. On the other hand, the commonality of fleet, which is a typical attribute when analysing commercial airlines’ business models, does not seem to be so significant in identifying the clusters of business aviation air charter companies. Similarly, the number of distributions channels, which play an important role when identifying the business models of airlines in commercial aviation, did not play any role to identify the clusters of business air charter companies. These findings call to develop sector specific research tools and methodologies which would better reflect the diversity of business aviation. The issues of vertical integra tion and horizontal interlinkages seem to be the most challenging for further research in this regard. The results of our research indicate that there are firms belonging to the air charter portion of business aviation, which differ mainly in terms of the scale of key production resources and the models of supply chain management. Thus, the firms we denoted as large full-range business aviation supply groups may exploit economies of scale, economies of scope, and economies of network, transfer flows within a group, and the potential in supply chain and subsequently use them as their main source of their competitive advantage. All companies belonging to the cluster of large full-range business aviation supply groups in our research were engaged in the purchase and/or sale of aircraft; however, such business was recorded in the other two clusters of business air charter companies as well. Referring to the research results, the firms we denoted as medium sized business aviation firms are endowed by a larger scope of miscellaneous specific air services which need not to be of a primary interest to large business aviation supply groups, such services are operated by a medium sized company more locally in comparison with full-range business aviation supply groups. A competitive advantage of small business aircraft operators is seen by us in the knowledge of and the vicinity to local markets. According to our findings, the fleet of small business aircraft operators may be more
� Large full-range business aviation supply groups: These firms conduct business as a company within a group, with a high level of inde pendence within the supply chain of the group, with a large geographical pattern of operation with regard to non-scheduled passenger and cargo transportation, providing also a broad portfo lio of other air services, as well as services related to aircraft oper ation (maintenance services, administration and management of aircraft, aircraft sale, fractional ownership, etc.). 17 companies in our research belonged to this cluster, with the following character istics: average number of airports where aircraft were based 3.8; average fleet 18.4 aircraft; average number of employees 96.4; average number of pilots 30.9. � Medium sized business aviation firms: They operate a portfolio of miscellaneous air services, exploiting in-sourcing and/or outsourcing in the supply chain management of aircraft-related ser vices. (29 companies in our research belonged to this cluster, average number airports where aircraft where based 1.6; average fleet 9.6 aircraft; average number of employees 37.8; average number of pi lots 12.1). � Small business aircraft operators: These companies show a high de pendency in supply chain management, with a high scale of outsourced services related to aircraft, whereby the portfolio of pro vided air services and geographical pattern of operation is narrower (24 companies in our research belonged to this cluster, average number of airports where aircraft were based 1.4; average fleet 3.8 aircraft; average number of employees 10.2; average number of pi lots 5.9). 5. Discussion and conclusions Business aviation is a diverse sector which was confirmed by the results of a cluster analysis of more than 70 business aviation air charter companies from five world regions, which produced three clusters of 5
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Table 4 Results of the cluster analysis (BIC variant) Variables for clustering Level of importance (i)
Small Business Aircraft Operators (Respective share of companies within the cluster or the respective average values)
Mediun Sized Business Aviation Firms (Respective share of companies within the cluster or the respective average values)
Large Full-range Business Aviation Supply Groups (Respective share of companies within the cluster or the respective average values)
Line Maintenance i¼1.00 Heavy Maintenance i¼0.73 Number of Employees i¼0.49 Number of Pilots i¼0.48 Number of Aircraft in Fleet i¼0.43 Purchase/Sale of Aircraft i¼0.16
Purchase from others (91.7 %) Purchase from others (100 %) 10.17 5.92 3.79 Yes (54.2 %) No (66.7%) No (70.8 %) For own needs (62.5 %) No (62.5 %) 1.38 2.00
For own needs (51.7 %) For own needs (37.9 %) 37.79 12.07 9.59 Yes (55.2 %) No (86.2 %)
For own needs and sale to other companies (94.1 %) For own needs and sale to other companies (64.7 %) 96.41 30.88 18.41 Yes (100 %) Yes (58.8 %) Yes (58.8 %) For own needs and sale to others (52.9 %)
0.76 Separate (75.0 %) Yes (83.3 %)
0.67 Separate (79.3 %) Yes (86.2 %)
Fractional Ownership i¼0.14 Training of Pilots i¼0.12 Aircraft Administration and Management i¼0.08 Aircraft Leasing i¼0.06 Number of Airport - Bases i¼0.32 Number of Secondary Air Services* i¼0.03 HHI of Fleet i¼0.04 Company’s Status (separate vs corporate entity) i¼0.14 More than one distribution channels i¼0.00
Yes (69.0 %) For own needs (75.9 %) No (51.7 %) 1.59 2.79
Yes (70.6 %) 3.82 2.41 0.61 Daughter or mother company (70.6 %) Yes (88.2 %)
Source: Authors. Note: The total number of companies in the complex cluster analysis is less than 74 as not all respondents provided all needed information and data. *Secondary services mean other than scheduled and non-scheduled cargo and passenger services (PSO and similar schemes included), i.e. rescue flights, aerial work, adventure flights, medical flights, sightseeing flights.
homogenous narrowing in this way the scope of provided air services. Small business aircraft operators to a bigger extent depend on business with other companies mainly in the field of aircraft maintenance ser vices. Our research also confirmed that business jets will be managed collectively in pools, and fractional ownership has become common as it was predicted by Linz (2012). Taking into account the growing role of business aviation for modern societies, future research on business aviation ought to reflect more the diversity of entities operating in the sector, although as our research demonstrated, business models are not so easy to be identified in busi ness aviation. Many of conventional attributes of business models, which are well applicable to commercial aviation, may not be well applicable in business aviation. Future research on business models in business aviation is necessary to better understand the competition and cooperation issues within business aviation as well as the competition and cooperation issues between business aviation and commercial aviation. Such knowledge could be very conducive to comprehend the complexity of civil aviation with all its sectors, also those sectors which have been neglected by economic research so far.
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Acknowledgement This paper has been originated within a cooperative framework built upon the COST ACTION TU1408 Air Transport and Regional Develop ment; COST is the European scheme supporting trans-national cooper ation among researchers, engineers and scholars. We thank to all respondents – business aviation companies, participated voluntarily in our research. Our gratitude belongs also to Axel Beimdiek from Air Alliance Flight Center GmbH who reviewed the first version of the questionnaire and provided us with precious expertise from the field. We also thank the reviewers for important comments that helped to improve the paper.
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Research in Transportation Economics xxx (xxxx) xxx Pereira, B. A., & Caetano, M. (2017). A conceptual business model framework applied to air transport. Journal of Air Transport Management, 44–45, 70–76. PwC. (2008). The economic impact of business aviation in Europe. PwC. (2015). Contribution of general aviation to the US economy in 2013. Reis, V., & Silva, J. (2016). Assessing the air cargo business models of combination airlines. Journal of Air Transport Management, 57, 250–259. Shetty, K. I., & Hansman, R. J. (2012). Current and historical trends in general aviation in the United States. Available from https://dspace.mit.edu/bitstream/handle /1721.1/72392/ICAT REPORT SHETTY.pdf?sequence¼1. (Accessed 2 September 2019). Stowe, D. L., & Stowe, J. D. (2018). Credit union business models. Financial Markets, Institutions & Instruments, 27(5), 169–186. Urban, M., et al. (2018). Airline categorisation by applying the business model canvas and clustering algorithm. Journal of Air Transport Management, 71, 175–192. Vogel, H.-A., & Graham, A. (2013). Devising airport groupings for financial benchmarking. Journal of Air Transport Management, 30, 32 – 28. Wen, C.-H., & Chen, W.-Y. (2011). Using multiple correspondence cluster analysis to map the competitive position of airlines. Journal of Air Transport Management, 17, 302–304. Zhu, Y., et al. (2017). Analysis on current development situations, the key issues and countermeasures of China’s general aviation industry. Procedia Engineering, 174, 871–877. Zou, L., Yu, C., & Dresner, M. (2015). Fleet standardisation and airline performance. Journal of Transport Economics and Policy, 49(1), 149–166.
Jean, D. A., & Lohman, G. (2016). Revisiting the airline business model spectrum: The influence of post global financial crisis and airline mergers in the US (2011-2013). Research in Transportation Business & Management, 21, 76–83. Kalakou, S., & Mac� ario, R. (2013). An innovative framework for the study and structure of airport business models. Case Studies on Transport Policy, 1, 2–17. Krane, D., & Orkis, K. (2009). The real World of Business Aviation: A Survey of Companies Using General Aviation Aircraft. Available from https://nbaa.org/wp-content/uploads /2018/02/Real-World-of-Business-Aviation-2009.pdf. (Accessed 23 July 2019). Linzy, M. (2012). Scenarios for the aviation industry: A delphi-based analysis for 2015. Journal of Ait Transport Management, 22, 28–35. Magalh€ aes, L., Reis, V., & Mac� ario, R. (2015). Can flexibility make the difference to an airport’s productivity? An assessment using cluster analysis. Journal of Air Transport Management, 47, 90–101. Nathaniel Lichfield & Partners Ltd. (2009). The economic impact of business aviation at Farnborough Airport. available at internet. http://www.rushmoor.gov.uk/CHttpHan dler.ashx?id¼4898&p¼0 Accessed April 20, 2018. NBAA – National Business Aviation Association. (2010). Business aviation fact Book. available at: internet https://www.nbaa.org/business-aviation/fact-book/ Accessed April 20, 2018. Nigam, A. K., Singh, A., & Singh Pahwa, M. (2012). Business and general aviation as force multipliers in a growing economy: A case for India (Vol. 4, pp. 10–17). A Bi-Annual Publication of US-India Aviation Co-operation Program, 2. Osterwalder, A., & Pigneur, Y. (2010). Business model generation. Hoboken: John Wiley and Sons. Oxford Economics. (2012). The role of business aviation in the European economy.
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Research in Transportation Economics journal homepage: http://www.elsevier.com/locate/retrec
Business models in business aviation – An empirical analysis with a focus on Air Charter Companies � b, Anna Tomova �b Frank Fichert a, *, Ivana Kirschnerova a b
Hochschule Worms, Germany � University of Zilina, Slovak Republic
A R T I C L E I N F O
A B S T R A C T
Keywords: Business aviation Business models Airlines Cluster analysis
The paper contributes to the research on business models in business aviation by presenting the results of an empirical analysis focusing on air charter companies. Combining the Canvas concept with cluster analysis, we use data from more than seventy air charter operators from five world regions. The cluster analysis produced three clusters of companies which were large full-range business aviation supply groups, medium sized business aviation firms, and small business aircraft operators. The findings confirmed the diversity of the sector and indicated the presence of more business models. Our findings also call for the development of sector specific research tools and methodologies aimed at business models in business aviation to comprehensively answer the question how the sector works.
1. Introduction The term “business aviation” covers a broad scope of aviation ac tivities and there are several definitions of the term which confirm that “business aviation belongs to more than one category” (IAPBA, 2018). The definition of the FAA (2019) emphasizes that “business aviation is the use of any general aviation aircraft – piston or turbine – for a business purpose”. According to EUROCONTROL (2017), business aviation is “an air transport option that includes some commercial for hire or fractional oper ations, flying corporate-owned jets and owner-operated flying for business purposes” what reflects miscellaneous operations performed within the business aviation sector. Similarly, this diversity of operations within business aviation is contained in the International Business Aviation Council’s definition which deems business aviation as “that sector of aviation which concerns the operation or use of aircraft by companies for the carriage of passengers or goods as an aid to the conduct of their business, flown for purposes generally considered not for public hire and piloted by individuals having, at the minimum, a valid commercial pilot license with an instrument rating“ (ICAO, 2018). According to IAPBA (2018) the position of business aviation is “somewhere between commercial air transport and general aviation”. One might build several cases in order to demonstrate the difficulties
in separating business aviation from general aviation.1 For example, two individuals might hire an aircraft in order to fly from A to B, one of them headed for a business meeting, the other one visiting his family. Also, in the case of fractional ownership models, companies and private in dividuals might jointly own an aircraft, using it for different purposes. Similarly, a business aviation company may offer sightseeing flights within its product portfolio which might be considered a typical ‘on demand’ service. However, the motivation of the customer for pur chasing this service does not have to be business related. To separate business aviation from commercial air transportation, the easiest – although not very precise – way is to consider aircraft types. Further more, business aviation is often thought of as the segment of aviation which delivers specific air services which are not open to the public, and which are designated for time-sensitive as well as comfort-sensitive customers with a high willingness to pay. Individual customisation of air services is a further feature typical for the product of business avia tion companies. In the long-term, business aviation is a major contributor to the growth of aviation, especially with respect to air transport movements. As Budd and Graham (2009) noted, the liberalisation of air transport markets had contributed to the expansion of business aviation because business aviation copes successfully with several negative phenomena of
* Corresponding author. E-mail addresses: [email protected] (F. Fichert), [email protected] (I. Kirschnerov� a), [email protected] (A. Tomov� a). 1 Analysing the trends in general aviation in the US, Shetty and Hansman (2012) mention that the term general aviation covers different aviation activities (personal, business, corporate, instructional, air medical, aerial observation, aerial application, sightseeing etc.). https://doi.org/10.1016/j.retrec.2019.100794 Received 18 December 2018; Received in revised form 14 November 2019; Accepted 21 November 2019 0739-8859/© 2019 Elsevier Ltd. All rights reserved.
Please cite this article as: Frank Fichert, Research in Transportation Economics, https://doi.org/10.1016/j.retrec.2019.100794
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liberalisation, mainly delays of flights as well as insufficient comfort and on-board services. The market share and the dynamics of business aviation are remarkable. According to EUROCONTROL (2017), business and general aviation is the third largest segment in Europe with a market share about 7% of all flights over the previous ten years. According to GAMA (2016), two-third of 24 million general aviation flight hours were performed for business purposes in the US in 2015. In China, the general aircraft population is expected to reach 20,000 by 2023 (AVIC, 2018), although, as Zhu et al. (2017) noted, in comparison to the US China’s general aviation just started. Globally, between 2017 and 2018, the world business aircraft fleet grew by 1.4%, from 37,284 units to 37,792; this includes 22,273 jets and 15,519 turboprop-powered aircraft (Fleet Report 2018: The state of the industry, 2019). Despite the above-mentioned facts, the research on business models in business aviation is rather narrow if we compare it with numerous papers focusing on the business models of traditional, low cost, regional, holi day and cargo airlines. This paper contributes to the research on business models in business aviation by presenting the results of an empirical analysis focusing on air charter companies. After the literature review, we outline the method ology of our research as well as the approach to data gathering. In order to analyse business models, we combine the Canvas concept with cluster analysis. As a result, we identified three clusters of air charter operators which belong to the sector of business aviation, representing the so called commercial for hire operations. Although our survey only covered air charter operators (74 firms from five world regions), the results suggest that future research on business models in business aviation will need to develop sector specific research tools and methodologies which would better reflect the diversity of business aviation. In this context we fully agree with the statement of Oxford Economics (2012), that the term business aviation itself “is something of a simplification, covering a range of operator and airline types“.
aircraft ownership modes (for instance on-demand business aviation charter, fractional ownership, in-house operation). Such an approach can be found in Nigam, Singh, and Singh Pahwa (2012) who subdivide business aviation into commercial, corporate, owner operated and fractional aircraft ownership; not referring explicitly to the term busi ness model. Similarly, GBTA (2011) distinguished the following types of operation in business aviation: on-demand charter, jet card programs, fractional aircraft, joint aircraft ownership and full aircraft ownership. NBAA (2010) – in the Business Aviation Fact Book, which is also referred to in other publications on business aviation – explain business aircraft utilisation options, which were on-demand charter, block charter, fractional ownership, jet-card programme, time-share and interchange agreements, again not referring to the term business model. An Oxford Economics (2012) study identified charter services, fractional owner ship schemes and in-house aviation as main operating models in busi ness aviation. Krane and Orkis (2009) conducted a survey of companies using general aviation aircraft to better understand business aviation in the US; the survey showed that small companies operate the largest share of business aircraft. Furthermore, managers and other mid-level employees are the typical passengers on board of a business aircraft. Referring to this literature review, business aviation may be denoted as a sector in aviation which has been relatively neglected by economic research in comparison with commercial air transportation.2 There are some suggestions on how to categorize different activities within busi ness aviation, but the different business models of service providers have not been analysed in depth. With our study, we want to contribute to closing this gap. 3. Methodology Since a comprehensive set of information on business aviation companies is not publicly available, we decided to use an electronic questionnaire. The respondents could stay anonymous. The question naire was distributed in January 2017 to 1,239 companies all over the world with the deadline for return stated at the end of February 2017. The list of companies – potential participants in our questionnaire – was compiled using the list of charter business aviation carriers available at web pages of Air Charter Guide and Handbook of Business Aviation. Then, an official public contact point of the companies was used to start communication. Finally, we received 74 returns; nine respondents expressed their will to stay anonymous. Although the response rate was low (less than six percent), we gathered data and information about 74 charter business aviation companies from five world regions (see Table 1). Thus, our analysis dealt with those business aviation com panies which in principle supply customers with “for hire” business aviation services. To design the questionnaire, we used a concept of Osterwalder and Pigneur (2010) called Canvas. The Canvas concept is based on nine interrelated components of business models which are key partners (1), key resources (2), key activities (3), customer relationship (4), customer channels (5), customer segments (6), and value proposition for cus tomers (7) as a central part of Canvas. Thus, in the concept of a business model Canvas the overall organisation and architecture of conducting the respective business is included. Moreover, within the Canvas framework, the business model is reflected in cost structures (8) as well as revenue streams (9). The Canvas concept was used in aviation research for instance by �rio (2013) to explore the main types of airport busi Kalakou and Maca ness models. Pereira and Caetano (2017) used the Canvas concept to analyse the business models in commercial aviation. In general, the
2. Literature review As mentioned above, relatively few academic papers deal with the business aviation sector. However, several reports prepared by consul tants or industry associations have been published that will also be summarized in this section. Business aviation has attracted the interest of the research commu nity mainly in terms of its economic and social impact. A PwC (2008) study prepared for the European Business Aviation Association (EBAA) quantified the contribution of business aviation to the Gross Domestic Product (GDP) of the European Union plus Norway and Switzerland corresponding to €19.7 bn (0.2%). Oxford Economics (2012) high lighted the role of business aviation in Europe, which was recognized mainly in the facilitation of business deals, the creation of airport clus ters, the promotion of local labour markets, the support of investment in local infrastructure. Another PwC study (2015) aimed at the US and evaluated the remarkable values of direct, indirect, induced and enabled impacts of general aviation (including business aviation) for the US economy in 2013, amounting to 0.65% of GDP. The strategy to prioritise the investment in business aviation was presented as crucial for the Middle East region (Global Aerospace Summit, 2016). On a country level, FNAM (2013) elaborated the first study on the socio-economic impact of general and business aviation in France. InterVISTAS (2017) found that business aviation contributes an estimated $5.8 billion in total domestic product of Canada in 2017. At the airport level, the importance of business aviation to Farnborough airport was identified by Nathaniel Lichfield & Partners Ltd. (2009), similarly Berster, Gel hausen, and Wilken (2011) investigated the role of business aviation for the economic vitality of regional airports in Germany. Regarding business models in business aviation, the topic is tackled in several studies and papers. According to our findings, there are some statements about how the sector conducts business; they are usually built upon a list of basic modes of business aircraft operation and/or
2 From numerous papers devoted to the research on business models in commercial aviation we mention Heinz and O’Connell (2013), Bachwich and Wittman (2017), Jean and Lohman (2016), Reis and Silva (2016).
2
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of clusters is not pre-defined, and clusters are generated “naturally” without an artificial input of researchers. The variables for clustering were elaborated using the answers of respondents within the questionnaire.
Table 1 Number of distributed questionnaires according to the world regions and respective response rates. World region
Number of distributed questionnaires
Number of returned questionnaires
Response rate
Europe North America South America Asia and Pacific Africa Total
385 427
36 12
9.4 2.8
103
5
4.9
195
16
8.2
129 1,239
5 74
3.9 5.9
4. Results Before presenting the results of the cluster analysis, key character istics of the responding operators will be discussed in this section. In addition, Table 3 provides an overview of selected structural informa tion. The data shows that 33.8% of the companies included in our research were daughter companies or belonged to a group of companies, while the rest, i.e. 66.2% were single companies. In most of the cases, the respective mother companies of the analysed companies had their core business in the provision of air services. 43.2% of the companies mentioned different modes of cooperation with other business aviation companies (alliance, marketing cooperation, cooperation in aircraft charter, aircraft leasing). Six companies even cooperate with scheduled airlines. Within the sample, companies with a fleet size reaching from 1 to 42 aircraft were recorded.4 In 37 companies, business jets were the pre vailing aircraft type. The number of companies in which piston aircraft prevailed was approximately the same as the number of companies with prevailing helicopters in the fleet. Fleet composition can be analysed by using different indices, in particular the Herfindahl-Hirschman Index (HHI), and the Fleet Stand ardisation Index - FSI (de Borges Pan & Espirito Santo, 2004).5 Whereas the HHI has been applied in the literature primarily – but not only – to market shares, the FSI has been developed specifically for analysing airline fleets. However, calculating the FSI requires detailed information on fleet composition, which could not be obtained with our survey. Consequently, the more general HHI was used. In the sample, the HHI values range from 0.19 to 1.00 what indicates the different levels of fleet commonality within the analysed group of air charter companies. Moreover, 21.6% of the companies mentioned fleet sharing with other companies. 51.4% of the companies had aircraft based only at one airport, 24.3% companies had aircraft based at two airports, and 10.8% at three airport bases. Ten was the highest number of airports recorded in this regard. Most of the analysed companies (77.0%) had their aircraft based within one country, the highest number of countries in this regard was seven (one respondent). The provision of executive business air services was dominantly named as the core business by the respondents what is in line with the focus of our research on the air charter portion of business aviation. However, we recorded that some of the analysed companies also referred to the provision of unscheduled and scheduled cargo air ser vices, scheduled passenger services and even scheduled passenger air services provided in public interest under public service obligation or other similar schemes as their core business. 71.6% of the companies operated aircraft for the purpose of rescue activities, areal works, adventure flights, medical flights, sightseeing flights and/or other spe cific air services. Half of the responding companies did not offer aircraft possession related services, such as the purchase and/or sale of aircraft, the leasing of aircraft or fractional ownership. Slightly more than half of the companies provide pilot training. Training of on-board crew was recorded only in 9.46% cases. All this indicates that even the air charter segment within the business aviation sector shows some diversity. The diversity was noticed also with respect to procurement models within which technical services are ensured by the companies. In our questionnaire, we differentiated between line and heavy maintenance, ground handling services, aircraft cabin modification and aircraft
Source: Authors.
Canvas concept is a suitable starting point to understand and/or analyse business models. Our questionnaire contained 51 questions. Table 2 shows the questions which were the most relevant for clustering. The questions are linked to the respective components of the Canvas concept of business models. Moreover, the questionnaire included some more general questions (e.g., company size) as well as on success factors.3 Within the component “Key partners” we examined cooperation as well as integration, both on the horizontal and the vertical level. Within this component we also asked for the geographical pattern of business activities and the number of airports at which the companies had their aircraft based. Within the component “Key activities” the questions were aimed at mapping the core business as well as other services and/or activities. Within the component “Key resources” we explored em ployees and aircraft as the most significant production resources of business aviation companies. Thus, our questionnaire covered three components of the Canvas concept of business models which are linked to the component “Value proposition”. Within the component “Chan nels” we aimed at identifying main distribution channels of the com panies. It would be useful to have information belonging to the components “Customer relationship” and “Customer segments”, how ever, the respective questions were not included in the questionnaire as such questions could be perceived as too sensitive to be answered by the companies. Similarly, we did not ask for cost and revenue data for the same reason. Subsequently, we performed a cluster analysis. There are several papers using cluster analysis with respect to business models in different industries; recent examples include banks (Farn� e & Vouldis, 2017), credit unions (Stowe & Stowe, 2018), and journals (Claudio-Gonz� ales et al., 2016). Moreover, cluster analysis has also been used with respect to other aviation markets. Wen and Chen (2011) analysed international airlines operating routes in Japan. Heinz and O’Connell (2013) clustered business models of African airlines. Urban et al. (2018) clustered airlines belonging to commercial aviation. Vogel and Graham (2013) built airport clusters for the purpose of economic benchmarking, while €es, Reis, and Maca �rio (2015) clustered 140 airports to reveal Magalha relationships between flexibility factors and the performance of airports. In our research, we used two clustering criteria – Schwarz’s Bayesian Criterion (BIC) and Akaike’s Information Criterion (AIC). In the litera ture, pros and cons of these two criteria are discussed (see for example Gu et al., 2018). However, in our analysis both criteria have basically led to the same clusters. Therefore, we will only report the results of the BIC approach. All clustering exercises were performed using PASW Statistics 18 software. As the data were of continuous as well as categorical nature, we decided for a two-step clustering. Within this approach, the number
3 Transport statistics, the year of establishment, the country of registration, the core business at the beginning after the establishment, the factors of con ducting successful business as perceived by respondents.
4
One respondent did not provide this information. A comparison between the two indices can also be found in Zou, Yu, and Dresner (2015). 5
3
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Table 2 Overview of questions allocated to four components of the Canvas concept of business models Canvas component
Questions
Options to answer
Key partners
Does your company cooperate with another business aviation airlines(s)? What is the type of cooperation with other business aviation airline(s)? Does your company cooperate with scheduled airline(s)? What is the type of cooperation with scheduled airline(s)? Is your company part of another company (or group of companies)? Your company is … What is the core business of your parent company?
Yes –No Cooperation in marketing, Joint-venture, Alliance, Other Yes – No Cooperation in marketing, Joint-venture, Alliance, Other Yes – No Daughter company, Parent company Air services, Value chain services in the air transport industry, Services outside the air transport industry Air services, Value chain services in the air transport industry, Services outside the air transport industry Open Open Open Executive jet services, Medical and/or rescue flight services, Flight school, Maintenance, Aircraft sale/purchase, Other … Non-scheduled (charter þtaxi) passenger flights, Non-scheduled passenger flights (except of PSO services), Scheduled flights of PSOs, Scheduled cargo flights Ambulance flights, Rescue flights, Flights for aerial works, Flights for filming and photographing, Sightseeing flights, Adventure packages flights, Other … Yes – No PPL, CPL, ATPL,IR, FI, MEP, Type and Class rating, other… Yes – No (Open) Line maintenance, Heavy maintenance, Ground handling, Aircraft dealing, Aircraft completion (outfitting interior) open
What is the core business of your daughter company?
Key Activities
What is the total number of airports where your company’s aircraft are based? What is the total number of the countries where your company’s aircraft are based? Name the three airports where you have the most important bases of your company. What is the core business of your company at present? What type of flight services related to passenger and cargo flights does your company offer? What further types of specific flight services does your company offer?
Key resources
Channels
Does your company provide training of pilots? What type of pilots training does your company offer? Does your company provide any other training, services? (Specify.) Regarding technical services, choose whether you provide sale and/or purchase of the following services. Specify whether there are any other technical services your company provides, sale and/or purchase. Regarding financial and administrative services, choose whether you provide, sale and/or purchase of the following services. Specify whether you provide sale and/or purchase of any other financial and administrative services. What is the number of your company’s employees? What is the number of your company’s pilots (except of pilots for flight school)? What is the total number of aircraft in yourcompany’s fleet and the number of aircraft in the fleet according to different business aviation aircraft categories: very light jets, light jets, midsize jets, super midsize jets, large jets, bizliner, turboprop aircraft, piston engine aircraft, helicopters, other.ᵅ Name three aircraft with the highest share in the fleet. Does your company share aircraft with other companies? Which distribution channels does your company use?
Financial accounting, Aircraft administration and management, Consultancy services Open Open Open Open
Open Yes – No Own websites, Other websites (of partners, advertisement on other websites …), Social media, Executive jet brokers websites, Exhibitions, Open house, Other
ᵅNote: The aircraft categories were defined using the capacity of pax and range in nm. Source: Authors.
the services. Interestingly, some of the analysed companies were engaged in consultancy services. In the past, some of the companies had started their business as aviation training schools; or offering brokerage of charter flights or aerial works. There were also some cases in which the provision of ex ecutive business air services as a key business in the past had been transformed to the core business of aircraft management or aviation training school. This finding shows that the sector of business aviation is in a state of flux. All companies in the sample used their own webpages, webpages of partners, social media, webpages of executive jet brokers, but also brochures, exhibitions, and Open Day events. Most of the companies used between two and four channels for distributing their products. In Table 4, we present the results of the cluster analysis. The level of importance of the chosen 15 variables within the components of the Canvas concept is indicated in Table 4 as i.6 The analysis is a result of several clustering exercises which were performed to find the clusters of the best quality. Referring to the PASW Statistic silhouette measure of cohesion and separation, the quality of the presented clusters in Table 4
Table 3 Key characteristics of business aviation operators in the survey. Criterion
Survey results
Integration
66.2% Independent companies 33.8% Members of a group 43.2% Cooperation with other business aviation operators 8.1% Cooperation with scheduled airlines 51.4% One airport 24.3% Two airports 10.8% Three airports 13.5% Four or more airports
Cooperation Number of airport bases
cleaning; and also, whether the services are provided only for own operation, sold to other companies, bought from other companies, or in combination of the mentioned options. As Fig. 1 show, the analysed companies in business aviation are miscellaneous in terms of their technical service procurement models. Similarly, we found the different modes of administrative and management services. 47 companies pro vided aircraft administration and management services in-sourced, but only for own needs, while the rest of the companies also purchased or offered the services, in several cases as an add on to the own provision of
6
4
i ¼ 1.00 means the most important variable for clustering.
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Fig. 1. Technical services of the companies in the survey. Source: Authors.
was stated as good. The results presented in Table 4 show three clusters of air charter business aviation companies, based on our sample.
business models for air charter companies. Due to the number of com panies we worked with, the results may not be generalized. The models of line maintenance and heavy maintenance procurement as well as the size of key resources (employees, pilots and fleet) were determined by us as the most significant variables for clustering and, potentially for identifying the business models within the sector by future research. On the other hand, the commonality of fleet, which is a typical attribute when analysing commercial airlines’ business models, does not seem to be so significant in identifying the clusters of business aviation air charter companies. Similarly, the number of distributions channels, which play an important role when identifying the business models of airlines in commercial aviation, did not play any role to identify the clusters of business air charter companies. These findings call to develop sector specific research tools and methodologies which would better reflect the diversity of business aviation. The issues of vertical integra tion and horizontal interlinkages seem to be the most challenging for further research in this regard. The results of our research indicate that there are firms belonging to the air charter portion of business aviation, which differ mainly in terms of the scale of key production resources and the models of supply chain management. Thus, the firms we denoted as large full-range business aviation supply groups may exploit economies of scale, economies of scope, and economies of network, transfer flows within a group, and the potential in supply chain and subsequently use them as their main source of their competitive advantage. All companies belonging to the cluster of large full-range business aviation supply groups in our research were engaged in the purchase and/or sale of aircraft; however, such business was recorded in the other two clusters of business air charter companies as well. Referring to the research results, the firms we denoted as medium sized business aviation firms are endowed by a larger scope of miscellaneous specific air services which need not to be of a primary interest to large business aviation supply groups, such services are operated by a medium sized company more locally in comparison with full-range business aviation supply groups. A competitive advantage of small business aircraft operators is seen by us in the knowledge of and the vicinity to local markets. According to our findings, the fleet of small business aircraft operators may be more
� Large full-range business aviation supply groups: These firms conduct business as a company within a group, with a high level of inde pendence within the supply chain of the group, with a large geographical pattern of operation with regard to non-scheduled passenger and cargo transportation, providing also a broad portfo lio of other air services, as well as services related to aircraft oper ation (maintenance services, administration and management of aircraft, aircraft sale, fractional ownership, etc.). 17 companies in our research belonged to this cluster, with the following character istics: average number of airports where aircraft were based 3.8; average fleet 18.4 aircraft; average number of employees 96.4; average number of pilots 30.9. � Medium sized business aviation firms: They operate a portfolio of miscellaneous air services, exploiting in-sourcing and/or outsourcing in the supply chain management of aircraft-related ser vices. (29 companies in our research belonged to this cluster, average number airports where aircraft where based 1.6; average fleet 9.6 aircraft; average number of employees 37.8; average number of pi lots 12.1). � Small business aircraft operators: These companies show a high de pendency in supply chain management, with a high scale of outsourced services related to aircraft, whereby the portfolio of pro vided air services and geographical pattern of operation is narrower (24 companies in our research belonged to this cluster, average number of airports where aircraft were based 1.4; average fleet 3.8 aircraft; average number of employees 10.2; average number of pi lots 5.9). 5. Discussion and conclusions Business aviation is a diverse sector which was confirmed by the results of a cluster analysis of more than 70 business aviation air charter companies from five world regions, which produced three clusters of 5
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Table 4 Results of the cluster analysis (BIC variant) Variables for clustering Level of importance (i)
Small Business Aircraft Operators (Respective share of companies within the cluster or the respective average values)
Mediun Sized Business Aviation Firms (Respective share of companies within the cluster or the respective average values)
Large Full-range Business Aviation Supply Groups (Respective share of companies within the cluster or the respective average values)
Line Maintenance i¼1.00 Heavy Maintenance i¼0.73 Number of Employees i¼0.49 Number of Pilots i¼0.48 Number of Aircraft in Fleet i¼0.43 Purchase/Sale of Aircraft i¼0.16
Purchase from others (91.7 %) Purchase from others (100 %) 10.17 5.92 3.79 Yes (54.2 %) No (66.7%) No (70.8 %) For own needs (62.5 %) No (62.5 %) 1.38 2.00
For own needs (51.7 %) For own needs (37.9 %) 37.79 12.07 9.59 Yes (55.2 %) No (86.2 %)
For own needs and sale to other companies (94.1 %) For own needs and sale to other companies (64.7 %) 96.41 30.88 18.41 Yes (100 %) Yes (58.8 %) Yes (58.8 %) For own needs and sale to others (52.9 %)
0.76 Separate (75.0 %) Yes (83.3 %)
0.67 Separate (79.3 %) Yes (86.2 %)
Fractional Ownership i¼0.14 Training of Pilots i¼0.12 Aircraft Administration and Management i¼0.08 Aircraft Leasing i¼0.06 Number of Airport - Bases i¼0.32 Number of Secondary Air Services* i¼0.03 HHI of Fleet i¼0.04 Company’s Status (separate vs corporate entity) i¼0.14 More than one distribution channels i¼0.00
Yes (69.0 %) For own needs (75.9 %) No (51.7 %) 1.59 2.79
Yes (70.6 %) 3.82 2.41 0.61 Daughter or mother company (70.6 %) Yes (88.2 %)
Source: Authors. Note: The total number of companies in the complex cluster analysis is less than 74 as not all respondents provided all needed information and data. *Secondary services mean other than scheduled and non-scheduled cargo and passenger services (PSO and similar schemes included), i.e. rescue flights, aerial work, adventure flights, medical flights, sightseeing flights.
homogenous narrowing in this way the scope of provided air services. Small business aircraft operators to a bigger extent depend on business with other companies mainly in the field of aircraft maintenance ser vices. Our research also confirmed that business jets will be managed collectively in pools, and fractional ownership has become common as it was predicted by Linz (2012). Taking into account the growing role of business aviation for modern societies, future research on business aviation ought to reflect more the diversity of entities operating in the sector, although as our research demonstrated, business models are not so easy to be identified in busi ness aviation. Many of conventional attributes of business models, which are well applicable to commercial aviation, may not be well applicable in business aviation. Future research on business models in business aviation is necessary to better understand the competition and cooperation issues within business aviation as well as the competition and cooperation issues between business aviation and commercial aviation. Such knowledge could be very conducive to comprehend the complexity of civil aviation with all its sectors, also those sectors which have been neglected by economic research so far.
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Acknowledgement This paper has been originated within a cooperative framework built upon the COST ACTION TU1408 Air Transport and Regional Develop ment; COST is the European scheme supporting trans-national cooper ation among researchers, engineers and scholars. We thank to all respondents – business aviation companies, participated voluntarily in our research. Our gratitude belongs also to Axel Beimdiek from Air Alliance Flight Center GmbH who reviewed the first version of the questionnaire and provided us with precious expertise from the field. We also thank the reviewers for important comments that helped to improve the paper.
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