Development of Airline industry and the performance of airlines

The airline industry has become more competitive over the last decade and is facing high uncertainty. Especially the low-cost business model has become a strong competition for full-service carriers. Furthermore, they do not only operate from secondary airports

anymore but have extended their network to hub airports (Lieshout et al., 2016). All interviewees confirm the development and growth of competition. However, the threat is viewed differently by the three interviewees. For Lufthansa, a large airline with a global presence, that had an excellent performance and grew continuously during the last three years, low-cost carriers are not seen as a considerable threat. That is because Lufthansa follows an aggressive strategy at its hubs to prevent competition from becoming too large. For Finnair, a relatively small airline with a low market share in Europe feels the threat of low-cost carriers increasingly since they started operating more routes from Helsinki airport. And for Alitalia, a small airline with a continuous negative performance during the last years and a geographical coverage mostly within the Italian market is at-tacked by low-cost carriers that decrease the airline’s market share. Thus, market share not only functions as a performance indicator (Park and Cho 1997). But market share and airline size are also indicators of how competition and threats are viewed and impact the airline.

Aforementioned, Lufthansa has a global presence with an extended route network. Fin-nair, on the other hand, is relatively small within Europe. However, as the interviewee states, Finnair focuses on the route network from Europe to Asia, characterized by ex-tensive coverage. Contrary, Alitalia has a rather small network and lost substantial mar-ket share on intercontinental and domestic routes and only has some marmar-ket share on key routes from its hub in Rome. Gudmundsson and Lechner (2006) identify the route network as one essential asset for airlines. Moreover, according to Gudmundsson and Lechner (2006), the uniqueness of resources that create a competitive advantage is es-sential for an airline's performance. The researchers’ findings align with the performance of the case studies, and makes Lufthansa and Finnair valuable airlines with unique assets, while Alitalia cannot achieve a competitive advantage.

Moreover, Finnair’s and Lufthansa's interviewees point out that customers have become more demanding due to the high number of options available. According to Gudmundsson and Lechner (2006), the customer base is another critical asset of an

airline. Therefore, it is essential to adapt to market changes and customer needs to stay competitive and keep customers. Lufthansa already implemented the Premium Econ-omy as a new seating class, and Finnair is currently integrating it. In contrast, Alitalia is not adapting to customer needs as the interviewee states. As Italy is an inbound market with tourists that focus on low-cost fares, Alitalia did not change its business model and thus, failed to react to the demand. Therefore, Finnair's and Lufthansa’s overall excellent performance can be reasoned based on unique resources and success in adapting to market changes and customer needs. While on the other side, Alitalia could not create a competitive advantage by changing its strategy and business model to meet customer demands. Therefore, the lack of competitive advantage, a large customer base, and ex-tensive network lead to a negative performance (Gudmundsson & Lechner, 2006).

All interviewees refer to the current COVID-19 epidemic and its extensive effects on the entire airline industry. The IATA (2020) also points out the enormous impact of the ex-ternal environment and that, especially large airlines, the former national carriers can receive financial aid from the government. All interviewees forecast a lower demand, notably less business travel. Additionally, the uncertainty leads to faster, and more short-term market changes and a more aggressive competitive behavior, based on the Lufthansa interviewee. According to the interviewee of Alitalia, the crisis leads to a forced restructuring of the cost structure. Based on the interviewee's forecasts and the IATA's (2020) statement, the outcome of the COVID epidemic will have a similar effect on the airline industry as the financial crisis. During the financial crisis in 2008, low-cost carriers increased substantially and experienced a boom due to the change in travel be-havior (Goyal & Negi, 2014). Due to the trends of not traveling long distances by plane and traveling less for business but more for leisure, it can lead to growing demand in low-cost carriers again.

Furthermore, a report by KPMG (2018) suggests that consolidation within the airline in-dustry will increase in the next years. They state, “Europe is a mature aviation market, which is considered to be in the early stages of a wave of consolidation that is expected

to continue for the near term” (KPMG, 2018, p. 27). That is confirmed by Alitalia's inter-viewee, who predicts that the flag carriers will survive due to a bailout by the state. Also, the big low-cost carriers such as EasyJet and Ryanair will survive. However, small airlines will disappear or consolidate with existing airlines due to the epidemic, intense compe-tition, and low fares. Nevertheless, according to Lufthansa's interviewee, during the next years, it will not be possible to have some flag carriers buy small airlines. That is because, Lufthansa, for example, received state aid during the epidemic and cannot afford to con-solidate with another airline.