✈️ #22: The six criteria of the eRAM business model

Earlier issues discussed some elements of the business model of electric Regional Air Mobility (eRAM). About how this type of flying will frequently compete with ground transportation and in the previous issue about the business model of the Norwegian company Elfly. This issue will show the full picture of an airline business model and how it relates electric aviation.

The six criteria of an airline business model

In the book “Introduction to Aviation Management”, Dr. Benjamin Koch states that an airline business model consists of six different criteria.

These six criteria are based on business models of the different types of airlines we now today. Mainly, full-service carriers, regional airlines and low cost carriers. However, they can also be applied to the future business model of eRAM operators.

Fleet strategy

The fleet strategy relates to the type(s) of aircraft an airline operates. Airlines can choose to operate one type of aircraft, like Ryanair and Southwest Airlines, who operate only Boeing 737’s. Advantages are standardisation of maintenance programmes and crew training. Downsides are limited flexibility when it comes to changes in passenger capacity and network. Because of these downsides most airlines have a mixed fleet with smaller and larger aircraft, often from multiple manufacturers.

For airlines operating electric aircraft, the fleet strategy is undoubtedly the criterion that sets an electric airline apart from a regular airline. In the coming decade, there won’t be many different electric aircraft in use. So there is a good change that these types of airlines will operate a single type, from a single manufacturer. Looking at range and passenger capacity, the two most important aspects of any passenger aircraft, the variety will be small as well. Most future manufacturers are aiming at 9 passengers and a 500 kilometer range. Some choose to have a lower passenger capacity, or a higher one, which will have an inversely proportional effect on the range.

Network concept

The network concept generally comes down to two options: point-to-point or hub-and-spoke. The hub-and-spoke model is based on passengers flying multiple legs to get to their destination, using a larger hub as an intermediate stop. Large globally operating airlines like Air France-KLM and Delta Airlines use this model. In the point-to-point model passengers fly from their origin to destination in one leg. Low cost airlines like Southwest Airlines almost exclusively use this model.

Since electric aircraft will fly relative short distances with a small number of passengers, the point-to-point model will be applicable. The (initial) routes will mostly connect regions that otherwise would have been (or already are) connected via road or rail. Or will compete with short, low intensity flight routes, using regional airports. Since the hub-and-spoke model is focussed on long distance, high volume routes, it is unlikely that an electric aircraft operator will operate using that model.

The short haul point-to-point network concept associated with electric aviation is were the name electric Regional Air Mobility comes from. A network concept focused on, as the name suggests, connecting regions. So not necessarily capital cities, countries, or large economic area’s, but mostly smaller concentrations of people. Establishing connections between regions that are not populated enough for current aviation operations to be commercially viable. eRAM is therefore a type of point-to-point network concept.

Scheduling

Koch states: “The schedule aims at defining the optimal service pattern to attract as many passengers to the traffic flow or local region as possible.” For example, a flight departing at 9 o’clock in the morning will attract more people than a flight departing in the middle of the night. And passengers prefer not to arrive at night either.

An additional important element for scheduling is the turnaround time of an aircraft. In other words, how long will it take for an aircraft to offload passengers and luggage after arrival and refuel, onboard new passengers and luggage before departure. The shorter the turnaround time, the more flights can be executed in one day per aircraft. However, a short turnaround can put a lot of pressure on staff and passengers which some airlines want to avoid.

I won’t go into detail about how regular airlines can influence the speed of these processes, because the key process for electric aircraft is the refuelling, or to be precise, recharging of the aircraft. That is probably going to take longer than getting 9 people in and out of an aircraft. How long recharging will take is difficult to say, because it will all depend on how the charging technology will progress in the coming years.

Product

Since airlines mostly compete with other airlines, Koch relates the product criterion to the class concept (dividing the cabin into multiple classes) and in-flight services. For many airlines this is an important way to distinguish their product from other airlines, often flying comparable routes with comparable aircraft types.

Since the small cabins of electric aircraft won’t be divided into separate classes and the in-flight services will be limited, these elements won’t define the product of electric aviation. When compared to existing airlines, the differentiator will be offering a zero emission product. Compared to existing zero emission ground transportation, like electric cars and trains, the uniqueness of the product will be the higher speed and shorter travel time.

Marketing

An important element in marketing is the distribution channel: where do people buy the product? For airlines, this used to be travel agents or an airline’s desk at the airport. Nowadays, sales are mostly done via the website of the airline or travel agent. And while you usually only buy the flight via the airline website, future eRAM-operators are promoting that you can buy a door-to-door trip using their mobile app or website.

The fastest, most sustainable, door-to-door trip will also be what the service providers will advertise. It’s not about advertising and selling the product aviation (from airport to airport), it’s about convincing customers that using this type of aviation is the fastest, most efficient, way of getting from A to B, including the logistics before and after the flight.

Pricing / costs

Pricing is probably the trickiest criterion for electric aviation. That is because when it comes to costs, future operators are promising something that they won’t be able to deliver during their first years of operations: to be cheaper than regular flights.

In the long run, there is a good case to be made for delivering on that promise. If you look at the diagram below, created by The Air Current, you can see that several costs will be lower for electric aircraft when compared to a regular aircraft of comparable size.

However, it can take some time before eRAM-operations are at that cost level. Before the operations can commence, many investments need to be made. For example, operators will need to buy a brand new fleet of aircraft, invest in crew training for these new aircraft and airports will need to invest in charging infrastructure. It is therefore likely that initially eRAM will only be affordable for customers who are already buying more expensive services like business class seats.

This was a short overview of how the criteria that form the foundation of an conventional airline business model can be applied to an airline operating electric aircraft. In future issues of this newsletter I will go deeper into specific aspects of the eRAM-business model and how it relates to the mentioned criteria.

If you have any questions or suggestions you can contact me via [email protected] or send me a message via LinkedIn.

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