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Volume 15
Number 2 JAAER Winter 2006
Winter 2006
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Article 6
Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
Abstract
When Porter (1980) introduced his typology of business strategies, he used Laker Airways' as an example to illustrate
the danger of being stuck in the middle between the two basic types of competitive advantage, namely low cost and
differentiation. However, the changing nature of competitive pressure in many business sectors and the accompanying
need to perform well simultaneously in several aspects of operations performance, have eventually lead Porter (1990)
to revisit his early idea. When presenting Porter's generic competitive strategies, most strategy textbooks now offer
a new choice, namely the "integrated cost leadershiptdifferentiation" strategy (Coulter, 2002; Hitt, Ireland, &
Hoskisson, 2003), or the "best-cost provider" strategy (Thompson & Strickland, 2001). Given this background, the
purpose of this theoretical paper is to build upon the strategic management and operations strategy literature to
develop a conceptual framework that will subsequently be used to explore the extent that airline companies
successfully pursue the best-cost provider (or integrated cost leadershiptdifferentiation) strategy, and how they manage
to resolve the trade-off between low-cost and differentiation. We aim at revisiting the "stuck in the middle"
prescription by demonstrating that a number of aviation strategic options exist between the ''traditional'' and "lowcost" model.
lntroduction
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Journal of Aviation/Aerospace Education & Research, Vol. 15, No. 2 [2006], Art. 6
Competitive Advantage
Competitive
Lower Cost
Differentiation
Broad
Target
Cost Leadership
Differentiation
Narrow
Target
Cost Focus
Focused Differentiation
Scope
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Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
Winter 2006
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Journal of Aviation/Aerospace Education & Research, Vol. 15, No. 2 [2006], Art. 6
http://commons.erau.edu/jaaer/vol15/iss2/6
Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
Competitive Advantage
Lower Cost
Differentiation
Cost Leadership
Differentiation
Competitive
Broad
Target
Integrated Cost
Leadership1
Differentiation
Scope
Narrow
Target
Cost Focus
Focused Differentiation
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Journal of Aviation/Aerospace Education & Research, Vol. 15, No. 2 [2006], Art. 6
Conceptual Framework
Given this background, this paper sets out to propose a
conceptual framework that could be used to explore the
extent to which airline companies successfully pursue the
best-cost p r o v i d e r ( o r i n t e g r a t e d c o s t
leadershipldifferentiation)strategy described above and how
they manage to resolve the trade-off between low-cost and
differentiation.
While cost leadership is self-explanatory - in the airline
industry it translates into offering the lowest fares - the very
concept of differentiation is much less precise.
Differentiators need to be aware of @he key success factors
in their industry, namely "the product attributes,
competencies, competitive capabilities, and market
achievements with the greatest direct bearing on company
profitability" (Thompson & Strickland, 2001, p. 106) - in
other words the bases on which customers choose between
competing airlines - and select the key success factors that
they will use as bases for differentiation. In the case of the
airline ihdustry, key success factors that carriers could use
as bases of differentiation are in-flight comfort service,
baggage handling, quality of airline employees, internet
usage, airport proximity, additional services, number of
destinationsoffered, and safety. Therefore, carrierspursuing
a best-cost provider (or integrated cost
leadershipldifferentiation) strategy would offer lower fares
than their competitors, together with higher quality air
travel services.
We are also interested in assessing the success of the
business strategy. In order to do so , we will look at both
fmancial and strategic performance. While fmancial
performance translates into indicators such as profitability
and stock price, strategic performance refers to the strength
of a company business position reflected in the size of its
market share and the power of its brand. We posit that:
(1) Airlines that offer lower fares than their
competitors, together with higher quality air travel
services and achieve higher financial and strategic
performance than their rivals have successfully
implemented the best-cost provider (or integrated
cost leadershipldifferentiation) strategy.
(2) Airlines that offer lower fares than their
competitors, together with higher quality air travel
services but achieve lower financial and strategic
performance than their rivals are stuck in the
middle.
We now turn to the interesting question of how airlines can
manage to successfUlly pursue the best-cost provider (or
integrated cost leadershipldifferentiation) strategy. This
translates into operations management terms on how the
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Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
Low I
I
Airlines pursuing a cost
leadership strategy
Airlines pursuing an
integStrategy
(Some potentkI& stuck
in themiddle)
Airlines unable to
achieve either a cost
leadership or a
differentiafrafron
strategy
Airlines pursuing a
dmmtiation strategy
High
Fares
Journal of Aviation/Aerospace Education & Research, Vol. 15, No. 2 [2006], Art. 6
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Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
Isabelle Dostaler is Associate Professor in the Department of Management and Director of the Aviation MBA Program, John
Molson School of Business, Concordiauniversity.She holds a BAA and a M.Sc. in management from HEC Montrhl and a Ph.D.
in management studies fiom the University of Cambridge. She has teaching interest in StrategicManagement, Operations Strategy
aql Technology Management. She has conducted research into new product development performance and practice, operations
strategy and performance, and supplier-buyer relationships in the electronics, automotive and aerospace industries. Her research
has been published in journals such as CanadianJournal ofAdministrativeSciences, Journal of High Technology Management
Research, and Production and Operations Management.
Triant Flouris' research interests include lowkost and legacy airline financialand strategicanalysis, aviationeconomics, strategic
management and operations strategy, aviation business modeling, and international aviation governance. He is on the editorial
board of the Journal of Air Transportation World Wide and the author of two books, one on EU industrial policy and one on
aviation strategic management. He has also published numerous academic journal articles on several topics in aviation
management, several book chapters, articles appearing in aviation encyclopedias, and several technical reports and short articles.
He is a Commercial Pilot and Certified Flight Instructor with over 4,200 hours of total flight time. Triant Flouris, since September
2004, serves as alternate representative of the Republic of Cyprus to ICAO.
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Dostaler and Flouris: Stuck in the Middle Revisited: The Case of the Airline Industry
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