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Transportation Research Procedia 56 (2021) 96–109

1st International Conference on Aviation Future: Challenge and Solution (AFCS 2020)

Airline-within-Airline business model and strategy:

case study of Qantas Group
Iryna Heietsa*, Tamara Oleshkob, Oleg Leshchinskyc
a b c

aaSchool of Engineering,
Engineering, RMIT
RMIT University,
University, 124
124 La
La Trobe
Trobe St,
St, Melbourne,
Melbourne, VIC
VIC 3000,
3000, Australia
Australia
School of
b,cNational Aviation University, Liubomyra Huzara Ave, 1, Kyiv, 03058, Ukraine
b,c
National Aviation University, Liubomyra Huzara Ave, 1, Kyiv, 03058, Ukraine

Abstract
Abstract

The
The increase
increase of of the
the aviation
aviation industry
industry in
in recent
recent years
years has
has led
led to
to the
the expansion
expansion andand integration
integration of
of people
people and
and various
various cultures.
cultures.
Aviation is
Aviation is aa consistently
consistently growing,
growing, especially
especially in
in modern
modern times.
times. This
This study
study briefly
briefly reviews
reviews the
the literature
literature regarding
regarding the
the Airline-
Airline-
within-Airline (AwA)
within-Airline (AwA) business
business model
model and
and strategy.
strategy. Bringing
Bringing together
together the
the conceptual
conceptual differences
differences of
of business
business models,
models, the
the main
main
elements of
elements of this
this model
model were
were highlighted.
highlighted. The
The authors
authors seek
seek to
to provide
provide insights
insights into
into the
the AwA
AwA business
business model
model allows
allows both
both airlines
airlines to
to
operate efficiently with dual-brand strategy. An in-depth case study of airlines was conducted by two airlines –
operate efficiently with dual-brand strategy. An in-depth case study of airlines was conducted by two airlines – Qantas Airways Qantas Airways
and Jetstar
and Jetstar Airways
Airways –– that
that present
present AwA
AwA business
business strategy.
strategy. Using
Using comparison
comparison analysis,
analysis, SWOT
SWOT analysis,
analysis, Business
Business Model
Model Canvas,
Canvas,
Boston Consulting
Boston Consulting Group
Group matrix,
matrix, and
and Game
Game theory,
theory, the
the main
main attributes
attributes of
of aa successful
successful approach
approach for
for AwA
AwA business
business model
model were
were
identified based
identified based onon the
the Qantas
Qantas Group.
Group. The
The framework
framework of of optimal
optimal strategy
strategy for
for the
the Airline-within-Airline
Airline-within-Airline business
business model
model presented
presented
was based
was based onon network,
network, scheduling,
scheduling, pricing,
pricing, distribution,
distribution, and
and airline
airline capacity.
capacity.

© 2020
© 2021 The
The Authors.
Authors. Published
Published by
by Elsevier
ELSEVIER B.V.B.V.
© 2020
This The
is an Authors.
open accessPublished by Elsevier
article under B.V.
the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
This
This is an open
is an open access
access article under the
article underofthe CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under responsibility theCC BY-NC-ND
scientific license
committee of(http://creativecommons.org/licenses/by-nc-nd/4.0/)
the 1st International Conference on Aviation Future: Challenge
Peer-review
and Solutionunder responsibility of the scientific committee of the 1st
Peer-review under responsibility of the scientific committee of the 1st International
International Conference
Conference on
on Aviation
Aviation Future:
Future: Challenge
Challenge
and Solution
and Solution
Keywords: business
Keywords: business model;
model; ailrine;
ailrine; ailrine-withon-airline;
ailrine-withon-airline; strategy;
strategy; game
game theory;
theory; Qantas
Qantas Airways;
Airways; Jetstar
Jetstar Airways
Airways

1. Introduction
1. Introduction

According
According to
to the
the International Air Transport
International Air Transport Association,
Association, passenger
passenger capacity
capacity and
and passenger
passenger traffic
traffic are
are expected
expected 5.7%
5.7%
and
and 6.3%
6.3% respectively
respectively in
in the
the Asia-Pacific
Asia-Pacific and
and Oceania
Oceania regions
regions inin 2019.
2019. These
These growth
growth expectations
expectations include
include domestic
domestic
and
and international
international traffic.
traffic. In
In terms
terms of
of load
load factor,
factor, worldwide,
worldwide, it
it changed
changed from
from 81.5%
81.5% in
in 2017
2017 to
to 81.9%
81.9% inin 2018,
2018, while
while
the Asia-Pacific area had a similar increase of 0.6%, from 77.6% to 78.1%. Unlike total airlines capacity and seat

* Iryna
* Iryna Heiets.
Heiets. Tel.:
Tel.: +61444
+61444 508
508 276.
276.
E-mail address: Iryna.heiets@rmit.edu.au
E-mail address: Iryna.heiets@rmit.edu.au

2352-1465 ©
2352-1465 © 2020
2020 The
The Authors.
Authors. Published
Published by
by Elsevier
Elsevier B.V.
B.V.
This
This is
is an
an open
open access
access article
article under
under the
the CC
CC BY-NC-ND
BY-NC-ND license
license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
(http://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under
Peer-review under responsibility
responsibility of
of the
the scientific
scientific committee
committee of
of the
the 1st
1st International
International Conference
Conference on
on Aviation
Aviation Future:
Future: Challenge
Challenge and
and Solution
Solution

2352-1465 © 2021 The Authors. Published by ELSEVIER B.V.

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under responsibility of the scientific committee of the 1st International Conference on Aviation Future: Challenge
and Solution
10.1016/j.trpro.2021.09.012
 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109 97
2 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

factor in Qantas Group had a better performance than the global and regional trends, rising from 80.6% to 83.2%
(Qantas Group, 2019). Qantas’s return on investment has consistently been above 10%. This indicate that Qantas
Group has a good ability to balance passenger demand and supply. The Qantas Group includes Qantas Airways which
operates as a full-service carrier, and JetStar Airways which presents a low-cost model. The purpose of this research
is to analyse the Qantas Group and identify elements of cooperation and coordination for the Airlines-within-Airline
business model. Initially, several different tools were used to analyze the current airlines market presenting and
strategy in order to identify the level of cooperation for the AwA business model.

2. Literature Review

The Airline-within-Airlines business model was investigated in current research. Several studies have been conducted to
identify this airline business model, for instance, Graf (2005), Graham and Vowles (2006), Gillen and Gados (2008),
Deshpanse and Lau (2016), Raynes and Tsui (2019) defined and explain the main characteristics of AwA business model.
A specialist by the name of Graf (2005) has mentioned that the AwA business model is when two airlines
simultaneously operate different business models within the one group. The FSNC offers the premium and business
service and LCC operates in the exact opposite manner as the airlines in one group. Graf (2005) found that the level
of autonomy across subsidiary airlines (LCC) varies to quite some extent except making decisions about investment
coordinates with the parent company (FSNC). Graf (2005) mentioned that route planning is semi-liberal but Gillen
and Gados (2008) highlighted that there is a low level of independence in both operational and financial planning.
According to Graham and Vowles (2006), low-cost airlines are a part of Airline-within-Airline business models to
address leisure and tourist routes to protect the business class. Deshpanse and Lau (2016) described the successful
operations of Singapore Airlines using a multi-brand strategy. The successful combination of a premium airline with
a low-cost carrier with Qantas Airways focusing on the business class passengers and JetStar targeting the economy
customer segments was presented by Gillen and Gados (2008). Raynes and Tsui (2019) identified that the AwA
strategy is a useful tool for airlines to fight the continuing growth of low-cost airlines providing adequate resources,
careful strategic planning and a clear company strategy of the certain passenger market segments. However, the public
has various opinion on what the main elements of cooperation are between carriers and how airlines stay competitive
at the same time.

3. The research methodology

3.1. SWOT analysis

The number of tools for strategic analysis has developed since strategic planning became the basis element for
making decisions in a business (David et al., 2009). The origin of the term “SWOT” analysis was described by Learned
et al. (1969) and has grown as a major tool for strategic analysis by reducing the among of information to base a
decision on. SWOT matrix presents a mechanism for facilitating the links between company opportunities and threats
(external factors), and strengths and weaknesses (internal factors) in one marketplace. The matrix provides a
framework for recognizing and formulating company strategies. According to Glaister & Falshaw (1999), SWOT
analysis is one of the most famous and common tools of strategic planning. Valentin (2001) agrees that this analytical
tool searches ways of crafting and maintaining a profitable fit between business and its environment Dickson (2002)
mentioned that the SWOT matrix provides insight into teaching marketing strategy and competitive skills. Panagiotou
(2003) highlights that SWOT analysis is used more than any other strategic planning tool. ST strategy uses a
company’s strengths to avoid or reduce the impact of external threats. WO strategy improves internal weaknesses by
taking advantage of external opportunities. WT strategy is defensive tactic directed at reducing internal weaknesses
and avoiding environmental threats (Weihrich, 1982).

3.2. Business Model Canvas

In order to identify the main elements of collaboration in the Airline-within-Airline business model, the concept of
Business Model Canvas was used to analyse Qantas Group. Each element of the business model helps to predict
98 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109
Author name / Transportation Research Procedia 00 (2019) 000–000 3

results to identify the contribution of new business models and the innovation assessment indicators that increase
efficiency in airlines (Pereira, 2015). According to Osterwalder (2010) the Business Model Canvas consists of nine
key points that represent company’s complete business. The framework is composed of a set of objects that relate to
each other and that can be classified among the four categories as shown in Fig. 1.

WHAT? WHO? HOW? HOW MUCH?

Customer segments, Key resources, Revenue model,

Value propositions Channels, Customer Key activities, Cost structure
relationship Key partners

The company’s complete business

Fig. 1. The elements of Business Model Canvas

The Business Model Canvas, proposed by Osterwalder (2010) and Pereira (2015), is a conceptual model that allows
the creation of design thinking methodology. This model helps companies to identify the main elements for
collaboration and competition.

3.3. Boston Consulting Group matrix

One of the most famous tools for strategic analysis is the Boston Consulting Group (BCG) matrix (Udo-Imeh et at.,
2012) which allows a company to classify it’s a position in a market and evaluate market growth rate (Nordin, 2012;
Davidovic, 2013). The BCG matrix was developed as a model by “Bruce Henderson” for the Boston Consultancy
Group in 1970 (Yadav, 2013). According to Ami (2009), this matrix helps to develop strategies appropriate to the
status of the business. Moreover, this tool provides recommendations for the development of the strategic resource
allocation criteria for a company (Lacar, 2009). The matrix is an excellent integration of strategic planning together
with financial aspects (Duica et al., 2014).The market situation is identified through four symbols; each of them holds
an implication for a marketing strategy: cash cows, stars, question marks, and dogs (Lu and Zhao, 2006). Cash cows
are characterized by high profit and high market share with a strong competitive position in the mature market and
low growth market. The Stars are the businesses which have high market growth with high market share. The strategy
for Stars is represented in the protection of the existing market shares and acquisition of ean qual or greater proportion
of the expanding market. Question marks have the worst cash characteristics because they have high cash demands
and generate low returns, and a dog often generates poor profits (Khairat & Alromeedy, 2016).

3.4. Game theory

Game theory is a brand of applied mathematics that studies situations, including conflicting interests. The main
purpose of this study is to analyze the strategic situation in which an individual’s success in making decision depends
on the choices of others. According to Okura & Carfi (2014), game theory is rarely used in coopetition studies, but it
does not mean it is not suitable for coopetition studies. The game-theoretical model is a very useful tool for analysing
internal relationship because game theory provides insight of situations in which individual action directly impacts on
the results (payoffs) of others (Shy, 1995). Game theory can shed light on multiple and complex relationships (Okura,
2009). Moreover, this tool can provide sophisticated solutions and identify equilibrium situations that we can observe
in the AwA business model.

4. Data collected and Limitations

 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109 99
4 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

A quantitative research methodology was used in the study because the data collected was numerical data. This
research was based on secondary data sources. The scope of the study was restricted to passenger airlines based on
open information. The research data was collected from annual reports. There were some limitations in this quantitative
method that could not be easily accomplished through the given resources available. The authors did not have any
authorisation to research the confidential information of airlines. For instance, the authors could not collect data such
as key performance indicators for Qantas Airways and JetStar airways separately.

5. Analytical Finding and Interpretation

This research explicitly analysis the AwA business model that Qantas Group released as a group of airlines. Qantas
group was selected as one of the most profitable and successful airline group. Since the beginning of 2000, major
international FSNC airlines have established subsidiary low-cost airlines in order to resist competition in global aviation
markets (Annex A.1). Qantas Group consist of two customer-oriented airline – Qantas and Jetstar. Botha airlines operate
in regional, domestic and international destinations. Qantas Group achieved record profits in fiscal 2018, adding to the
consistently strong after a major restructuring four years ago. A record profit in Group Domestic showed the continued
success of our dual-brand strategy between Qantas and Jetstar. Group capacity increased by 1.4% (Fig. 2 (a), while
demand increased by 4.7% (Fig. 2 (b), resulting in a 2.6% point increase in revenue seat factor (Fig. 3 (b)).

Fig. 2. (a) ASK in Qantas Group (in million); (b) RPK in Qantas Group (in million)

Unit revenue increased by 3.9% in 2017/18 with an increase of 3.5% in the first half compared to the first half of
2016/17. The Group’s total unit cost increased by 2.7 % including the impact of higher fuel prices and costs associated
with increased revenue. This includes commissions, down-gauging of aircraft and investment in improved customer
experience including in-flight Wi-Fi. Continuing to transform the business remains a strategic priority for Qantas
Group.
100 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109
Author name / Transportation Research Procedia 00 (2019) 000–000 5

Fig. 3. (a) The number of passengers carried ('000 passengers) and (b) Revenue Seat Factor in Qantas Group from 1999 to 2018 (%)

Qantas Airways is one of the oldest and most recommended flagship carriers in the world. It was founded in 1920
in Queensland, Australia and since then it continuously grown and reached new heights with every passing day. Qantas
Airways has been identified by CAPA Center for Aviation (2019) as the airline of the year for 2018 due to its leading
position in the industry for growth and its outstanding strategy put in place during the year. The carrier and its partners
fly to 53 domestic and 46 international destinations spanning six continents. Air carrier is recognized as the world’s
leading long-distance airline and one of the strongest and most successful brands in Australia.
JetStar is an Australian low-cost carrier which was establish in 2003 as a wholly owned subsidiary of Qantas Group
(Srisaeng, Baxter & Wild, 2014). It offers low air fares and operates in the regional and international market with a
total fleet of 77 aircraft. Jetstar continued to deliver on its promise of low fares, with 24 million people carried
domestically in 2018.

5.1. SWOT analysis

Australia has a relatively small number of airlines that serve the relatively large market, Qantas Group with Virgin
Australia and Tiger Airways. Qantas Group targets a market depending on the behavior and current trends of its
customers. Through use of the SWOT analysis in Annex A.2, Qantas Group has a lot of strength and future
opportunities to increase market expansions. Having been in service since 1920, Qantas Airways has delivered steady
and consistent growth ever since through a strategic framework. This has led to the generation of an extremely
recognizable brand and infamous reputation. Qantas Group provides a more upmarket economy class service than its
competitors whilst also providing exceptional and revered service for business travelers both domestically and
internationally. The long-standing and remarkable safety record has been reached through an implemented Safety
Management System.
The Group maintains a positive reporting culture. Therefore, Operational Safety performance remained strong.
Qantas Airways has been among the safest airlines in the world for many years. The company has an impressive track
record in operations and safety, and they are leading many developments, such as Future ANS (Air Navigation
System) and automatic landings by GNSS (Global Navigation Satellite System) (Smith, 2019). At present, Qantas has
maintained no fatal accidents for 68 years, and continuously improves safety measures, cooperating with various
security agencies to ensure operational safety.
The Qantas Frequent Flyer Program was also developed to entice customers. The program mainly intends to target
the lucrative business traveller segment of the market with price-conscious leisure travellers tending to value a safe
and seamless experience. The digitalization and new technology are significant elements of operations of Qantas
Group. According to SkaiBlu’s analysis report (Hanke, 2018), Qantas' current DAS (Digital Airline Scores) is the
fourth in the world. Its powerful digital system involves all departments, not only improving sales capabilities but also
providing strong support for data security and operational safety. Moreover, innovative solutions are adopted to
improve the in-flight operations and reduce CO2 emissions that impact on airline costs. Implementing new technology,
Group has plans to eliminate 75% of the company’s trash by the end of 2021.
Qantas Group is relatively flexible in route setting and operations. The company is continuously purchasing and
upgrading the airline fleet. In order to cope with the expected market growth, the original A321 Neo ordered were all
converted into A321XLR. Only a small number of aircraft of Qantas Group are leased in which preparation is around
13%. More than half of them are concentrated in JetStar. The cost of aircraft leasing is kept at a low percentage. It
also illustrates that the network is relatively stable and does not require a large number of leased aircraft to cope with
explosive passenger flow. This has enabled airline fleet to operate at an efficient level and to meet market demands
and meet passenger needs.
The weakness and threats of a company significantly impact on Group performance. With fuel prices being one of
the largest costs of operating an airline, it comes as no surprise that this factor will persist in being a threat to Qantas
and JetStar. The volatility on cost of this essential commodity greatly affects the tactics of an airline. The rising oil
price in 2018 increased fuel costs by 614 million dollars. Qantas Group also faces challenges regarding climate change.
Air travel contributes 2% to global carbon emissions. However, the company is optimistic because Qantas desires to
lead the way in reducing CO2 emissions by 50%, based on their level in 2005. Another strategy is the mounting
pressure on airlines due to the rise in digitalization and the demand for greener travel.
 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109 101
6 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

Opportunities are the elements of the external environment over which the company has no control (Flouris & Oswald,
2016). Observing the environment in which Qantas and JetStar operate reveals that the booming Asia-Pacific market
is an amazing opportunity waiting to be capitalised on. By 2035, it will exceed the sum of Europe and North American,
and the growth rate will continue until 2060. Qantas also introduced new overbooking policy which consisted of
offering vouchers to customers to make them switch flights (Calder, 2019). This program optimises the passenger
capacity using information such as load factor from Qantas and JetStar. It also gives the airlines opportunity to
minimize costs and re-sell seats between two airlines.

5.2. Business Model Canvas

For greater understanding of the operations Qantas Group implements the Airline-within-Airline business model,
the SWOT analysis can be used in conjunction with the Business Model Canvas depicted in Annex A.3. Through the
analysis of Business Model Canvas, key resources, partners and the main activities are highlighted for several aspects.
The Qantas Group invests a lot in key resources such staff, which in turn allows the company to create a reputation in
global market. The partnership Qantas Group with Emirates Airlines enables to rationalize its international operations.
This agreement is framed around three objectives: a seamless joint network that delivers unmatched international and
Australian connectivity (98 weekly flights between Australia and Dubai), the enhancement of frequent flyer benefits
and the long-term focus on growth. The value proposition of Qantas Group draws in terms of advantages including
dual-brand strategy, domestic position, innovation and being an all-inclusive airline. The industry-leading safety of
the airline in 2019 (Airline Ratings, 2019), is a significant value proposition in airline operations.

5.3. BKG Matrix

Another way of analyzing the Qantas Group is through Boston Consulting Group (BCG) matrix. This evaluates the
strategic position of the Qantas Group portfolio. In this case, the domestic market is the Qantas Cash Cow as it
increases profit at 4% in 2019 (Fig. 4).

Market Share

Star Questions

Qantas
Marker Growth

International
Cash Cow Dogs

Qantas Australian Airlines

International

Fig. 4. BKG Matrix for Qantas Group

The domestic market has been one of Qantas’s leading sources of revenue. Opposite the domestic market, Qantas
international routes are Qantas’s question marks because the revenue is significantly lower on international routes than
on domestic market. This segment of the Group is pressured greatly from the vast number of international competitors
offering flights to large number of destinations over the world. Next component of the BCG Matrix are the Dogs that
presented the Australian Airlines as an airline within Qantas Group. Dogs are usually scarce as they drain resources
from a business. Australian Airlines was founded in 2001 as an international leisure airline. In 2006, Qantas Group
decided to abandon Australian Airlines in order to focus on developing the Qantas (international and domestic) and
102 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109
Author name / Transportation Research Procedia 00 (2019) 000–000 7

JetStar brands. The last component is Star that presented in JetStar. As a low-cost airline within one group of airlines,
JetStar was established in 2003 as a main competitor for Virgin Australia. JetStar’s revenue grew 11% in 2018.

5.4. The dual-brand strategy

According to Oleshko & Heiets (2018), the advantage of the dual-brand strategy is that it provides differentiated
services to customers while maintaining the brand competitivity. The dual-brand strategy provides accurate market
positioning and a clear brand image. At the same time, the market is complemented by high-end and low-cost markets
(Qantas, 2019). Qantas has a strong reputation and recognition in the high-end service market, which emphasises
safety and customer service that is recognized by consumers. Moreover, for price-sensitive consumers, Jetstar is also
one of their first choices. Qantas and Jetstar, dual-brand strategy keeps the Group a leader in the Australian domestic
market (Tabl. 1). The two brands share a 60% market share in Australia (Qantas 39% and Jetstar 21%) (Qantas, 2018).

Table 1. Number of domestic destinations operated by Qantas and Jetstar, 2020

Qantas Airways Jetstar

Domestic destinations
The number of domestic Adelaide, Ballina Byron, Brisbane, Cairns, Darwin, Gold Coast, Hamilton Island, Hobart, Launceston,
destinations operated by Mackay, Melbourne (Tullamarine and Avalon), Newcastle, Perth, Sunshine Coast, Sydney, Townsville, Uluru-
Qantas and Jetstar Kata Tjuta National Park, Canberra.
Albury, Alice Springs and Red Center, Armidale, Broome, Bundaberg, Charleville, Coffs Whitsunday
Harbour, Devonport, Dubbo, Emerald, Geraldton, Gladstone, Hervey Bay, Kalgoorlie, coast, Busselton
Karratha, Learmonth, Lord Howe Island, Mackay, Maranbah, Mildura, Moree, Mount Isa, Margaret River
Nhulunbuy, Paraburdoo, Port Lincoln, Port Hedland, Port Macquarie, Proserpine, Moree,
Rockhampton, Roma, Tamworth, Toowoomba, Uluru-Kata Tjuta National Park, Wagga
Wagga, Weipa.
Total number of domestic 53 destinations 21 destinations
destinations

The Qantas Group operates a route network in domestic markets with a huge number of overlaps between carriers,
but airlines have a special market segment to target. The substantial market share makes Qantas the first choice for
customers and establishes a clear brand image. The dual strategy is based on collaborate and coordination capacity
(network and schedule) and pricing activities their respective full-service network carrier and low-cost airline
operations. Company promotes brand image through sponsorship and cooperation, such as iconic cultural events, top
restaurants, news media, therefor becoming an exclusive airline partner and attracting visitors. In addition, the dual
brand strategy enables for Qantas and Jetstar to offer a compelling proposition to prospective joint venture partners
and efficiently and effectively establish the Jetstar Joint ventures.
The dual brand strategy seeks to ensure that network and capacity decisions meet customer demand by deploying
the right mix of FSNC and LCC capacity to maximise profitability for the Qantas Group while maintaining a clear
profit focus for the separate business.

5.5. Game theory

In order to develop the airfare and flight schedule for the AwA business model, Ko and Hwang (2011) created the
mathematical model including a repeated game as an extensive form game. The generic algorithm was used to
determine the maximum objectives function value of each players (airlines in one group) whereas the repeated game
is used to identify an equilibrium solution for the players. Pricing and scheduling were the main elements of generic
algorithm (Ko and Hwang, 2011). As we can see, two airlines as competitors also collaborate simultaneously.
According to Brandenburger and Nalebuff (1995), coopetition is a situation in which companies must cooperate and
compete at the same time. Le Roy and Fernandez (2015) presented the case study of Airbus and Thales when two
competitors collaborate to win tender in the global market. They mentioned that coopetition for new products involves
 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109 103
8 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

the sharing of resources and knowledge. In the case study, the authors investigated the elements of cooperation
between Qantas and JetStar as Airline-within-Airline business model, which included:
- network and scheduling decisions including routing, frequencies, aircraft types, product specifications,
aircraft configurations, connection requirements and range of times for services;
- sales and market initiatives including the offering of customer rebates, incentives and discounts;
- holiday products and joint promotions;
- pricing and new fare products;
- product distribution channels;
- frequent flyer and other loyalty programs;
- in-flight products and service;
- information technology;
- fleet acquisitions and engineering services;
- customer service activities;
- sharing of experience activities and initiatives.
All elements of coordination between Qantas and JetStar were divided into three main groups (Fig. 5):
1. Joint Venture Coordination Agreement coordination – coordination between all the airlines in Qantas
Group to operate as a single, fully integrated organization.
2. Related Joint Venture coordination – coordination of operations and activities (passenger and cargo)
between Qantas and JetStar in relation to overlapping or potentially overlapping services, including pricing,
capacity and scheduling.
3. Multiple overlap coordination – coordination of operations and activities (passenger and cargo) between
JetStar Joint Venture, its FSNC shareholder

Network and scheduling

Elements of
coordination
Pricing and distribution
between Qantas
and JetStar
Capacity (fleet acquisitions and engineering services)

Fig. 5. Elements of coordination between Qantas Airways and JetStar as the Airline-within-Airline business model

In order to explain the coopetition strategy for airlines in one group the game theory were implemented.
The subject of the authors’ study was collaboration between airlines in one group, which there is an impact on the
control object n over control subsystems, where nϵℕ and n ≥ 2. X is the set of all possible situations of management
entity, Xi – a set of alternative control impacts of i control subsystem, A is a set of results, i.e. controlled subsystem
states. The implementation function F in this case is set as F: X → A. Then the implementation function of each
situation x = (x1 , … xn )ϵX matches the result F(x)ϵA determined by it. Using game-theoretic terminology, it is natural
to indicate players (airlines)as control subsystems, and sets Xg – as sets of players’ strategies g(g = ̅̅̅̅̅ 1, n). To set
structure of objective achievement, control can be set as an objective function φg : A → R ∀g (for each player). The
symbolic multiplication fg = φg ∗ F is called player’s payoff function g, and the number fg (x1 , … xn ) – a situation
(x1 , … xn ) usefulness assessment by the player having g number. Thus, the symbolic model of system control can be
represented in the game-theoretic form as follows:
G =< Г, (xg ) gϵГ, (fg ) gϵГ >, (1)
Where Г = {1, 2, … n} is a set of player numbers (airlines), xg – a set of player g strategies, fg : X → ℝ– a function
of player g payoff.
Each situation x = (xg ) gϵГ can be interpreted as a result of choice by player g ∈ Гof some strategy xg ∈ Xg . Each
player g (g = ̅̅̅̅̅
1, n) interprets the obtained situation from its own point of view, which is described by the value fg .
Then fg (x) can be understood as the amount of player g payoff in the situation x. Thus, the symbolic model (1) is a
104 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109
Author name / Transportation Research Procedia 00 (2019) 000–000 9

model of system control by several parties (airlines), which have own interests.
When n = 2, if x1 , x2 are finite aggregates, model (1) is called bimatrix game, which can be set by two matrices
A = ‖aij ‖ and B = ‖bij ‖(i = ̅̅̅̅̅ ̅̅̅̅̅
1, n, j = 1, m), where A is a matrix of the first player payoff, B – respectively the matrix
of the second player payoff, and can be set by a single matrix ‖(aij , bij )‖ of corresponding payoffs’ pairs.
In such a game G, coalition K's capabilities can be estimated by the number c(K) – maximum guaranteed total
payoff of coalition players, when all the other players also unite in a single coalition with opposite interests. So,
formally c(K) is the price of coalition K's two-players zero-sum game against the other players' coalition Г\К. Then
a set of coalition strategies K is (b), and a set of coalition Г\К strategies is ⊕gϵK xg , g ϵ Г\К. Coalition K's payoff
function is fК = ∑g∈К fК , and the price of obtained two-person zero-sum game is:
c(K) = sup x∈XК inf y∈XГ\К fК (x, y) , (2)
where fK (x, y) = ∑g∈K fg (x, y).
The characteristic function c(K) has the following key features:
1) Transitivity, when c(∅) = 0
2) Superadditivity, when K1 ∩ K 2 = ∅
Superadditivity feature of c(K) establishes that when combining their individual capabilities, coalitions K1 and K 2
will receive no less, than they would obtain in total, acting separately. For K1 ∩ K 2 = ∅, the value c(K1 ∩ K 2 ) −
c(K1 ) − c(K 2 ) ≥ 0 establishes an additional payoff that is gained by coalitions K1 and K 2 when combining their
efforts.
Coopetitive game <Г, c> is called significant, if one has the following inequation
с(Г) − ∑g∈G(g) > 0 (3)
The best result depends on the equilibrium, which contains the most important aspects of the game. The Nash
Equilibrium is a solution concept of a non-cooperative game involving two or more players in which each player is
assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only
his or her own strategy (Arantes da Costa et al. 2009). Intensive-form games set up moves of game and analyses
sequential decision making. The combination of normal-form with intensive-form game is a strong instrument for
analysing cooperative position.
In order to investigate how to better cooperate in one group, the authors propose to use the principle suggested by
L. Shapley.
L. Shapley proposed an axiomatic approach of fair understanding of utility. System of Shapley's axioms consists
of four axioms. If each coopetitive game <Г, c> is assigned to a vector of n-dimensional space Sh(c) =
(Sh1 (c), Sh2 (c), … Shg (c), … Shn (c)) g-coordinate of which determines a fair payoff designated to player g according
to its contribution to the game.
Then Shapley value determines fair distribution of the total payoff received by grand coalition as a coopetitivity
result in its own way.
Axiom of symmetry. Shηg (c) = Shg (c) for an arbitrary automorphism η of the game <Г, c>. The automorphism
of game <Г, c> defines such a permutation η of players G set, that c(ηK) = c(K) for any coalition К ⊆ Г. This axiom
sets the same payoffs for the players joining the game symmetrically.
Axiom of efficiency. ∑g∈Г Shg (c) = c(Г). This axiom determines distribution of the whole amount c(Г). At the
formal level, this is a condition of group rationality of the result.
Axiom of a of dummy. If there is a player g 0 ∈ Г for which equation c(K ∪ {g 0 }) = c(K) is present for any
coalition К ⊂ Г, then such a player is called a null player, and Shg0 (c) = 0. This axiom requires that a player who did
not invest anything in the game, i.e. whose contribution to cooperativity is trivial, received nothing during the payoffs’
distribution.
Axiom of additivity. If c1 and c2 are characteristic functions over the set G, then for the characteristic function
c = c1 + c2 there is equation Shg (c) = Shg (c1 ) + Shg (c2 ). The fourth axiom of aggregation establishes the fact of
additional payoffs for the player who participates in two games.
In order to conclude the research, the authors illustrated the framework of optimal strategy for the Airline-within-
Airline business model (Fig. 6).
This business model should be based on scheduling, network, pricing, distribution and airline capacity. Moreover,
airline in one group should realize own utility based on Shapley principles with Nash Equilibrium.
 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109 105
10 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

FSNC Network and scheduling Coopetition

Equilibrium

Utility for
Airline strategy for

Airlines
solution
Group Pricing and distribution AwA
LCC business
model
Capacity (fleet
acquisitions)
Nash Shapley
Elements of coordination Equilibrium value

Fig. 6. The framework of optimal strategy for the AwA business model

In addition, the benefits for Qantas Airways and JetStar within the Airline-within-Airline business model were
identified:
- enhanced products and services;
- cost savings, economic efficiencies, lower fares and products innovations;
- promotion of competition;
- increase tourism to and within Australia;
- promotion of international competitiveness of an Australian business.

6. Conclusion and discussion

The authors investigated questions of which are the main elements of collaboration between airlines in one group and
how to set a strategy for the AwA business model. To provide insight into this question, we conducted an in-depth
case study of an illustrative case of Qantas Group, which was implemented by two competitors in the domestic aviation
market: Qantas Airways and Jetstar Airways.
Qantas Airways is the national pride for Australia, ever since being founded in the 1920’s it has become one the most
reputable and commercial carriers in not only Australia but around the globe. Qantas has gone through a lot of
obstacles in order to become who they’re today and most importantly regained its customers' and investors' trust by
pushing key performance drivers. Jetstar Airways is an Australian airline that was established in the year 2003 as a
wholly owned subsidiary of Qantas Group. It was founded as part of Qantas’ two-brand strategy in order to serve the
“value-based” market and therefore offers low airfares but eliminates all unnecessary services. The low-cost carrier
mainly offers domestic services, but also operates in the regional and international market with a total fleet of 77
aircraft.
The comparison analysis of airlines indicated a record profit for Domestic Group in fiscal 2018 as the continuing
success of the dual-brand strategy between Qantas and Jetstar. Their dual-brand strategy based on disruption
management, precision turn-around schedule and cross utilisation with International aircraft. Also, this strategy is
strong sustainable advantages for both airlines because companies maximise leading domestic position.
Using the SWOT analysis, the authors investigated that Qantas Group has a lot of strength and future opportunities to
increase market expansions. Through the analysis of Business Model Canvas, key resources, partners, and the main
activities were highlighted for several aspects. The value proposition of The Qantas Group draws in terms of
advantages including dual-brand strategy, domestic position, innovation, and being an all-inclusive airline. Based on
the Boston Consulting Group (BCG) matrix authors examined that the domestic market has been one of Qantas’s
leading sources of revenue. In the international market, airlines pressure greatly from the vast number of international
competitors offering flights to a large number of destinations over the world.
Previous scholars mentioned that airline-within-airlines business model have a high level of autonomy (Graf, 2005)
and route planning was semi-liberal highlighted that there is a low level of independence in both operational and
financial planning (Gillen and Gados, 2008). However, our research-based on Qantas Group investigated the elements
of collaboration between airlines which were divided into three main groups. The scheduling, network, pricing,
distribution, and airline capacity were identified as the elements of cooperation for the AwA business model.
Moreover, the authors propose to implement the system of Shapley's axioms with the Nash Equilibrium to identify
106 Iryna Heiets et al. / Transportation Research Procedia 56 (2021) 96–109
Author name / Transportation Research Procedia 00 (2019) 000–000 11

the optimal strategy for the AwA business model. According to L. Shapley principles airlines should distribute the
total payoff based on axioms of symmetry, efficiency, dummy and additivity.
In addition, the benefits for Qantas Airways and JetStar as an Airline-within-Airline business model include cost
savings, economic efficiencies, lower fares, promotion of competition, enhanced services, and increased tourism to
and within Australia.

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Acknowledgements

The authors thank our colleagues from School of Engineering, Aerospace Engineering and Aviation team, RMIT
University who provided insight and expertise that greatly assisted the research, although they may not agree with all
the interpretations and conclusions of this paper. Finally, it is really appreciated that AFCS 2020 could give us this
chance to present my research.

A.1. Airline groups includes FSNCs and LCCs

# Airlines Group FSNCs Year of LCCs Year of establish

Parent airlines establish Subsidiaries
1. IAG – International British Airways 1974 Vueling 2004
Airlines Group Aer Lingus 1936
Iberia 1927
2. Aeroflot Group Aeroflot 1923 Pobeda 2014
Rossiya 1932
Aurora 2013
3. Air Canada Air Canada 1937 Air Canada Rouge 2012
4. Air France-KLM Group Air France 1933 Transavia France 2006
KLM Royal Dutch Airlines 1919
5. ANA Group All Nippon Airways 1952 Peach Aviation 2011
ANA Wings 2010 Vanilla Air 2013
Air Japan 1990
6. Copa Holding Copa Airlines 1944 Wingo 2016
7. Emirates Group Emirates Airlines 1985 FlyDubai 2008
8. Hanjin Kal Group Korean Air 1969 Jin Air 2008
9. Lufthansa Group Lufthansa German Airlines 1953 Eurowings 1990
SWISS 2002
Austrian Airlines 1957
10. Qantas Group Qantas (International and 1920 Jetstar 2003
Domestic)
11. SIA Group Singapore Airlines 1947 Scoot 2011
Silkair 1989
Tiger 2003
12. Thai Group Thai Airways 1960 Nok Air 2004
Thai Smile Airways 2011
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Author name / Transportation Research Procedia 00 (2019) 000–000 13

A.2. SWOT analysis of Qantas Group

➢ The dual-brand strategy provides a different brand image ➢ Not an optimistic financial situation
➢ OneWorld - core alliance airline member ➢ Increasing labour Cost
➢ Diversification and Growth at Qantas Loyalty ➢ Lack of Workplace and operational Safety
➢ Leader of Domestic Markets ➢ Too concentrated income item
➢ Still good financial position ➢ The primary operating aircraft model is too
➢ Diversified workforce old (B737-800)
➢ Talent development plan ➢ Fleet asset depreciation
➢ Board’s assessment of operational safety ➢ Monopoly Airport

Weakness
Strength

➢ One of the top 20 safest airlines in the world ➢ The negative impact of the B737-MAX series
➢ The utilisation of advanced technology
➢ New Social Communication APP
➢ Rank 4 of Most advanced Digital Airlines in the world
➢ Comprehensive and flexible route products
➢ Contributions for Local
➢ Cargo freight agreement with AUS Post
➢ Brand image – sponsor
➢ Continuously updated and optimized fleet
➢ Lower Fleet Lease Rate
➢ Leader of Domestic Markets ➢ Unpredictable markets decline by
➢ Growing new regional market - Geopolitical shifts and the rise of Asia deglobalization
➢ The growth of global e-commerce ➢ Strong competitors and product services
➢ Digitalization and big data without advantages
➢ Increasing premium leisure and business services between Australia ➢ Currency
and Asia ➢ Other Countries Policies
Opportunities

Threaten

➢ Air Cargo services in new regions ➢ Climate Change and environment policy
➢ New Long-haul route between Perth and London ➢ Unstable international crude oil price
➢ Enhancement of relationship with the local companies ➢ Security Challenge
➢ Future Partnerships in Growing Regional Market
➢ Freight Agreement in other countries' companies
➢ Cooperate with International companies to develop new clean energy
➢ 2020 Olympic Games in Japan (more Airline Routes)
➢ 2020 EXPO in Dubai (more Flights)
➢ 2022 FIFA World Cup in Qatar (more Airline Routes)
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14 Iryna Heiets/ Transportation Research Procedia 00 (2019) 000–000

A.3. Business Model Canvas for Qantas Group

Key activities Key partners Customer relationship

Aircraft maintenance Aircraft manufacturers Frequent Flyer Program

Operation (Passengers and Cargo) Airports Safety
Security Banks Brand awareness
Catering Airline Alliance First class
Training Hotels and car rentals Business class
Customer service Food suppliers Premium economy class
Recruitment Travel agencies Trust
Marketing Service suppliers Commitment
Financial Code-share agreements (43 agreements) Convenience
Planning Interline agreements
Management Institutions
Coordination
Engineering
Channels Key resources Customer segments

Website Routes and Network First class

Airports Fleet Business class
Travel agencies Brand influence Premium economy class
Social media Qantas FFP Economy class
Mobile App Hub location
Chatbot Employees
Aggregators Code-share agreements
Staff

Value propositions Cost structure Revenue streams

Dual brand strategy Fuel cost +6.4%
Position in Domestic market Manpower and staff related +6.6%
Innovative loyalty business Aircraft operating +4.7%
Positioned in Asia-Pacific market Depreciation and amortization +10.6%
Safety Commissions and other selling costs +16.7%
Australian Brand Computer and communication +8.7%
High quality of service Non-cancelable aircraft operating lease
Digitalization rentals -1.1%
Capacity hire -23.6%
Property +2.8%
Non-aircraft operating lease rentals +0.9%
Marketing and advertising -12.2%
Other +0.2%
Net passenger revenue +6.2%
Net freight revenue +6.7%
Frequent flyer marketing revenue,
membership fees and other revenue +5.8%
Frequent flyer store and other redemption
revenue +4.3%
Retail, advertising and other property
revenue +6.4%
Contract work revenue +24.6%
Other +2.6%