Of all the Portuguese private airlines that for many years competed with TAP Air Portugal (the Portuguese owned state airline) only Portugália Airlines (PGA) resisted the hegemony of the Portuguese flag carrier until it was bought by TAP itself. Portugália Airlines, a private airline, managed to maintain its operation, even against the power of the state company. This case study shows how PGA operated certain routes (here the Turin example, in Italy) as a survival strategy. The approach is exploratory and based on an observational description of facts. In view of the recent events caused by COVID 19, the pandemic has brought about a change in business models, also providing the warning that anyone who does not have a clear strategy, dies at birth. The case study leaves some interesting clues to explore.
TopIntroduction
The aviation industry community are aware the differences between companies that operate point-to-point (easyJet, for example) and those whose business model uses centrality (hub) to be able to distribute passengers to different routes (spokes).
We can, for example, reflect about Iberia Airlines of the IAG Group, as a Full-Service Carrier company (which converges its routes to the Madrid hub), Air Nostrum (an Iberia Airlines franchisee) as a regional company that supplies flights from Iberia and consider Iberia Express as a low-cost company (which operates point-to-point) that helps Iberia to grow.
It is clear that a point-to-point operation added to a network must be supported by a hub, that is, smaller-capacity planes converge to a hub to feed larger aircraft that can fly to more distant destinations and between continents.
If we mention the “point-to-point” business model and because there is no hub, but bases, the competitive advantages are always linked to cost leadership, where quality is not always valued.
Portugália (PGA), a regional airline company, since its first flight, operated with the characteristics of a full-service company, flying point to point, not having any network to distribute its passengers (a paradox). Clearly, the private Portuguese company operated with full-service characteristics but operated a point-to-point network.
After being sold to the Portuguese state company (TAP Portugal) in 2007, PGA finally began to fulfill its raison d'être. Until 2007, it competed with TAP and with the emergence of low-cost airlines.
Portugália, with its recognized quality attributes, became a money loser because it operated point-to-point and without any possibility of being a feeder of any other airline. Either become a Low Cost or join a hub company. It was purchased by TAP.
The general objective of this case study is to evaluate the catchment area of Piedmont (Turin) and not the regions of Lombardia (Milan) or Emilia Romagna (Bologna). The analysis focuses on the flight from Turin (which sells two destinations: Madrid and Lisbon) and its strategic options.
The specific objective of this case study is to demonstrate how a funnel flight type route managed to survive for many years, based on strategic customers and capacity management? It is intended to answer the following question, considering that the Turin route was one of the ones with the highest Yield. Was Portugalia as an airline company a project that was dead at birth?
The case study of a “funnel flight” route (Turin - Madrid – Lisbon), which will be discussed in this paper, was a strategy that the Portugália Airlines used in its network to survive, hoping that one day, it could entice a shark to its partner, and that could have been, for example, Air France.
We will explain, through the first person of one of the authors, how these strategies were that allowed a point-to-point company, with a premium service, to survive for so many years.
Today, and after we have overcome COVID 19, the strategy used by Portugália for years, would not have the slightest chance of working. While the so-called flag companies lose revenue on certain routes to gain on others, the strategic PGA model, would not work today.
It is also clear that it is not possible to use a point-to-point business model, and at the same time, practice premium fares in a high-cost structure, very similar to full-service airline business model.
Today, the industry is aware that TAP is still in great difficulties, aggravated by the pandemic, and that the help of the regional company (PGA) has been very appropriate in the strategy of TAP group, precisely the role of feeder.
Portugália Airlines (based in Lisbon), also known as Portugália or PGA, is a regional airline that belongs to the TAP Group since 2007. Founded in 1988 as a private airline, it operates domestic and international flights (short and medium haul) from Lisbon and Porto, under the TAP Express brand using Embraer 190/5 aircraft.
On January 14, 2016, TAP Express brand was announced, which thus replaced the PGA - Portugália Airlines brand, as well as the total renewal of the fleet (Lusa, 2016).
As a private company and a competitor for the same market as TAP, Portugália has never been a hub company, hence the impossibility of being a feeder for any company (Portugália Airlines, 2022).
The role of regional airlines as air service providers to small communities (smaller airports) dates to the regulated era (Forbes & Lederman, 2007). The role of feeder airlines is to transport passengers from destinations not served by large airlines to major hub airports.