The Airline Value Chain: Understanding How Airlines Create Value

The mission of a Lean Airline is to help airlines achieve operational excellence while staying cost-effective and customer-focused. A key tool to achieve this is understanding the value chain—the set of activities through which an airline creates value for its customers and generates revenue.

Michael Porter, a Harvard Business School professor, first introduced the concept of the value chain:

“The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems, each with inputs, transformation processes, and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labor, materials, equipment, buildings, land, administration, and management. How value chain activities are carried out determines costs and affects profits.” – Michael Porter

In other words, every activity in an airline—from flight operations to human resources—contributes to the value delivered to passengers and the airline’s profitability.

Components of a Value Chain

To understand the value chain of an organization, it is necessary to classify all activities that contribute to its margin. Margin represents the profitability of the company and is defined as the difference between the total value received from customers (revenue) and the total cost incurred to create and deliver the product or service.

1. Core (Primary) Processes

Core processes are those that directly add value to the customer. They represent the main activities performed by an organization to achieve its goals. In Porter’s model, five primary activities are required to create, sell, maintain, and support a product or service:

• Inbound Logistics: activities involved in receiving, storing, and distributing inputs.

• Operations: activities that transform inputs into final products or services. In airlines, this includes flight operations, maintenance, and ground handling.

• Outbound Logistics: activities related to delivering the service or product to customers, such as baggage handling or cargo distribution.

• Marketing and Sales: activities required to promote and sell services.

• Service: activities that provide after-sales support, including customer service and loyalty programs.

2. Support (Secondary) Processes

Support processes do not directly deliver value to the final customer but are essential in enabling the primary processes to function effectively. These include:

• Infrastructure: management, finance, and legal systems that support decision-making.

• Human Resource Management: hiring, training, and retaining skilled employees.

• Technology Development: research, innovation, and IT systems that enable transformation of inputs into outputs.

• Procurement: purchasing inputs required for both core and support activities.

Mapping the value chain allows airline leaders to see the big picture of how all activities—customer-facing or internal—contribute to profitability and value creation. This understanding is the foundation for identifying opportunities to improve efficiency, reduce costs, and enhance the customer experience.

Value Chain vs. Value Stream

It’s important to distinguish between value chain and value stream because they serve different purposes and provide different insights:

• Value Chain: A strategic, high-level view of all activities that create value across the entire organization—from supplier inputs to customer delivery. It shows what activities exist and how they contribute to overall profitability.

• Value Stream: A Lean-focused tool that maps the specific flow of materials, information, or services for a particular product or process. It highlights where waste occurs and where efficiency can be improved.

In simple terms, the value chain shows the “big picture” of value creation, while the value stream zooms in on the operational flow to identify improvement opportunities. Both are complementary: understanding the value chain helps leaders prioritize which value streams to optimize for maximum impact.

Conclusion

Understanding the value chain is the first step toward improving it. At The Lean Airline, we believe that seeing how value is created across all processes—both core and support—helps airline leaders identify opportunities to reduce waste, increase efficiency, and build sustainable competitive advantages while keeping the customer at the center of every decision.

In future articles, we’ll explore competitive strategy—how airlines create an edge over competitors—and Value Chain Analysis, which shows where improvements matter most. Stay tuned!

If you want to take the next step now, check out our Airline Management Fundamentals course. In just 4 hours of self-paced e-learning, you’ll explore airline operations, business models, and value creation—building a strong foundation for understanding the value chain in practice.