Airlines have long grappled with uncertainties that they have little control over: fluctuating fuel prices, economic conditions, geopolitical incidents. But airlines can no longer afford to be at the whim of economic cycles. As new disruptions unfold, the industry is challenged to adapt. Current conditions of profitability open the window for the industry to aggressively innovate for the future. Four themes of disruption—and, likewise, potential paths to new business models and sustainable profitability—include:
Airlines business models are heavily dependent on seats as a primary source of revenue, and they’ve spent the recent past commoditizing them in a race for the bottom in a bid to attract passengers. The result of this strategy is that to most flyers, airlines are interchangeable—one seat is the same as another from one airline to the next; consequently, price is all that matters.
In this vision of the future, the most successful airlines will match the product they are selling to each individual customer. At its core, this is a Big Data issue. Airlines that can enhance the customer data they already have to capture that high-margin share on an ongoing basis will likely enjoy a sustainable competitive advantage.
For airlines, Global Distribution Systems have for decades been their best friends and worst enemies. The Internet and related digital platforms gives airlines a global, efficient and accessible channel to sell tickets to customers outside of the GDSs grid. For carriers, this possibility provides significant benefits which have yet to be fully realized.
While the airlines may not decouple from GDSs any time soon, they can nevertheless focus on devising new ways to yield greater value out of each ticket. Reversing the trend towards seat commoditization, which the GDSs through their inherent basic price comparison features have fostered as much as any other activity in the airline industry, is critical for carriers that hope to survive the global transformation they are facing. Paths to consider include:
The global airline landscape is shifting at a speed that could not have been predicted a decade or so ago. As is already evident, the Gulf carriers, have expanded quickly and are gradually funneling business away from the legacy network in Europe, Africa, Asia, the Middle East and Australia and they are beginning to make inroads in the Americas.
For all global airlines, but particularly established legacy airlines, equity investments in other carriers are an essential strategy to consider. Most important, what acquisitions buy is the means to build a flexible global airport strategy to align with a business model that seeks to maximize returns from profitable routes while expanding into emerging regions and getting a piece of the revenue as international travel patterns evolve.
Airlines can pay a hefty price due to operations and maintenance issues, mostly through cascading flight delays and cancellations that can start with a single plane pulled out of service—and such incidents can impair relationships with inconvenienced flyers. Carriers collect reams of information which is presently not fully leveraged to dismantle silos within their organizations in order to substantially improve inefficiencies around baggage handling, ticketing, and maintenance, for example.
The most effective approach for carriers could be to take control of the data by improving analytics capabilities so that their systems could burrow through the vast libraries of information and generate predictive and empirical reports for maintenance and quality departments, OEMs and relevant groups in the airport that handle baggage, tickets and traveler preferences. Indeed, fully realizing such efficiencies and advances through better collection, usage and sharing of data will require airlines to build out a pervasive and real-time data flow throughout its organization and even to its vendors. Such a build-out would greatly improve situational awareness and would hold myriad benefits operationally including improved reliability, increased aircraft utilization, and optimized staffing levels.