In tech, the overused term of the decade is “disruption”, but it’s an appropriate one in the airline world today. Disruption is everywhere, mostly not from young hot shots with investment pitches, but from worldly forces including climate, pandemic, technology and natural resources.
The airline world as we know it will change more in the next 5 years than it has in decades, and as airlines approach this brave new frontier, the question is how they’ll push forward, and who their best customers will be…
Most of the world is reeling from an unprecedented virus, but for most industries it’s the primary thing affecting their business and it may come to an end, at some point. Airlines aren’t quite so lucky.
Today, airlines face major challenges not just from a major, unprecedented virus, but from a push for action on climate change as well as new and emerging tech and competition. Zero points for recognizing these, but the knock on effects will be fascinating to analyze.
Before we get to what’s changing, it’s good to look at how airlines make money today. In bullet point terms, the main revenue generators for airlines are…
- Corporate contracts
- Credit card deals
- Loyalty programs
- Ticket sales
In ballpark terms, airlines are presently most focused on filling the expensive seats up front, and offering low fares in the back, to earn incremental gains. Low cost options like Norwegian, Ryanair and EasyJet have forced this consumer friendly behavior from legacy airlines, and even making $5 per passenger is better than nothing, particularly if the seats up front cover operating costs.
Loyalty programs have also been a great boom, without even needing to fly planes to make money. Sales of points, elite status and other perks, in addition to lucrative credit card contracts has become a fundamental part of the business. When you earn points for shopping, an airline is being paid by the credit card company for those points.
And then there’s cargo sales, data learning, marketing partners and all the other stuff. Will any of that remain, when the world travels again?
Airlines go to tremendous lengths to lure in corporate contracts. United famously goofed in 2019, publishing that Apple alone pays $150 million annually in business class tickets to the airline on a single route, equating to 25 business class tickets per flight, per day.
Needless to say, Apple didn’t love this figure being highlighted.
Selling millions in tickets up front to lucrative corporations from banks to tech companies takes pressure off sales on every flight and shores up annual expenses from day one. But what if the world simultaneously learned that-that “meeting” could’ve just been a video conference?
Many would say that’s happening across all businesses. Bullish corporate travelers are being forced to accept the world we’re presently operating in, where the white glove personal touch isn’t necessary – and in many cases, not even preferred. Hashtag, #socialdistancing.
It was easy to tell a manager “I need face to face” before, but now, less so. Even things as simple as kids going to school may become increasingly digital, requiring fewer flights to and from.
Zoom, Google Meet and other networking features are experiencing an unforeseeable renaissance, as collaboration goes from the meeting room to the virtual meeting room, and it’s fair to ask if major corporate travel programs will still spend quite as much when it all goes back to “normal”?
Even if the answer feels like a yes, why would they? Apple could save $100 million a year and still send people to China with the other $50 million. Fewer trips, more focused trips – this seems like the way forward. For companies with slimmer margins, getting out of pricey airline tickets could be just the ticket.
And that’s without even touching upon the social pressures as society embraces a need to stabilize the rate of climate change. Airlines too are tackling the issue, removing plastics wherever possible and flying more fuel efficient jets, such as the Airbus A350, or Boeing 787 Dreamliner, reducing total fuel emissions by 30% or greater and removing millions of tonnes in plastic waste.
Read as: going “green” is as good for a green airline balance sheet as it is for the world, so airlines aren’t being duplicitous with their environmentally friendly intentions. Saving fuel saves money, and cutting waste saves money too.
In the run up of virus concerns many airlines cut service items, or reduced meal service altogether. Sanitation aside, it’s a great way to cut expenses. Many predict airlines won’t ever return to full levels of catering found in previous years, in part to save costs, in part to save waste and in part as a result of new social standards of distance and hygiene.
Which leads to the cabins themselves…
No one expects airlines to rip out their collective billions in airline seats and create cozy spaces like those old 1960’s images of flying, where everyone is smoking cigarettes too.
That’s probably a good thing, because many seats have actually improved. It’s easy to keep things the same in first class, where 2m of distance is the norm, but what about economy?
Will airlines be forced to take another look at economy seating density? If virus concerns continue, it could actually make sense, particularly because they’ll be able to charge more. Ryanair aside, low cost airlines are among the most at risk for bankruptcy with travel global demand down to 10%.
If low cost competition goes bust, airlines could once again charge more for the seats in the back, and in the process, seat pitch, width and comfort could actually improve. Other than heads of major airlines, few people wish for this situation to happen, but customers may focus on new metrics for choice either way.
Passenger Experience Shift
Will five star cleanliness records replace five star entertainment standards? Passengers will absolutely focus more on the cabin environment, the tech that keeps them from touching things and that may create a revolution with everything from the type of plane to the materials used inside.
If anything, this will prop up airlines invested in new fleets and more passenger friendly cabins, and may force early retirement of knackered old planes.
Customers afraid of catching germs may choose airlines with Bluetooth connectivity installed, so they can pair their headphones or other devices wirelessly, without needing to constantly interact with things others have touched on board.
Ultimately, fewer clunky items in or around a seat could mean more space for passengers, less weight for fuel consumption and a better experience for all.
Product And Sales Shifts
If corporate sales are out, or far less viable, what’s the new model?
Airlines are already tinkering with “basic” business class to appeal to leisure travelers or price conscious business travelers, and choice is already a “thing” in economy, with options for checked bags, seating assignments and other add on bits.
In the past two years, Google Flights already revolutionized flight search, creating a direct sales tool for airlines from the world’s most popular search platform. This is bad news for online and real life travel agents, with incredible ease in booking, and integrations directly with airlines.
Many flights can now be booked without even leaving the Google Flights interface, but are still “direct” with the airline.
Big Data To The Rescue?
Just as customers were getting used to booking flights via these more direct and transparent channels, airlines were working on targeted offers, where logged in viewers could receive different prices or offers, based on a variety of metrics.
They’re still very direct, and if anything they are more transparent, because they’re tailored to you. Yep, the price you see may be the price no one else gets.
It makes perfect sense. Airlines have goldmines of rich data they’ve yet to fully tap into, and if they can use that data to tempt you into a higher class of fare, or know what it might take to make you consider it, why wouldn’t they?
Business As Usual
It’s hard to imagine airlines flicking the switch and going back to business as usual. Transformations were already underway at many airlines, including Lufthansa, to completely reform and revamp each department, creating airlines for the modern world. Lufthansa offered voluntary redundancy to over 3,000 employees from departments which don’t have the same necessity as other emerging sectors.
Fares aren’t released the same, transportation is now hospitality, not transport and technology is at the forefront of almost all things good. Even the vehicles that push airplanes back from the gate can be controlled by remote control.
Staff trained decades ago on archaic procedures will need to re-learn, or face becoming redundant.
Basically, the next time you fly may not feel all that different, but over the next three years it certainly will. Air travel will never be the same again, and that’s not entirely a bad thing. Adapt, or die…