Airlines - Old Giants Fall & New Ones Rise - 7 Reasons!! [feel free to add a few more of your own]

Many of us, self included used to refer to a segment of airlines as dinosaurs, lumbering outdated relics from the past. But, the aviation industry seems be on a roll now, with many of the dinosaurs having either become extinct or have reinvented themselves. We now seem to have a more nimble category of airlines - or maybe on the other hand better-branded ones ;-)

A look at the extremely positive 2017 figures & forecasts from IATA are proof of this. The good news extends way into 2018! It is only if oil starts a growth streak like bitcoin, will the forecasts head in a negative direction. The tough times for aviation seem to be a distant memory, going far back to 2009, when the industry was deep in losses (today there are still regions such as Africa which are not turning a profit)  

The recent IATA report & forecast have a lot of good things going for the industry; some extracts that may be of interest;

Mind-boggling!!!!

Forget all the various indicators and look at the one figure that always catches attention – profitability and in particular that of airlines based in North America;

Global airline profitability for 2017 has been estimated at $34.7 billion out of which US airlines will earn 45% of the total global profits.

The US per passenger profit works out to $16.67 per passenger, way more than any other region.

What is the US doing so differently, that makes it a stand-out performer from all the other regions?

The IATA report highlights some of the key areas that have driven the US market to the strong position it is in now;

• Consolidation has been the buzz word in the US market for quite a few years now. Good for airlines, but perhaps not so good for passengers.
• Capacity reductions & route optimization have helped sustain load factors (passenger + cargo) close to 65%
• Higher fuel costs have been offset by a more zealous use of ancillary pricing
• Break-even load factors will hover at around 57% next year

Now coming back to our story of giants, the airline industry is full of Goliath & David stories, some of which have ended or will end as the fable goes – David defeats Goliath or in some cases turns the other way - Goliath gets the better of David.

One epic story was that of British Airways (Goliath) & Virgin Atlantic (David) – where both seem to have survived some bruising battles and with each looking to other parts of the world for support, funds & inspiration. One to the Middle East and the other across the pond!

"Willie Walsh predicted that the Virgin Atlantic brand would disappear within five years as a result. Whether childishly or bravely, he also said he’d accept a knee in the groin from me if it didn’t. Well Willie, that five-year point is up this December. And Virgin Atlantic is still flying strong!"

But it hasn’t always been easy and during those 33 years we’ve had to first withstand British Airways’ ‘Dirty Tricks’ campaign, which tried to put us out of business and where we won the largest libel settlement in British history. We distributed the money equally to everyone who worked at Virgin at the time. I’m sure there are plenty of you who will remember receiving the ‘BA Christmas Bonus’!” - Richard Branson

But in the case of the US aviation industry, it seems to be a case of the Goliaths growing even bigger in the domestic US market. The Goliaths have now turned their attention to the global market – looking at partnerships, joint ventures & political leverage to further strengthen their position.

How the US passenger has fared in the last few years in terms of product, pricing & convenience could be the subject for a different story! I leave that to you.

Back in Europe market the story is a little bit different. Here the Davids (the low cost) have grown as big and as powerful as the Goliaths! The ones that seem to have no place left in the European markets are those airlines stuck in the middle – the Air Berlin’s, the Alitalia, (nope uniform upgrade won’t help), Monarch & the like!

Ryanair is perhaps a poster child of a David turned Goliath. Founded in 1984 flying from Waterford to London, today it’s Europe’s largest airline with a fleet of more than 403 aircraft, flying 131 million passengers to more than 205 destinations!

Consolidation also seems to be the trend in Europe, with a key difference in that many European airlines prefer to retain the original brand or create a new sub-brand.

While we focus on all the good news, I think airlines need to give themselves a reality check for the future. Airline brands are perhaps the vainest in the world - very aspirational & chic, constantly looking at themselves in the mirror. They spend millions on branding campaigns, new aircraft, seats, catering, on board lounges, crew uniforms, in-flight entertainment – well, at least the full service ones with the hope of differentiating themselves from their peers!  Even the low cost ones tend to jump on the bandwagon, promoting how wonderful it is to fly even minus the meals, pre-seating and the entertainment.

Here my take on 7 key areas why airline giants tend to fall! I don’t use the word fail, I use fall – because many of the giants tend to keep operating, thanks to the deep pockets of their owners (normally governments, who keep reaching into their treasuries to keep their national flags flying, regardless of cost or commitment to change for the better)

1)   Classification (putting airlines into boxes)

Airlines tend to be fixated about the boxes that they find themselves in, whether as full service “premium” carriers or even low cost airlines for that matter. They love the labels that industry strategists and the press have given them and always seem to gravitate towards living true to their founding principles which may no longer be relevant.

Change seems to be a no – no for many airlines and even when they try to change, they seem to dig themselves deeper into their already deep pits - thanks to half-hearted turnaround attempts!

It’s a big no-no for premium airlines to try and reinvent themselves, even if losing money by the bucketful.

And there are those which are so confused with what model to adopt that they are left stranded in a middle world and then go belly up – Air Berlin & Monarch are very good recent examples.

2)   Consistency (or rather lack of it)

Airlines can be consistently good or consistently bad at things. Some airlines are known to be consistently good at always being delayed or losing your bags or consistently horrendous at customer service. Airline customer touch points are consistently known for sticking to policies and regardless of your question – you get a standard answer – please refer to the terms & conditions of your ticket!

The recent weather related issues at Heathrow, tend to make British Airways passengers face the same old story as with other incidents (whether IT, baggage or weather related)!

3)   Complexity (too much of it)

The airline industry loves complexity and the more layers that can be added the better. Airlines can be compared to onions – there are layers after layers of complexity that keep getting added on! Bring tears to your eyes!

We talk about un-bundling fares, but are we making things simpler or less transparent for passengers. Reading the fine print of a tickets T&Cs still gives me nightmares!

4)   Competition (more than the complexity)

But one thing that trumps the complexity is the competition. Airlines love to compete and are like bees when it comes to attractive routes, all rushing to "dump" capacity leading to some very crowded airports & skies. And when they don’t get their way, they remind you of a spoilt child who has lost their lollipop!

The rush to add capacity into Cuba is a case in point (the untapped market looked attractive - but turned out otherwise).

5)   Complacency (forget the competition)

It will never happen to us! Our current yields are just fine. The competition is too confused to be a real threat! We will address the issue in due time..... till it gets too late to do anything!

6)   Clicks (the online type)

Social media has proved to be many an airlines nemesis. Whether it is about viral videos or bed bugs or snakes on planes, airlines are loved by the online community! 

7)   Cyclical (here we go again)

Just have a look at IATA’s figures & you will realize how very cyclical the industry is (though the positive cycle this time around has been rather extended). Airlines tend to forget about preparing for the bad times during the good times. They go on spending sprees, when the money is pouring in. When the bad times hit, their empty pockets lead them to take out the begging bowls!

Airlines are still lagging behind when it comes to leveraging technology, data, customer & employee loyalty!

Airlines need to look outside the industry for inspiration, as the world today is a very different place with companies like Amazon, Google, Apple, Samsung, Airbnb, Uber to name but a few revolutionizing the way business is done! There is still plenty to learn & innovate about!

The hope is that relatively new airlines & brands like Joon, Level, Swoop, Wow, Scoot, Norwegian, Jetstar who are perhaps the baby Davids of today, learn from the mistakes of the past and do not forget that;

Old Airline Giants Fall & New Ones Rise! 

[But will airlines learn from mistakes of the past? Memories are very short in our industry]