Airline record results should worry them

It is a truth universally acknowledged that when things go well in the airline industry, you should worry… and most airlines won’t. Looking at it from the outside this might seem strange, after all, if an industry is prone to crises, it would make sense for it to use the “good times” as an opportunity to prepare for the next downturn.?

In aviation, for the most part, this does not happen, and airlines tend to focus more on maximizing short term gains. This is partly due to the way KPIs and goals are set within the organization and partly to the deep-rooted risk-adverse nature of an industry that, as one colleague put it, “will only act when it fears for its life”.? The result is a paradoxical situation, where most airlines will be willing to implement disruptive innovation only at times when their survival is at risk and its finances are unable to support the investment. ?????????

“They think it will continue forever”

Discussing this with the team, our head of marketing brought up a brilliant quote from the legendary Steven Udvar-Hazy at the Skift Aviation Forum. When interviewed by Brian Sumers he pointed out that:

“If you look at the pattern of airlines since World War 2, […] you have a period of losses, very low traffic growth, airlines are struggling financially, […] they're thinking about survival. And have a very short term view in their strategic planning. Then you have a period after a pandemic where things are looking good, there's recovery, more traffic, yields are up, everything looks very optimistic. And they think that will continue forever.”

The last part of it is what really got me. "They think it will continue forever". It matches quite well with the feeling we have had in recent conversations with airlines. There seem to be two kind of airlines, a majority that is too busy partying to look around and a minority that has realized this cannot last.?

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The last group knows that, with the current geopolitical situation, flight shaming and supply chain issues, the growth is not going to continue. They have also realized that most other airlines have (forgive the pun) their heads in the clouds, creating a perfect situation to build competitive advantage.?

As a result, they are putting a lot of emphasis on programs like flight subscriptions , that can permanently lock in market share, or clubs that are very good at generating direct sales and cut out intermediaries. New models like all-you-can-travel subscriptions are also taking up more space in conversation, thanks to their ability to handle distressed inventory with very little risk for the airline.?

For these airlines, investing now in tools that will help them get a competitive advantage in the future makes a lot of sense. For them, the time is now because they understand that waiting is a dangerous game to play .?

Change is coming from above

The wisdom shared by an industry veteran like Steven is also well understood by the most experienced managers, and as a result, we have seen a shift in the area of the airline’s organizational structure where the demand for subscription is coming from.

In the past, inquiries came mostly from lone innovators in middle management. These days, change seems to be coming from above, typically from CEOs or other senior leaders who have seen this pattern before and are bracing for the next wave.?

What’s next

Before anyone asks, yes Caravelo will be announcing new customers soon, and this post is not an accident, but we are not allowed to share the details just yet. Some may even surprise you, since it seems that other areas of the travel industry have picked up on the high speed growth of subscriptions and are taking action to prevent competitors from throwing them off the rails.?