Sep 2024 - Briefing

?? Frequent flyer programs, especially through partnerships with credit card companies, are among the most profitable segments for airlines. However, they are currently under investigation by the U.S. Department of Transportation (DOT) due to concerns about hidden fees, dynamic pricing, and devaluation of points. The probe could result in significant changes that impact how consumers earn and redeem rewards; and how airlines may restructure their programs to stay competitive.

Points systems like frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings.

?? The scrutiny of loyalty programs extends beyond U.S. airlines to global airline mergers and alliances, where loyalty points play a pivotal role in determining competitive dynamics. A prime example is the merger between Air India and Singapore Airlines, which forms one of the world’s largest airline groups, alongside IAG's failed acquisition of Air Europa and Lufthansa’s pursuit of a 19.9% stake in TAP Air Portugal. TAP’s return to profitability in the first half of 2024 has made it an attractive target for Lufthansa and even IAG, which seek to expand its European influence through strategic investments.

?? A growing trend in the airline industry is the blending of traditional and low-cost carriers, with budget airlines like Southwest and Spirit adding premium options and major carriers offering budget-friendly fares. This hybrid model parallels the challenges in the ‘direct to consumer’ (DTC) movement, where an abundance of options hasn’t always translated to better value, leaving consumers overwhelmed by choices. Both airlines and the broader travel industry are finding ways to balance variety with simplicity to enhance customer experiences.

??In Australia, low-cost carriers (LCCs) are facing significant challenges, with Bonza and Rex Airlines exiting the market. This has created opportunities for new entrants like Koala Airlines, which aims to compete with market leaders. Additionally, there have been suggestions, such as from Senator McKenzie, to split Qantas and Jetstar in an effort to increase competition. These struggles reflect the broader difficulties faced by budget airlines worldwide, including in China, where fierce domestic competition is putting pressure on profits.

?? Airlines across the globe are grappling with supply chain issues, such as the shortage of wide-body aircraft, which has delayed the launch of Thailand’s Really Cool Airlines. This mirrors setbacks faced by major players like Air India, showing the far-reaching impact of supply chain disruptions on global operations.

?? Airlines are taking proactive measures to combat ticket scams, with carriers like Volaris and Viva Aerobus launching campaigns to educate travelers on how to safely purchase tickets through official channels. At the same time, artificial intelligence (AI) is being used by airlines to gather customer feedback and improve services, merging traditional metrics with deeper qualitative insights.

???? European airlines are adjusting their strategies to adapt to market conditions. Aegean Airlines' €25 million investment in Volotea aims to expand networks in Greece, while Sweden plans to eliminate its aviation tax by mid-2025 to boost airline competitiveness. These moves reflect an effort by European carriers to capitalize on growing travel demand.

?? Airlines are turning to AI and technological innovation to enhance the travel experience. Lufthansa’s Innovation Hub (LIH) is focused on expanding its digital and AI capabilities, while companies like Amadeus are advocating for an ecosystem approach, emphasizing the importance of biometrics and digital identity to streamline the travel process. However, these technological advancements also come with challenges, as seen with the latest CrowdStrike outage.

?? Subscription models, similar to those seen in airlines, are gaining traction in the travel and hospitality sectors. Programs like MyCitizenM+ and InspiratoPass offer flexible, personalized options, allowing frequent travelers to access exclusive benefits, reflecting the increasing popularity of such models in enhancing customer loyalty and engagement.