Airlines and innovation: Now is the time to pour the jets on

October 5, 2016

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By Jonathan Kletzel, US Transportation & Logistics Leader, PwC

As the airline industry finds itself in a profitable phase—largely due to low fuel costs—now is the time for airlines to accelerate innovative in order to help sustain that profitability into the future, especially when conditions do not favor it.

Airlines have long grappled with uncertainties that they have little control over, including fluctuating

fuel prices, economic conditions that affect consumer and corporate appetite for travel, and geopolitical incidents. But perhaps the problem for airlines is not that they are powerless in the face of unpredictability, but rather that their business model is built around it. Airlines would do well to know they can take greater control of their future growth and be less dependent on these external forces.

In a recent white paper, Airlines: How mounting uncertainty could open an era of transformation, PwC examined how airlines can change traditional business models in the face of disruption, and how doing so could untether the industry from cycles of boom and bust. We identified four paths that airlines could embark on to fundamentally change how they operate and how they relate to their customers. As conditions now favor profitability for the industry, investing in these paths could pay handsome dividends in the future.

Big data and customer relationships

The challenge. Airline 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.

The response. In 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.

Distribution wars

The challenge. For airlines, global distribution systems (GDSs) have for decades been their best friends and worst enemies. The Internet and related digital platforms give 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.

The response. 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 toward 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:

  • Improve the website and mobile experience by making it more seamless and easier to navigate.
  • Take advantage of new data technology to access data that currently is solely the province of GDSs.
  • Be imaginative about how to ride the next wave of GDS rivals that will likely emerge.

Emerging markets and globalization

The challenge. 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.

The response. 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 are the means to build a flexible global airport strategy to align with a business model that seeks to maximize returns from profitable routes. They also enable expansion into emerging regions and capturing revenue as international travel patterns evolve.

Digitalization and connectivity

The challenge. Airlines can pay a hefty price as a result of operations and maintenance issues, mostly through cascading flight delays and cancellations that can start when a single plane is pulled out of service—and such incidents can impair relationships with inconvenienced flyers. Carriers collect reams of information that 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 response. 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.

These are areas of innovation ought to be at the top of the industry’s to-do list while airlines have the means to invest. As all industries consider how best to pivot in the face of disruption, they will need to make decisions on which big bets to make now, so they can best withstand disruptions to come down the road. Making such decisions, in the least, is one thing about their future they can control.

 

©2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.  This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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