Disruption

How disruption will change the airline industry

Scenarios on a revolutionary future

Do you believe the LCC wave of overrunning legacy business models was revolutionary? You might need to think again. Digitalization will continue to surprise us with innovations. You don’t want to be hit by surprise? Then you need to be prepared.

Life in aviation business isn’t easy these days. It’s not that long ago that state ownership put a protective hand over airlines. After successful restructuring initiatives competitiveness was established in a more and more global marketplace. Open skies and transparency through the internet increased the competitive challenge. The consequence was an unhealthy price war throughout the industry. New customer groups were attracted resulting in a skyrocketing pax volume. The new customer segment opened growth opportunities for low-cost carriers (LCC) as legacy players did not foresee the development.

What will disrupt today’s aviation business model next? And how can you respond?

Disruption starts with new solutions solving existing problems more effectively or at a lower cost.

  • Short-haul flights of less than an hour with a price tag higher than IK flights attract disruptors
  • The baggage process with carrying bags to the airport, queuing for check-in, security screening, fight for overhead bin space and queuing again after arrival also calls for disruption and will take away one of the major ancillary products of airlines

Disruption might only affect a single process step. But often a whole business model is reinvented leaving the legacy player run into bankruptcy.

Digitalization, customer centricity, and big data are key.

These buzz words are used inflationary – but maybe with reason.

  • Most disruptive innovations are based on technology and put the customer perspective into the center of the solution
  • “One size fits all” is often replaced by target group solutions

Technology is the driver behind nearly all disruptive offerings. Why do existing players shy away from developing their business models to a digital world? Because of good reasons:

  • The existing model is profitable
  • Digitalization needs investment
  • Customer acceptance is uncertain
  • Why cut prices without need?

The problem is: If you are not reinventing yourself someone else will do it for you.

Three examples:

Customers do really hate complexity. Airlines boost complexity.

Ease of booking and customer loyalty will see further disruption.

  • Legacy carriers separate parts of their fleet into LCC like Vueling, Eurowings or Transavia. IAG even starts with a second carve-out as IK LCC. Each separation comes with new booking classes, new terms and conditions, a new website with a new booking process, different status privileges and so on.

It is only a question of time until a new player will offer a harmonized solution that enables a one-click customer experience and cuts booking time by over 90%.

Same applies to today’s loyalty programs. Only frequent flyers will stay loyal in a pure airline program. But will today’s multi-partner programs Payback, Nectar, Plenti or Amex fulfill customer expectations? Or will we see new disrupters from the digital world?

Retail will provide the profit to survive. But who will close the deal?

Airlines offer low prices for base tickets – the profit is generated by ancillary sales. But the airline is not the only one interested in that add-on revenue.

  • Airports will even more depend on retail as profit from parking will be shrunk by car-sharing, profit from check-in capacities will shrink by automated baggage tags and new baggage services and airline charges will further decrease due to LCC growth (like currently in FRA)
  • Hotel chains start to partner with local retail stores to upgrade their loyalty programs

Airlines have a competitive advantage as they know who is traveling when to where plus they can send customized offers on the screen a passenger is facing on the flight. But the attractiveness of the business will also fascinate disruptors. The question is who will offer the most convenient and most attractive solution to the individual customer and who will manage to generate meaningful sales leads out of the huge big data cube.

Sales channel revolution. Who will be the aviation-booking.com?

Aggregators are the winners of today’s sales channel setup. GDS companies have overplayed it with exaggerated fees for an inflexible product.

LHG has started with a direct connect solution, IAG seems to follow and we expect others to shadow. But individual direct connect solutions will only stay temporarily. New aggregators will disrupt this new sales channel and bundle direct connect solutions – threatening the business of GDS and TMC.

Even more, the concept of blockchain will eliminate all intermediates and will offer a direct connection between end customers and producers of goods and services – including direct money transfer without any need for banks. Maybe blockchain is still a long way down the road – but the idea that today’s IT capabilities, information availableness and customer attitude will simplify value chains offers multiple opportunities for disruptors.

UNEX offers digital business transformation.

UNEX has profound experience in aviation business model optimization. Our key focus is on customer experience and changes in market conditions.

  • We understand customer touchpoints from information gathering to customer feedback and identify opportunities for disruption.
  • In an innovation process alternatives to the current value chain are identified and evaluated.
  • Business plans are developed for most promising disruptive concepts.

UNEX has the know-how to raise the full potential in order to generate long term value and enhance our clients competitiveness.

2018-07-02T16:49:19+00:00By |Travel & Transport|