Let me start with an illustration of the as is situation by pointing out some of my recent travel experiences. During the flight I had to use internet as I still needed to send an urgent email. When I asked the flight attendant why internet was not working she shrugged her shoulders and said she did not know.
At arrival in San Francisco the queues for passport control were so long that people could not get off the running walkways. I had to continue my trip to Asia before going back home. I tried several times to book a ticket directly with a large Asian carrier, but I could not complete the process as the payment options did not foresee any European credit cards.
I was forced to book with an online agency instead, and their booking process did not allow me to book a seat. Lost seat revenue and higher ticket cost because of agency commission are what this meant for the airline. For me it meant a lot of wasted time and frustration. On the last part of my flight back to Switzerland, a woman from Chicago sitting next to me was crying as she had lost her previous connection and had been running so hard to get on this flight—as missing it would have meant an overnight—that she had left her laptop bag in the aircraft.
The airline crew at the gate was very unfriendly with her, and she felt completely helpless.
It took her several phone calls and being stuck in waiting lines to contact centres to get there. Where do these visible problems come from in an industry which in its early days had so much pride in customer service and innovation? The aviation market has always been quite volatile. Even going back to regulated environments airlines have gone from a wave of positive results to huge losses. They have been extremely exposed to external factors, from new legal restrictions to fuel price change and politic and economic impact on demand for air travel.
Airports as being even more capital intensive have seen their performance as a consequence of airline decisions. The rise of the low cost carriers was not taken seriously initially by the full service traditional network carriers before they reached significant market share and started to enter the lucrative long haul sector as well.
For the aviation industry dependence on external factors such as fuel, labour cost, the political environment and economic growth factors has always been extremely high. These events led airlines to rethink their aircraft ownership or lease strategies as well as increased focus on their cost structures.
Ryanair as a game changer for the European and global airline market had turned to the low cost model when facing huge losses and realising that they could only survive with drastic change. They questioned everything they did, aligned processes and product proposition and seized the opportunities which the broad availability of internet provided in terms of efficiency and customer reach without the necessity of large investments into sales infrastructure. The subsequent global growth of low cost carriers can be attributed to extreme cost focus and subsequent large price differentials to traditional carriers, frequency of service, flexibility to abandon routes if they do not perform, the rise in economic activity and increased internet penetration and e-literacy, increase in purchasing power of middle class households particularly in developing regions, ease of travel, urbanisation and changes in lifestyle and consumer preferences with the widespread availability of the smart phone and the control that the internet rendered to consumers.
While many attempts at long haul low cost operations had failed, there has been some radical change in recent years, with Norwegian Airlines being one of the key drivers, attacking the main profit makers of the traditional network carriers.
The latter had already started in the s to found their own low cost carrier. Yet as they did not let them develop completely independently they often failed and incurred extremely high losses as their cost structures and behaviour was too much aligned with what the airline group did. Emirates is moving to an alignment of network and customer proposition such as their frequent flyer program with their low cost subsidiary flydubai after they had originally been independent. In recent years, traditional airlines started to unbundle their service offering and followed what low cost carriers had been doing as part of their strategy: they added price tags for luggage, early boarding, hold fees and more.
The interesting thing is that this happened in a period when the low cost carriers reached more maturity and started to enhance their customer proposition and to target business travellers with tailored services. This leads to the somehow paradox situation that network carriers still claim to offer more service, yet factually customers can choose their way of flying for much lower fares and not rarely better service with low cost carriers. In some regions such as the US the intensive consolidation has also helped to increase average fares and thus total revenue.
- Aviation/Aerospace Industry Research & Market Reports.
- help with thesis theme.
- Aviation/Aerospace Market Research Reports & Industry Analysis;
- Bachelor of Aviation Management / Bachelor of Business.
- writing proposal for research papers.
This result is driven to a large extent by North American airlines, followed by Asia- Pacific and European ones. According to IATA [ 2 ], airfares keep going down. An analysis of the Forbes Global list [ 3 ] gives some interesting insights in terms of financial perspective, particularly market capitalisation.
On the inaugural list in , there were just 43 companies from the Greater Chinese Area. Meanwhile, Japan, the United Kingdom and South Korea also broke into the top five countries with the most companies. In comparison to C-trip which also owns Skyscanner and Expedia, most airlines market capitalisation is in the best case close or much lower.
In comparison to tech companies the gap is simply enormous. This is illustrated clearly in Figure 1. In fact, decades ago airlines had been very innovative and developed their own IT to be able to handle reservations and the underlying operational requirements. Many more airlines globally had developed their own IT systems in the s and s predominantly.
For the complete picture it should be mentioned that the big traditional airline solutions providers Amadeus, Sabre and Travelsky have also a vested interest in the travel agency market by providing the Global Distribution System GDS. They incentivise travel agencies to use their systems while they charge airlines for those distribution services [ 5 ].
Australian Aviation Industry Overview - Tourism Investment
Given low profit margins and focus on operational issues and safety first, airlines in most cases simply have not had the money to invest in state of the art technology. But it is also—if not even more—the lack of priority of technology for top management. Most aviation leadership teams have been set up with more traditional management, where digital and also customer centricity had been underestimated and misrepresented. It takes a long time to change this mindset even when bringing in additional individual talent to adjust.
Top management had not realised the importance of digital. Ecommerce was evolving in a separate department with some specialists but had not really become part of the overall strategy until recently. The mindset of the workforce is significantly influenced by this process thinking approach, traditional leadership and the complexity and barriers of the current systems landscape.
Airline and airport staff often do not know why they do things. They just do it because it has always been done that way. And because their environment does not encourage questions. This leads to a number of pain points which get completely absurd in the current environment. Let me just give a few obvious questions as examples: Why do I need to check in? If I buy a cinema ticket or goods in the store, I pay and I get what I paid for without further validation.
Price levels for flights are restricted by numbers of letters of the alphabet instead of true commercial requirements. Why can I not dynamically adjust change fees, e. Why can I not book luggage for me just for the return flight, a meal for my husband and priority boarding and a seat free next to her for my Mum. I paid much for my seat, yet short term aircraft changes might mean I cannot get the seat anymore which I had reserved. Why are the additional services I had bought seat, luggage, car not changed as well when I make flight changes.
Why can codeshare partners offer lower fares on the operating carrier flights than the operating carrier itself. Why do airlines need codeshares when I could connect directly with the other airlines, which is also more transparent for customers. Why do I not just get the possibility to use the next available low cost flight if a network carrier cancels a flight ad hoc.
Why are there still cabins in the plane: one customer might look after the best seat to sleep, the other might want a good meal, etc. Why do I need to wait at the luggage carousel and the queue at the lost luggage desk when it is already known that my luggage was left at the departure location. Why are data all over the place and not easily accessible nor comparable, making it very difficult for airline staff to really help to solve issues but results in fragmented processes. Why do revenue management systems still focus mainly on historic data and do not include real time information.
Why is it so costly and takes so long to make system changes, often inhibiting both certain commercial activities as well as realisation of service improvements and innovations. This list of pain points is just an extract. The pain points cover all parts of the customer journey, from trip planning to booking, experiencing and sharing.
They are a result of continuing with processes and systems which had been created for a different environment, where internet did not exist and in which the technological possibilities were more limited. The traditional systems landscape is extremely fragmented and complex, and many of the new elements such as the online channel, optional services for sale, mobile, self service for customers and staff, reporting, customer notifications had to be added on top of it as workarounds Figure 3. And the traditional processes around this are still to a great degree manual and broken, and based on specialist silos instead of a holistic approach.
They were focused on transactions and had not put the customer in the centre nor did they target a seamless experience or have foreseen the commercial and competitive pressures that we encounter today [ 6 ]. There were a number of computer failures and outages in recent years and months, from Delta, Southwest Airlines, United to British Airways [ 7 ]. Part of the underlying reason are complexity both of systems and processes, with a large degree of legacy technology, and subsequent problems to find the error.
The impact is even higher as manual or alternative processes are often not in case, leading to huge disruption for customers and the airline as a result.
Trusted by More Than 10,000 Clients Around the World
The underlying principles and processes had been standardised via IATA initiatives, in order to make cooperation between airlines and airports and travel globally easier. IATA in recent years took a number of initiatives to adjust them to better fit with the current age. Yet it is difficult to turn around a tanker, and these are small steps in comparison to what we would expect as normal in the current digital environment. This is almost exactly the total market capitalisation of Amadeus IT Systems alone.
Aviation of the Future: What Needs to Change to Get Aviation Fit for the Twenty-First Century
According to reference [ 8 ], top of the agenda for both airports and airlines are cyber security, cloud services and passenger self-service. For , it is expected that at least the same levels are being maintained, if not increased. These investment figures do not seem huge given the digital agenda but rather look like maintaining status quo.
While new technology makes it possible to take a smarter approach with much less money than aviation is used to, it first requires the investment in the change. Hidden in the average figures there are airlines such as Delta and Ryanair, which are investing heavily, while a large part just work on maintaining status quo and do the most urgent adjustments.