What ails the airline industry?

I am always fascinated and surprised by the fact that the most of the airlines in the world are operating under losses. This baffles me due to the following facts:

  1. There number of people flying is increasing by the day.
  2. The cost of new entrants is very high à Existing players have an opportunity to charge a healthy margin.
One reason that many argue is that the input cost (cost of aircraft, fuel, airport usage charges, maintenance of the aircraft, salaries, etc) is spiraling upwards and the fare is dropping due to intense competition.

Though the above argument is true, I believe that there is a much more fundamental issue in the way the airlines operate which does not allow them to grow their margins. Most of the airlines operate on principles that are outdated for the current economic environment.

For example:

  1. The booking system that the airlines use has been in use since a very long time. From the time when the travel agents were the influencers and they dictated how the system has to behave so that it is easier for them to book tickets. Now, the only thing that has changed is the fact that due to internet and technological advances, it has become easier to access the same old system. What stops an airline to take their sales away from the Sabre reservation system?
  2. All airlines operate on an optimization model. They need to optimize their usage of the airport facilities; optimize the seat utilization; optimize the maintenance cost & spares. This concept of optimization does not seem to work for reasons I do not know yet. However, this does not work is very clear from the fact that most of these airlines are running under losses.
  3. There is almost no differentiation between different airlines and their customer facing staff. The uniform changes, there is slight change in the comfort of the seats or maybe the food that they offer on-board. We know that where there is little or no differentiation in the levels of services provided, price becomes the only competitive advantage. So, all these organizations are so focused on reducing their costs that they are almost blinded by this obsession.
What could they do differently? I think there are multiple ways an airline company can re-position themselves. Some of them as below:

  1. An airline can position itself as the 5 star airlines. Every single interaction with the customer has to be absolutely impeccable. Every single employee must be completely focused on providing insanely great experience. Anything short of insanely great should not be tolerated. Some wild things that they could do to differentiate themselves could be
    1. The experience needs to start from the booking. Minute details of the customer needs to be taken into account. His preference of meal (customize the menu for the customer), remember his choice of seats, etc.
    2. Call and check what time he will reach the airport. Arrange for a chauffeur to escort him to the check-in counter. Express check-ins and baggage drops.
    3. Once the security check is completed, provide them a waiting lounge which is no less than a lobby of a 5 star hotel.
    4. Board the customers by announcing their names (This can takeup some additional time, but can be a great experience for the customers (touch their ego).
    5. Have a live performance in the air (could be singing, stand-up or rather sit-down comedy). Be creative to entertain the guests.
    6. Ensure that there is enough leg-room, seats are highly comfortable. Food and drinks as per their choice.
  2. An airline can position itself as the preferred choice for business traveler
    1. Ensure that the booking of the ticket is fast & smooth.
    2. Preferred mode for check-in could be self check-in. Increase the limitation of cabin baggage so that they do not have to check their baggage in the flight.
    3. Provide in-flight internet & communication capabilities.
    4. Have enough space in the flight so that people can comfortable work on their laptops/handhelds.
    5. Provide business newspaper, magazines, some novels, etc.
    6. Have a tea/coffee vending machine installed in the aircraft. Provide (explore how you can) self-service option to the customers.
    7. Simple options for meal (single course).
    8. Provide some (5%) sleeper seats which the customers can use only by redeeming their miles.
    9. Have a highly rewarding Frequent flier program.
  3. An airline can position itself as the carrier for the common man (aka, low cost airlines)
    1. Fares need to be the lowest in all categories, always. Be fanatical about this. If this means re-creating how bookings, cancellations and payments are processed. Completely automated.
    2. Only option for check-in is through self – check-in kiosks. No hand baggage allowed. All baggage to be checked-in at the kiosks.
    3. Functional seats.
    4. Single options, single course meal.
    5. Only 1 or 2 air-hostess in the airplane. Partner with a coffee chain like Café Coffee Day or Barrista to provide a In-flight coffee shop.
    6. Leverage technology to the maximum. Minimal human intervention.
    7. Single fleet of aircrafts to save costs on maintenance.
    8. Identify other stream of income possibilities within the fly time.
    9. Provide pay-per-watch movie options.
    10. Introduce advertisements everywhere possible to re-coup some costs.
These are just some random thoughts from a customer’s perspective. I am sure if airlines identify good people within their organization to brainstorm, they will come up with a lot more creative solutions.

The summary is this:

     The airlines that will differentiate themselves from the pack will command better margins and will be able to continually grow and stay profitable. 

One Reply to “What ails the airline industry?”

  1. Just read today that Air Asia has recently announced that they will charge a fee to all customers who continue to use the regular check-in via an agent. This is to help increase the usage of their self-check-in model… Helps them reduce cost. Way to go…

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