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In the course of these series, we took a look at the issues faced by the aviation industry in Asia and how the likes of Singapore Airlines and Cathay Pacific are attempting to restructure their processes to adapt to the trying times. We also covered the ME3 (Emirates, Etihad and Qatar) and listed the reasons why they have kept ahead of the pack, both in terms of financials as well as profits during this period. In our round up on the series, we now take a look at the future of aviation, how we think the budget airline model will shape the industry over the near future as well as how luxury travel will pivot to meet the needs of a growing list of high net-worth individuals. We will also touch on the middle ground (the full-fee carriers) that are the bread and butter that is Economy Class.
The No Frills Option
There is no denying that one of the main considerations among those who fly is the price of a ticket – this has been the obvious attraction behind the exponential growing demand for budget travel during the last decade or so. That being said, with the increased demand has also come a considerable amount of competition with major carriers springing off their own subsidiary budget airlines to have their share of the pie.
The increased competition mentioned above can only mean one thing moving forward and it will be almost all good news for travellers. Touted as catering to a target audience that is the least brand loyal, these airlines will have to keep their thin profit margins as skinny as ever moving forward. A 2016 PWC Survey found that 88% of airline CEOs rated an increase in the number of direct and indirect competitors as likely to be a significant disruptive threat over the following five years.
The likes of budget carriers such as Air Asia have increased their foothold on the industry with airlines such as Scoot also providing long haul flights at a fraction of the cost of their full fare counterparts. As time goes on, passengers will have more and more options in terms of choosing between budget and large carriers, as both will cater to the same routes.
The Demand for Luxury
With the number of high net-worth individuals steadily growing over the last decade, the next ten years should see airlines compete fiercely for their clientele in this highly lucrative area. As mentioned in a previous article in this series, the ME3 have led the pack in recent years in terms of setting a benchmark for all others to emulate.
The competition in this subset is mounting fast and the future of luxury travel will mirror more of the desired opulent amenities found on the ground that the wealthy are used to. Think gym facilities and larger lounge areas. One of the prominent changes that the industry is already moving towards is to provide the right balance between elements of privacy coupled with curated end-to-end services. Cordoned off or designated areas (not unlike Etihad’s Apartment or Residences) will be more common among top-tier options. What is for certain is that First Class will have to keep up with Business Class and create differentiators to entice customers to make the jump – at the moment the gap is closing which is making the most premium tier less attractive.
The Economy Class (and to a lesser degree Premium Economy) of major carriers has seen better times in terms of profits, creating the dire need for airlines to pivot their business models considerably over the next several years. One of the ways in which carriers will change is in terms of their capacity. An example of this is seen in Lufthansa’s introduction of its Airbus A350 with a configuration of 48 business, 21 premium economy, and 224 economy seats – no First Class. The aircraft it will replace has 8 First Class seats and fewer economy seats. It makes perfect sense. Stay competitive with economy prices in the midst of fierce competition but pack more passengers into each flight to maintain profits. Cathay Pacific is another example of this, said to be increasing seats in the economy section of their 777s.
Airlines will also need to attract more customers by creating unique propositions that separate them from the competition – or at least keep up with them. This could come in the form of virtual reality that enhances the inflight entertainment experience or being able to operate these platforms with one’s mobile or tablet while in the air. It will be a lot about the attention to the finer details.
And there we have it, our series on the aviation industry all wrapped up. It will be interesting to see how airlines maintain their positions among the growing competition. What is certain is that we are entering the next Golden Age in air travel – especially for luxury travellers who will have many of the amenities they take for granted replicated in the sky. In terms of budget airfare, access will increase rapidly to meet the demand for growing middle classes across developing countries. Economy offerings will also have to keep up in terms of providing competitive frills at equally competitive prices.