The past years have been 'as good as it gets' for the aviation industry: continuous growth in passenger demand, the relative health of airlines, availability of funds and new investments into the sector. It is tempting to question whether the cyclical nature of the aviation industry has been eradicated or, at the very least, redefined.
We took a closer look at the past 8 years, which marks a full cycle, and tried to pinpoint the main changes that took place since the last financial crisis. The Airline industry has always been at the forefront of technological experimentation, and with an ever increasing number of airlines moving towards Dynamic Pricing this seems to be once again the case.
Among our key findings:
- Customers in 2018 are paying way less per trip in comparison to 2010 and fuel expenses increase by 19.6% over the same period yet airlines are still profitable.
- Already in 2017, 92% of the times the experience of travelers would start online by booking flight ticket without the help of a travel agent.
- The proliferation of online channels pushed airlines to rely ever-increasingly on airfare analytics to benchmark competition and offer better deals to their customers.
Download the infographic to find out how airlines stay profitable and which factors will define the upcoming business cycle.
Enter your email to get the airline infographic:
How did airlines increase their profitability during this business cycle?
The past years have been 'as good as it gets' for the aviation industry: continuous growth in passenger demand, the relative health of airlines, availability of funds and new investments into the sector. It is tempting to question whether the cyclical nature of the aviation industry has been eradicated or, at the very least, redefined. While this question remains, it is nevertheless important to focus on the 'must-know' as we are entering the down-cycle.
First of all, let’s address the elephant in the room: what goes up, will eventually come down. It might not be an absolute truth in all cases. Still, it would be naive to ignore the cyclical nature of the airline business. Each Airline business cycle lasts roughly 8-9 years. The last down-cycle was as remarkable as the financial crisis in 2008 (2000-2009). Fast forward, 2018 marks the 8th /9th year of the current cycle. The ending of the Airline business cycle might coincide with end of businesses, mergers or some significant restructuring. However, it could also mark new beginnings and fantastic opportunities.
As Khanh T. Tran, the CEO of Aviation Capital Group (ACG), stated in The Aviation Industry Leaders Report 2018, current triple-C threat (capacity, cost and competition) will morph into a triple-A opportunity (attractive asset acquisition) for those who have equity, expertise and experience through a down-cycle.
Top industry players, who have been around for multiple cycles have a sharp eye for the opportunities even when the market looks less appealing. As counterintuitive as it may sound, this might just be the perfect time to 'go shopping' for those having the right mix of equity and expertise.
As Churchill said: ‘Those who fail to learn from history are doomed to repeat it’. We decided to take the man’s advice and looked back to identify what changed the most in the aviation industry during the current cycle (2010-2018).
As the online landscape reached its maturity, airline customers usage of travel agents for flight booking decreased by more than 500% from 2008-2017, going from 51% to a mere 8% during the decade. It is a significant change in history bringing customer even closer to an airline business. Already in 2010, 40% of both business and leisure travelers were turning directly to the airlines' websites to research their trips. Fast forward, in 2018, airline customers produce a massive amount of data which combined with the third party, social or frequent flyer programs data allows airlines to enhance customer experience significantly.
During the past eight years many things have changed, and it is easy to pinpoint some of the most remarkable: the advancement of airline-customer relationship and the skyrocketing of online booking. The rise of the digital market place and the proliferation of online channels pushed airlines to rely ever-increasingly on airfare analytics to benchmark competition and offer better deals to their customers.
What's more, airlines have become more and more customer-centric. Satisfied customers repeat purchase and recommend your services to others. The price of the ticket is one of the most critical factors for airline customers. To make a successful forecast airline needs to identify “happy airline-happy customer” moments which worked in the past to replicate or perhaps fine-tune them going forward.
- At which point did your customers determine the most significant increase in your revenue?
- What ticket price was offered by your competitor at that exact moment?
- Which pricing approach did work at the end of the last cycle?
Successful forecasting starts by looking back to find answers to these questions. Because of the massive amount of people migrating online to book flight tickets, the current cycle produced an insurmountable amounts of airfare information. During the past year, we observed several top industry players doubling the number of airfares analysed (with an average Y-o-Y increase of 50%). Moreover, over the past 15+ years, our Historical Airfare Database has been growing steadily to reach the record number of 1 trillion historical airfares. Still growth never stops, and we keep adding to our historical airfares 2,000,000,000 airfares each day.
Considering the pace of tech developments and the growing relevance for Pricing Intelligence and Dynamic Pricing Strategies airfare-based Market Pricing Insight will no more be a ‘nice to have’, but rather a necessity. It’s safe to say that the paradigm shift observed between 2010 and 2018 not only allowed airlines to remain profitable business beside all the odds but will result in Pricing driving airlines success during the next business cycle.
Enter your email to get the airline infographic: