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Aviation

Rapidly changing aviation markets, the rise of digitally empowered consumers, and ongoing industry consolidation are some of the important trends that are forcing carriers to reposition themselves for the future.

In aviation, disciplined cost reduction is a necessity now more than ever. International players must capitalize on opportunities in Asia, address the new dynamics of globalization, and establish lasting relationships with digitally connected travelers. The disruptive changes in the broader airline landscape make brand experiences that much more important, and airlines must constantly work to win the hearts and minds of their consumers.

Getting Airlines on Board with Digital Disruption

BCG’s Pranay Jhunjhunwala urges airlines to use mobile technology to foster customer relationships and catch up to other players in the travel market.

Four Ways to Soar Above Market Consolidation

Most network and low-cost carriers will need to adapt to survive and thrive in an increasingly consolidated marketplace. In such an environment, it’s crucial for carriers to understand their strengths and leverage them appropriately. Four best practices are essential:

  1. Be the predator instead of the prey. Manage the balance sheet closely and retain access to capital.
  2. Move beyond the current definition of an alliance. Understand that alliances as they exist today may not exist tomorrow, so formalize the relationships that are strategically important.
  3. “War game” detailed scenarios where you respond to competitors’ probable actions.
  4. Think carefully about where you will find synergies and scale economies. Be aware that operational complexity can produce negative synergies.

Reshaping the International Aviation Market

Growing competition for long-haul traffic, along with increased industry capacity, will likely undercut the profitability of Europe’s full-service airlines. Many European airlines will pursue strategic alternatives, ranging from go-it-alone growth to collaboration to full mergers.

Yet the market climate varies across the globe. Carriers in China, already among the fastest growing airlines, are reshaping the Europe-to-Asia and US-to-Asia routes. In the Middle East, some megacarriers have tripled capacity in just five years, while other regional players are pursuing ambitious growth plans.

International aviation players might consider the following strategies:

  • Continue to reduce costs. Keep costs under control by studying the model of long-haul low cost airlines like Norwegian Air, JetStar, Air Asia X, etc; and considering opportunities like overseas crew bases and other operating philosophies. Europe’s airlines need to come to grips with issues of scale, costs, and operating flexibility in an environment that increasingly demands efficiency and agility.
  • Build your brand portfolio. Trusted brands are important to all consumers, but in particular to Chinese and Middle Eastern consumers who associate Western brands with high quality. Because the travel market is still emerging and evolving, there is little brand loyalty yet. And directly competing with low cost players may require a separate brand to compete head-to-head for profitable customers and traffic routes. Therefore, airlines have many opportunities to rethink and strengthen their brand portfolios.
  • Meet the needs of local consumers. Research shows that Chinese and Middle Eastern travelers uniquely value flexibility to change flights, baggage delivery to hotels, a higher weight allowance for checked bags, lounge access, and priority security and passport control. In Europe, airlines need to expand their consumer lens to accommodate the needs of railway and automobile travelers—a large group of potential consumers that would significantly increase their market share.
  • Explore new partnerships. To remain competitive, legacy endpoint and hub carriers should explore partnership options that will extend their offerings globally. Competition for the strongest European partners will be intense. Large airlines that wait too long to move may find that few good partners remain or that the price has risen past the point where a deal makes economic sense. To access Chinese and Middle Eastern traffic flows and achieve economies of scale, international airlines should seek opportunities to partner with important carriers—for instance, by trading brand, product, and commercial expertise for a share of the growing travel market.
Transportation, Travel & Tourism
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