There are some people who argue that the term Low Cost Carriers (LCCs) is a misnomer, and that the term Low Fare Carriers (LFCs) would be more appropriate. The term ‘Low Cost’ is relativistic – any airline which has chosen a given product scope strives to do so in the lowest cost possible. Not doing so would spell suicide. At the other end of the equation, every airline also aims to maximise its revenue potential and realise sustainable profit. This is why we have witnessed a blurring of airline business models in the past years. LFCs have increasingly offered traditionally FSC product attributes, and vice versa.
However, the way the industry has gone about looking at its way of doing business has been rather mechanical.
If we take a holistic view at any airline, we could think of it being a pipe, a one way channel through which we add value to ‘raw materials’ to produce a finished service. Generally speaking, an airline’s executive management establishes its vision and business strategy (where the pipe should lead), forecast the market, plan accordingly, market the service, and then wait. They wait for a potential customer to make his assessment – “Is this service of value to me for this fare? Do its attributes maximise the use of my resources (monetary and non-monetary)? Do I trust the airline to deliver?” If yes, the customer makes the purchase and the airline has to work to meet his expectations. If not, he might choose a competitor, or choose not to fly at all.
This has led us all within the industry to think in a set way. Whether it’s a student starting a new aviation course, an employee starting out in his first day of work or a seasoned executive running the business, the rigid and inflexible structure of the industry makes it difficult to think laterally, to think about how airlines can be sustainable in new and exciting ways.
In the meantime, though the airline industry is not an island. It operates within a greater business environment. The world of smartphones and sharing, of digital clouds, endless amounts of data, and ‘snap your finger’ wants and needs. The evolution of the digital world has not only changed people’s habits, lifestyles and travel needs, but also enabled the rise of new kinds of businesses which are not pipelines, but rather use the Internet as a framework to facilitate matches between the producers producing the asset, and the customers using it. Amazon, Google, Apple, Airbnb, Uber are all brilliant examples.
“What does this have to do with airlines?”, you might be asking – someone still has to fly planes, correct? Yes, but remember that airlines’ customers are not isolated from the world around them. Google’s customers use airlines to fly around, and given the number of times they interact with Google every day, their psychology has been shaped to expect certain product attributes. From Google’s end, it can learn more and more about that same customer with every interaction, making it more intelligent with time.
The airline industry is therefore far from immune from the digital business world. If airline execs do not think ahead (and we are talking years, not decades) about where the industry is heading, they might find themselves engulfed – not by their direct competitors, but by much bigger fish. For example, could Google’s foray into the travel world through its purchase of ITA be the start of something bigger? Could it possibly own and operate its own carrier in the future? If yes, where would that leave airlines?
Difficult questions – but to better prepare for that possible scenario we need to change that set way in which we think about airlines in our everyday working lives. We think of our airlines as having to be operationally effective, generate revenue and gain market share. But that thinking is arguably becoming obsolete. For the strategists out there, how about we think about a 6th force to add to Porter’s five forces – collaboration. How can the airline collaborate with entities across its offered travel experience to co-create higher orders of value? Can an airline successfully manage the flow of data to offer a seamless travel experience through its own platform business model? Can it collaborate with potential partners to achieve collective economies of scale, scope and density?
I think it can. We just need to start thinking beyond that airline seat.