The air­line in­dus­try has al­ways dealt with dis­rup­tive forces and if the past is any in­di­ca­tion, more are on the way


Head­winds Aloft

The air­line in­dus­try faces a world of dis­rup­tive forces

When we hear about dis­rup­tion in avi­a­tion, we tend to think of lost lug­gage, flight de­lays or can­cel­la­tions. How­ever, dis­rup­tion can also have a wider mean­ing for the avi­a­tion in­dus­try and busi­ness in gen­eral. Dis­rup­tion dis­places es­tab­lished prac­tices and chal­lenges the sta­tus quo. As Uber did for taxis, Airbnb for hos­pi­tal­ity and Ama­zon for re­tail, new busi­ness mod­els also sub­ject the avi­a­tion in­dus­try to dis­rup­tion.

The dif­fer­ence is, un­like Uber, Airbnb and Ama­zon – whose rise came with the evo­lu­tion of the In­ter­net and dig­i­tal tech­nol­ogy – dis­rup­tion for air­lines has been hap­pen­ing for longer and for many rea­sons. The ef­fects for trav­el­ers have been both pos­i­tive and neg­a­tive. But to un­der­stand where things are head­ing, it’s nec­es­sary to re­mind our­selves how we got to where we are to­day, and why air­lines of­ten seem un­pre­pared.


Gen­er­ally speak­ing, air­lines aren’t fond of change – yet if the events of this cen­tury are any in­di­ca­tion, change in avi­a­tion is in­evitable. In its Fu­ture of Air­line In­dus­try 2035 re­port, the In­ter­na­tional Air Trans­port As­so­ci­a­tion

points out that, “As ar­guably the most global of in­dus­tries, the ex­ter­nal­i­ties in­ter­na­tional air trans­port faces are nu­mer­ous. The winds of change buf­fet­ing the in­dus­try can come from many di­rec­tions.”

Take the enor­mous cost of cap­i­tal in­vest­ment, add com­plex lev­els of reg­u­la­tion and the om­nipresent in­flu­ence of states and geopol­i­tics and this “buf­fet­ing” can be­come se­vere tur­bu­lence.

Reg­u­la­tion is of­ten thought to sti­fle in­no­va­tion, but that doesn’t al­ways hold true. States have tra­di­tion­ally con­trolled air travel in the form of bi­lat­eral air ser­vices agree­ments (ASAs), which reg­u­late the num­ber of flights and air­lines per­mit­ted to op­er­ate be­tween coun­tries. An in­ter­na­tional air­line can only op­er­ate ser­vices where these ASAs al­low it to.

Tra­di­tion­ally, ASAs were re­stric­tive and pro­tec­tion­ist, hark­ing back to the “glory days” when state-owned air­lines dom­i­nated the in­dus­try. With global trade in­creas­ing, the loos­en­ing of these ASAs – as part of what the in­dus­try calls “lib­er­al­iza­tion” – has al­lowed in­creased com­pe­ti­tion, with free mar­ket ac­cess lead­ing to a greater move­ment of pas­sen­gers and cargo.

That was cer­tainly the case in 2016, when the UK and China agreed to ex­pand the num­ber of flights per­mit­ted be­tween the two coun­tries from 40 per week for each na­tion up to 100 (which sub­se­quently rose to 150 in

Lib­er­al­iza­tion has been dis­rupt­ing the air­line in­dus­try for the last 30 years.

2017). Re­stric­tions on the num­ber of des­ti­na­tions that the air­lines could serve were also lifted – mean­ing that flights could now op­er­ate from any city in the UK to any city in China. Pre­vi­ously, air­lines could only fly to six des­ti­na­tions in each coun­try.

As a re­sult, air­lines such as China South­ern, Hainan Air­lines and Tian­jin Air­lines have com­menced di­rect ser­vices from their re­gional Chi­nese hubs to the UK, a de­vel­op­ment which would have been un­think­able ten years ago when ser­vices were largely lim­ited to the state flag car­ri­ers such as Air China and Bri­tish Air­ways op­er­at­ing be­tween the main hubs of Bei­jing, Shang­hai and Lon­don.

Still, this change hasn’t been good for ev­ery­one. The ris­ing pres­ence of Chi­nese car­ri­ers has been a headache for Bri­tish Air­ways. It was forced to stop ser­vices to Chengdu in 2016 due in part to this sig­nif­i­cant rise in com­pe­ti­tion from Chi­nese car­ri­ers fly­ing sim­i­lar routes.


Lib­er­al­iza­tion as a form of dereg­u­la­tion has been dis­rupt­ing the air­line in­dus­try for the last 30 years by break­ing mo­nop­o­lies, in­creas­ing com­pe­ti­tion and set­ting the stage for the air­line in­dus­try of to­day.

The United States started the trend with the 1978 dereg­u­la­tion of its do­mes­tic air­lines. Then in the early

1990s, the US forged bi­lat­eral open-skies agree­ments al­low­ing global car­ri­ers to op­er­ate any route be­tween coun­tries with­out sig­nif­i­cant re­stric­tions on ca­pac­ity, fre­quency or price.

The same hap­pened in Europe with the cre­ation of the sin­gle EU avi­a­tion mar­ket in the 1990s, which put an end to the sys­tem of in­di­vid­ual ASAs be­tween EU mem­ber states – the ef­fect be­ing that Euro­pean air­lines could op­er­ate freely within the EU (although Brexit may change that).

In 1992, the EU signed its first open-skies agree­ment with the United States, which is one rea­son why there are more flights per day be­tween Lon­don and New York City than there are be­tween Lon­don and Dublin, and sim­i­lar open-skies agree­ments ex­ist in many other mar­kets.


Moves to lib­er­al­ize and dereg­u­late have cre­ated con­di­tions for the great­est dis­rup­tion in avi­a­tion of the last 40 years – the rise of the low-cost car­rier, start­ing with South­west Air­lines, fol­lowed by Ryanair and Easy­jet in Europe.

When they cre­ated the com­pany strat­egy, the team be­hind South­west avoided copy­ing what other air­lines were do­ing. In­stead, they adopted a bus com­pany model, pro­vid­ing lower ser­vice stan­dards com­pared to the other air­lines. South­west flew to smaller re­gional air­ports, help­ing to lower op­er­at­ing costs to al­most half that of US legacy car­ri­ers. The dis­rup­tive re­sult was much lower fares than the legacy in­cum­bents, and the cre­ation of a whole new mar­ket of trav­el­ers who pre­vi­ously wouldn’t have con­sid­ered go­ing by air.

The South­west model quickly came to Europe with the rise of Ryanair and Easy­jet, with both air­lines us­ing a sim­i­lar strat­egy fo­cused on fly­ing out of re­gional air­ports that es­tab­lished car­ri­ers such as Bri­tish Air­ways, Lufthansa and Air France would never have touched. How things change – last year South­west was the third-largest car­rier in the US by pas­sen­ger en­plane­ments. Ryanair is now the sec­ond largest air­line in Europe, nar­rowly beaten by the Lufthansa Group. The lib­er­al­ized EU open-skies pol­icy has al­lowed Ryanair, Easy­jet and more re­cent ad­di­tions such as Wizz Air and Nor­we­gian to op­er­ate freely out of sev­eral hubs in dif­fer­ent coun­tries within Europe, in­clud­ing to the US, Asia and be­yond.


Lib­er­al­iza­tion has also fu­eled the dis­rup­tive ef­fect of the Gulf car­ri­ers on the full-ser­vice air­line mar­ket glob­ally. Tak­ing ad­van­tage of lo­ca­tion and the open-skies agree­ment with the US dat­ing back to 2002, the “ME3” of Emi­rates, Eti­had and Qatar Air­ways have risen to be­come mar­ket lead­ers in both prod­uct and tech­nol­ogy.

Con­cerns raised by cer­tain US car­ri­ers over sub­si­dies seem to have waned since the US re­cently reaf­firmed its open-skies agree­ment with the UAE (and the na­tion of Qatar) in re­turn for greater trans­parency and a prom­ise that Emi­rates would drop plans to launch fur­ther di­rect flights be­tween the US and des­ti­na­tions other than via the UAE.

Dis­rup­tion fu­els change and en­cour­ages com­pe­ti­tion, re­sult­ing in lower prices and an ex­pan­sion of brands.

In any case, Qatar Air­ways and Eti­had have had enough on their plate, with the former still re­stricted where it can fly within the Gulf, and Eti­had an­nounc­ing two years of losses fol­low­ing the fail­ure of its am­bi­tious Air Ber­lin and Al­i­talia ex­per­i­ments. Some­times, dis­rup­tion and change doesn’t pay.


Dis­rup­tion fu­els change and en­cour­ages com­pe­ti­tion, re­sult­ing in lower prices and a sig­nif­i­cant ex­pan­sion in the types of fare prod­ucts avail­able. It has also re­sulted in an ex­pan­sion of brands. In 2017 BA and Ibe­ria’s par­ent com­pany, IAG, launched Level – a low-cost brand tar­get­ing the cost-con­scious leisure mar­ket.

In 2018 Air France fol­lowed suit with Joon, which fo­cuses on lower-yield­ing des­ti­na­tions such as South Africa. Lufthansa has done the same with Eurow­ings out of its Mu­nich hub to leisure des­ti­na­tions such as Bangkok, while op­er­at­ing the main­stream Lufthansa ser­vices out of Frank­furt.

In Aus­trala­sia, the pat­tern is sim­i­lar. Scoot, and pre­vi­ously Tig­erair, has al­lowed the Sin­ga­pore Air­lines Group to com­pete on cost and prod­uct with Malaysia’s mega LCC AirAsia, also fly­ing long haul to des­ti­na­tions such as Athens. Jet­star has done the same for Qan­tas, be­ing used as that air­line’s growth ve­hi­cle for ex­pan­sion into Asia. Tig­erair sub­se­quently merged with Scoot in 2017, but the brand lives on un­der Vir­gin Aus­tralia as that air­line’s com­peti­tor to Jet­star.


All this comes at a time when air­line-re­lated tech­nol­ogy is also sub­ject to enor­mous change. Tech­nol­ogy is im­por­tant for most fre­quent trav­el­ers. IATA’s 2017 Global Pas­sen­ger Sur­vey found that pas­sen­gers ex­pect tech­nol­ogy to give them more “per­sonal con­trol over their ex­pe­ri­ence.” The re­search sim­ply ex­plains why tra­di­tional check-in desks are al­most retro in 2018, with smart­phone check-in fol­lowed by au­to­mated board­ing of­ten re­plac­ing hu­man con­tact.

Con­sider this: Just when the likes of Ex­pe­dia and Skyscan­ner felt they had con­sol­i­dated their po­si­tions, in 2011 along came Google Flights – which al­lows users to track prices, check al­ter­na­tive dates and flight op­tions at al­ter­na­tive air­ports. All the while, Google can col­lect (and re­act to) data al­ready avail­able from the trav­eler’s use of the search en­gine, some­thing most other sites (in­clud­ing the air­line’s own) can’t do, giv­ing Google an ad­van­tage.

Tech­nol­ogy also presents a chal­lenge to travel man­age­ment com­pa­nies, who are be­ing forced to present their cor­po­rate cus­tomers with so­lu­tions that pro­vide a “con­sumer­ized” level of im­me­di­acy and flex­i­bil­ity through­out the travel man­age­ment process. And IATA’s New Distribution Ca­pa­bil­i­ties stan­dard is giv­ing ev­ery­one in the avi­a­tion value chain the op­por­tu­nity to re­think what it looks like to shop for and buy air travel.


Con­sumers have seen the im­pact of dis­rup­tion in avi­a­tion more than in many other in­dus­tries. The va­ri­ety of op­tions avail­able to­day would have been ut­terly un­think­able only a few years ago. Through it all, air­lines face the chal­lenge of find­ing sus­tain­able busi­ness mod­els that at­tract travel con­sumers, but are also prof­itable.

We all want the best ser­vice and safety for the low­est price, yet we fre­quently com­plain about what we re­ceive. These com­plaints tend to be most of­ten di­rected at the air­line, but the over­all in­dus­try may also be to blame; and be­hind that, gov­ern­ments; and per­haps, ul­ti­mately, our­selves.

Dis­rup­tion is in­evitable, but in the end it is partly driven by what we, the con­sumers, de­mand.

Pas­sen­gers ex­pect tech­nol­ogy to give them more “per­sonal con­trol over their ex­pe­ri­ence.”

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