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Airlines

Poised to build deeper relationships with consumers via mobile technology and social networks
By Stuart Green

High oil prices (again), natural disasters in Japan, political unrest in the Middle East and North Africa, price sensitivity, and low aircraft utilization in the U.S. and Europe. Against a backdrop of an estimated 78% decline in 2011 profits versus those in 2010, there appears to be a few bright spots for the airlines industry in 2012.

The Asia Pacific carriers are expected to be the most profitable, even though profits will have declined from a year ago. The region continues to experience a boom in aviation due to rapid economic expansion in China and India. It is estimated that, within 20 years, one-third of all air traffic will be from Asia Pacific. This sharp increase will stem from the sheer size of the emerging middle classes in this region. India, for example, experienced an increase from 11.7 million in 2003 to 51.6 million air passengers in 2010. In general, growth and development is taking place on all fronts across Asia, from legacy carriers to low cost carriers, and there is even media buzz about the emergence of “pure premium” carriers.

In the Middle East, Dubai has aggressive plans to host the largest airport in the world. Airlines in the United Arab Emirates have recently become the best clients for aerospace manufacturers – recently placing an $18 billion order for Boeing 777 aircrafts to expand its fleet.

Latin America is the only region to have generated a third consecutive year of profitability. The boost in traffic can be attributed to innovative business models, good growth and trade links within Latin America, the U.S. and Asia Pacific.

In the U.S., the airline industry is down 41% from last year as shares of 15 major airlines dropped by almost 10%. American Airlines was the worst hit, with shares plummeting in reaction to its recent filing for Chapter 11 bankruptcy. Factors contributing to the distressed industry within this region include a slowing economy, high fuel and ticketing prices, old and less fuel-efficient aircraft, as well as low demand for travel to and from the lucrative Japanese market.

The sovereign debt crisis, increased taxes on passengers, and a price-sensitive market made for a challenging 2011 for the European airline industry. It is expected that profits will be just $500 million, down from $1.9 billion in 2010, with most of the year’s profit coming from more resilient long-haul markets.

Continuing trends
Rising fuel prices remain one of the major challenges facing the industry. Globally, airlines are struggling to cope, and are generally unable to pass these costs onto the consumer, especially in price-sensitive markets. Fuel now accounts for approximately 30% of an airline’s cost base. On a more positive note, this trend is helping to impel the airline manufacturers to create more fuel-efficient aircrafts.

Demanding customers have more and more choice thanks to deregulation, improved technologies, and the emergence of new business models. Due to growth in emerging markets, global air traffic will continue to increase over the next few decades, with Airbus predicting a doubling of passengers over the next 20 years alone. This translates into more choice for customers, and more brands from which to choose.

Going green will remain an important initiative as airlines face stricter emission and noise regulations – and as governments around the world become more concerned with the implications of air travel to the global ecosystem. Australia was one of the first countries to implement a carbon emissions tax, and the EU plans to follow suit with a similar program in 2012.

Digital platforms will become the norm as airlines across the globe use mobile applications and social media to advertise, engage consumers, build customer databases, and sell travel deals/fares. Increasingly, IT budgets will be spent on mobile solutions as airlines seek to take advantage of convergences between mobile technology and social networks to foster deeper and more responsive interaction with customers.