As we all grapple with the change that our loved industry has undergone, and try to imagine and piece together what the future holds, there is a unique opportunity to offer up and debate scenarios which well and truly depart from our current paradigm.
Through sharing wide and varied ideas, through discussing them and contributing, we can add to the insight that we hold as a community, and perhaps get a little closer to the truth.
Last week, I read with great interest an article by Becca Rowland of MIDAS Aviation suggesting that perhaps we have seen peak aviation. Ms Rowland put forward some strong arguments, and in some markets, it is easy to agree. However, I feel that we need to look at the micro as well as the macro. Across the world the relative maturity of an economy, and the timing of that community’s peak population, varies. So too does the likelihood that that particular market has seen peak aviation.
Ms Rowlands’ courage in putting forward such an interesting yet controversial discussion and argument – and certainly not one that is likely to be popular, no matter how well thought out, has prompted me to give voice to an idea that has been revolving in my mind for a little while now.
In so many industries we have witnessed a separation of the asset base and the marketplace (or who owns the sales funnel). We saw Uber separate the marketplace from who owns the cars in the personal transport industry. We have seen AirBnB separate the marketplace from who owns the accommodation. And we are familiar with the idea that the largest provider of accommodation, globally, does not own real estate. The world’s largest retailers do not own inventory – it’s a model that has disrupted many industries globally. Given the current situation, we should ask, is it aviation’s turn?
Prior to COVID some shippers and express parcel services branched into operating their own freighter aircraft (FedX, Amazon Air). Since COVID has driven a massive reduction in cargo capacity, several freight forwarders have started chartering aircraft to meet their customer’s needs. Freight forwarders, owning the customer pipeline, have the market intelligence to manage financial risk around operating costs and to drive a profit by linking demand and supply.
How long until we see this happen in the passenger business? What could this potentially look like? Could we see a splitting up of the business that we currently know as a passenger airline? Perhaps part of the business becomes an aircraft operator. And the other part of the business becomes that which owns a customer pipeline and has the market intelligence to best manage financial risk. Perhaps current airlines move their business in one direction or the other – becoming either a wholesale operator of aircraft, or a customer pipeline which owns no aircraft at all.
Yesterday’s announcement by Qantas that it will be outsourcing 2500 ground handling jobs indicates that the organisation sees sense in having a leaner, more flexible operation with fewer owned components.
Separating the operational and selling sides of the business could allow airlines much greater athleticism to adapt to rapidly changing market needs. Without a fixed fleet, airlines are free to adapt more quickly, and change the network more regularly, to meet evolving market opportunities. If we know anything about the “new normal” it is that an ever-increasing rate of change will typify our future world. How does a capital heavy business of fixed structure, capabilities and overhead find the commercial athleticism to survive amongst such change?
Who might be the parties in this arrangement? Organisations like Flight Centre, Helloworld and importantly more athletic and data-based businesses like Corporate Travel Management have sophisticated customer pipelines with valuable data streams. But so do airlines with their existing Frequent Flyer businesses. Qantas’ Frequent Flyer business is a significant earner for the airline and one of Australia’s best sources of market intelligence. Either travel agency-type sales pipelines, or airline frequent flyer pipelines could become retail airlines without owning a single aircraft.
These organisations would make a profit through being well enough informed to manage the financial risk on operating flights and by being flexible enough to adapt the supply of seats in real time.
The owners of the aircraft might become purely a wholesaler of flights. They would make a profit by operating aircraft, perhaps for several different retail airlines and other parties. But they wouldn’t be operating aircraft without clarity around the income from that aircraft’s operation. They wouldn’t be taking a bet on new routes. They will fly somewhere if someone pays them to. Their particular skills would lie in managing the operation and long-term risk of such weighty capital investments as fleet.
This model already exists to a degree, and I think we will see more of it. In Australia, Alliance Airlines is one of the few in the sector that is currently profitable. In fact, Alliance’s ability to adapt and respond to wholesale customer needs has resulted in the company trading ahead of market expectations. Alliance is poised for growth, adding aircraft to fleet, and undergoing capital raising – not to raise emergency cash, but to grow the business. I’m excited to watch what Alliance does next.
Additionally, Airly, also in Australia, don’t operate aircraft, but connect their customer pipeline to seats on an as needed basis. Meeting the customer need and reducing their need for capital investment, Airly are operating a lean, adaptable model that surely has a big role in the future of aviation. Airly are almost an Uber of the skies, and with pricing little more than a business class ticket for direct flights on private jets, there is a fair bit of customer appeal.
I think though, there is one step further to go. It’s time to ask ourselves whether airlines are the operator of aircraft, or the seller of tickets and do they really need to be both? Could we see a future where our retail airlines don’t even own any aircraft at all, but simply allocate chartered aircraft to meet the market need as informed by their superior market intelligence and, in real time. And if that is what they become, are they even an airline at all?
What do you think?