The past 12 months have been an incredibly exhaustive era for the global airline industry, with a series of many highs and many lows transpiring over the year.
It is important to have a forward-looking view on the industry given the tenuous geopolitical, organizational and commercial changes that will continue to evolve in 2017. However, it is important to take notice of the major changes that occurred throughout 2016, many of which most certainly set the precedent for such changes.
There Were Some Epic Executive Shake-Ups Across the Globe
Some of the industry’s most disruptive carriers experienced major management shake-downs in 2016. The most salient occurred early in the year with Ben Baldanza, who pioneered the Ultra-Low Cost Carrier movement at Spirit Airlines, which has led to its success. He was replaced by Bob Fornaro, a former AirTran Exec, to help lead the carrier into its next generation of operational integrity and higher Net Promoter Score.
The second most shocking was Christoph Mueller’s departure from Malaysia Airlines roughly a year into taking over as CEO for the troubled carrier. While MAS itself is not an industry disruptor, Mueller’s tenure at other carriers as a key, “turnaround” guy was the reason why he was hired on-board to begin.
While we were aware of other organizational changes, such as Richard Anderson stepping down from Delta, some were quite unexpected. Scott Kirby was lured from American to become the President of United in late August. Earlier in the year, United’s Board of Directors had toyed with the idea of bringing back Gordon Bethune, the renowned industry leader who saved Continental from liquidation in the 1990’s, to serve as a member. Thankfully, Oscar Munoz returned to United as CEO in Q2 and his health, and his turnaround efforts at the troubled airline, have been in a stable place.
There may be more changes on the horizon. Purportedly, Etihad may be announcing some organizational changes among its Executive leadership teams early in 2017. Air Berlin is desperately in need of a leader who can lead an effective turnaround strategy, and with Lufthansa’s Thomas Winkelmann taking over in place of Stefan Pichler, signs may be pointing towards further consolidation in Europe.
Airlines Announced Major Product Changes, and More Will Come
The “Big Three” in the U.S. have embraced the concept of branded fares that no longer straddle between full-service and fully-unbundled. Rather, in an effort to position their products across multiple passenger mixes with varying needs and demand patterns, segmentation is becoming the name of the game.
In the U.S., the industry is spread among three different business models: full service, hybrid/low-cost and ultra low-cost. For carriers like American, Delta and United, there lies a major opportunity to capture (or recapture) the latter two segments with the branded fare components. Moreover, with the devaluation of their loyalty programs and increased complexity in attaining elite status tiers, they have discovered that they can easily find sweet spots in those categories as long as they market and sell the products to the right audience.
Economy Plus/Comfort/Main Cabin Extra and charging for luggage and in-flight sales is no longer sufficient. Instead, those customers who may have been able to get better seats at booking or check-in with elite status may opt-up to purchase a true Premium Economy product on long-haul flights, with enhanced meal service, enhanced seat width and pitch, amenity kits and extra miles. American was the first carrier to debut the Premium Economy product on its flights this year. Delta and United have products in the works.
On the opposite end of the spectrum, U.S. carriers have also discovered that they can just as easily re-brand some of their lowest fare class inventory as Economy Basic, or Basic Economy, whatever the name may be, which includes restrictions on carry-on luggage, advanced seat selection, boarding groups, elite mileage accrual and ticketing changes after the 24-hour post-booking window expires. United announced its Basic Economy product this year and it will start selling in Q1 2017 for flight operations in Q2 2017.
So where does that leave customers who fall in the middle? Well, the same customers may pay a bit extra on their flights, but it is unlikely that the fares will hike to a higher level than what they are currently paying. Moreover, there will be fewer restrictions than there were 5 to 10 years ago, such as no Saturday night stay requirements, no 21 Advanced Purchase requirements, ability to board early and check 1 bag for free with qualifying credit cards and access to award availability and enhanced in-flight products (Wifi, Entertainment, Drinks and Snacks).
Overall, I think its a sound proposition.
On the opposite end of the scale, in the front of the cabin, the most loyal customers to these airlines will see their benefits enhanced. United announced its Polaris product this year on First and Business class flights, as well as lounge services, while Delta also debut its Suites to enter onto its widebody fleet. You will notice that these carriers will work to align their Premium products with their joint venture partners on long-haul flights. For instance, American serves caviar in First on its Los Angeles – Sydney flights in order to maintain product consistency with Qantas.
Furthermore, the hybrid carriers are seeking to move upmarket. JetBlue MINT has been a smashing success, and now its growing to new territories. It will be the lynch pin of its growth into the Transatlantic and Deep South America markets.
Still, it is interesting that some of the world’s most premium carriers are also taking a page out of the U.S. carriers’ books. British Airways is cutting its second meal service on long-haul flights while Emirates may start charging for advanced seat purchases and other amenities. This, I think will be an interesting watch item for next year.
Cuba vs. Iran…
The former became open to U.S. carriers since bilateral restrictions were lifted late last year. Now, virtually every major U.S. carrier is flying to one or more Cuban cities. There have been challenges, though, with infrastructure, sales, demand, capacity and visa requirements. Time will tell whether it is worth sticking out the fight for the long run.
Zika has also not been helpful, either.
Iran was also hot this year, but more so in the Eastern hemisphere. Lifted sanctions led to a flurry of new or returning carriers to serve Tehran, from Asia and Europe. Iranian carriers are also ready to update their fleets, with huge deals in the pipeline with Airbus. Contrary to Cuba, Iran has enormous pent-up demand and a large diaspora outside of its borders that have longed for connectivity to the motherland. Whether or not a U.S. or Iranian carrier will commence nonstop service to New York or Los Angeles remains to be seen.
Changes, Changes, Changes
We all know it was a huge year for Alaska: first, it changed its livery. Then, it announced a 2.7 Billion acquisition of Virgin America. Then, it was required to drop 45 codeshares with American. Finally, it announced it was breaking up with Delta.
American had a busy year as well. Aside from losing its President, it gained a few things, such as a new safety video, new Uniforms, and a crew of employees who subsequently broke out in hives from said Uniforms. On the plus side, it also migrated to a new Flight Operating System (FOS) which finally puts an end to the East vs. West battle with Legacy US Airways crews.
Growth out of LAX was substantial for American: it added Auckland, Hong Kong and soon Beijing to its West Coast hub. On the down side, its proposed transpacific joint venture with Qantas, which would allow it Anti-Trust Immunity, was denied by the Department of Justice.
Outside of the U.S., Emirates took the throne of operating the World’s Longest Flight from Auckland to Dubai, nonstop, while United launched the longest flight on a U.S. carrier, as well as the 787, from San Francisco to Singapore. However, this will be usurped by Qantas in 2018, who announced early in December that it is commencing nonstop Perth to London Heathrow flights on the 787-9.
Turkish Airlines was banned from flying to the U.S. for several days amid security concerns. Elsewhere in the Middle East, the U.S. DOT threw out the “Fair Skies” lawsuit against the ME3 (Emirates, Etihad and Qatar Airways) levied by U.S. carriers, and also allowed Norwegian Air International to fly in and out of the U.S. from a base in Ireland.
Korean Air and Delta showed signs of warming up, and Delta CEO Ed Bastian remarked that, “Seoul Incheon airport will become the next North Asian hub for Delta,” indicating that Tokyo’s days are numbered for Delta.
Brazil is showing signs of a turnaround, and Gol turned an operating profit. Air India and Thai also turned operating profits, shocking the industry worldwide.
Porter celebrated its 10th anniversary, while Air Canada announced more long haul growth on its Rouge subsidiary as well as AC mainline. WestJet’s 767 operations to London have been anything but a, “WestJet Miracle” and prone to operational disasters.
We’re Not Immune to Disasters
Brussels Zanventem bombings. Istanbul Ataturk bombings. The incidences of LAMIA, EgyptAir and the Russian Military plane.
May these people rest in peace, and perpetrators of senseless violence come to justice.
It Was a Packed Year. Brace Yourself for an even Busier 2017
I’ve given you multiple clues and data points of what is yet to come. If you have some that I’ve missed, or others that may be of important consideration, share them in the comments section below.