If airline news is usually rich at the beginning of each year, this year marks the transition of many European loyalty programs toRevenue Based, following in the footsteps of the Americans a few years ago and those of hotel loyalty programs since always.
Beyond this news covered by numerous articles both at TravelGuys and among our colleagues, it is time to review the strategy of the major airlines in recent years, in light of the major contextual changes that the travel industry has come to terms with in recent years.
The emergence of Low Cost airlines in Europe has changed the way people travel
In the early 2000s, two low-cost airlines revolutionized European transport: EasyJet and Ryanair. Based on the model of their American predecessors, Southwest in the first place, these two airlines have chosena strategy diametrically opposedto that of the other European airlines: to break away from the concept of hubs, and to offer point-to-point flights, at low cost, with a service reduced to the minimum.
If the Boeing 747 revolutionized the way of travelling at the end of the 60’s, low cost airlineshave opened the door of travel to hundreds of millions of Europeans who could hardly afford a vacation on the European majors.
Beyond that, these airlines arrived at a time when travel was beginning to be consumed differently, to be unbundled: Europeans now want to choose their flights, their hotels, and organize their own activities on site. And low-cost, hotel comparison sites, online review sites and especially the euro have facilitated this “empowerment” of the leisure traveler.
The Tour Operator Business has changed
The fact that travelers are now more autonomous in organizing their trips has forced Tour Operators to reinvent themselves. And to take into account this new trend of having the choice for everything.
Also, they are now focused on sun destinations, very discounted, or on the organization of high value-added travel with sports activities or in countries that are still difficult to visit without being accompanied, even if the list of these countries tends to be shortened.
Since then, many mass TOs have disappeared, or merged with others to resist. TUI is the perfect example of consolidation of large European TOs, which even has the luxury of having its own airline and offering a turnkey experience from the start.
The Gulf airlines encourage the majors to become more premium
In parallel with the arrival of low-cost airlines in Europe and the changing habits of “travel consumers”, the arrival in the mid-2000s of Gulf airlines such as Emirates, Etihad and Qatar Airways, with high quality products in all travel classes, has greatly affected the business model of the major airlines. Indeed, especially in Business and First classes, these new entrants offered products that were unheard of in the majors (and often still are), such as car transfers, an exceptional wine list and lounges of incomparable quality, or even on-board showers.
The response from the European majors has been slow. Very slow. Why ? Because they thought that their network, this network that allows them, through the hub-and-spoke system,to propose ever more complex itineraries, would triumph over these very premium products but offered only from a handful of cities in Europe.
However, the Gulf airlines have recruited the best European and American experts to build their strategy, different for each of these three airlines:
- For Etihad, significant capital stakes in European airlines that allowed it to feed their Abu Dhabi hub – with little success: Bankruptcy of Airberlin and Alitalia in 2017 ;
- For Emirates, acolossal investment in the expansion of its own network, via the construction of the largest A380 and 777 fleet in the world, and a fine service. Emirates is preparing to open routes to and from Toulouse and Marseille in France in 2018;
- In order to Qatar Airways, surely the smartest strategy, which isjoining an alliance, oneworld, and taking a minority stake in IAGthe parent company of British Airways and Iberia, giving itself a number of code shares and a certain peace of mind in the face of unfair competition attacks, given that it is a partner of BA and American Airlines.
What future for the majors?
So the European majors had no choice. They had toupgrade both their Hard and Soft products: cabins withFull Flat andFull Access seats, trolley-free and on-demand service in Business class.
At the same time, low-cost carriers continue to attack the majors, now on long-haul routes, with Norwegian for example.
So what is the answer? Of course, there are the creation of low-cost airlines on both medium and long-haul routes, such as Vueling and Level at IAG, Eurowings at Lufthansa and Transavia at Air France – KLM.
But for the flagship airline, it’san ever-increasing premiumization of the aircraft that is showing its face.
On Boeing 787-9s, more than 50% of the aircraft’s surface area is occupied by Premium classes.
At Air France, more than 60% of the cabin of some B777-300ERs are Premium seats:
This is the future of the majors: more and more premium seats, with higher added value, a medium-haul network as dense as ever, and a service equivalent to that of the Gulf airlines.
And leave the basic service to the low cost airlines.