Beyond the hype, where the true value lies

Governments around the world are pouring money into the aviation industry as never before. Regardless of the forms these cash injections take (grants, loans, equity or tax deferrals), governments around the world are becoming de facto the next key stakeholders of aviation. They must thus finance a transformation that serves both citizens and the planet. In exchange for the financial support, governments should ask airlines to: (i) assure competitiveness through restructuring, and (ii) implement transition programs into a “green” aviation model.

It is clear to all that COVID-19 has dealt a devastating blow to the aviation industry. However, while the pre-crisis industry was still thriving from the waves of globalization and commoditization of travel, it was already facing threats such as environmental pressures, unbalanced profit sharing along the value chain, and multiple constraints on operational and business agility. The recovery phase will be extremely challenging, and we believe future growth will involve nothing less than reinvention of the industry.

In the context of sustained growth in air travel, rapid advancements in digital technology and ongoing cost pressures in the global aviation sector, Arthur D. Little has conducted a research study to examine the potential for digital technology to reduce total airport operating costs.

Legacy airlines have long struggled with choosing the best strategy to adopt in the era of hyper-competition, having been faced with i) the rise of low-cost carriers, first in the short-to-medium-haul segment, and now also in the long-haul segment; as well as ii) the natural trend of travelers in a maturing industry increasing in sophistication. Legacy airlines (mostly in Europe and Asia) therefore have decided to create “multi-brand airline holdings” to seize the opportunity of new segments and protect their key markets, but this comes with the risk of cannibalization.

At a time when the airport industry has never been so attractive, Arthur D. Little explores how airports must deal with fundamental disruptions in their business models. This calls for strong CxO focus and bolder and faster moves to guarantee value creation for all stakeholders in the ecosystem.

Since the mid 2000s the air-transport industry has been in an era of hyper-competition. Medium-haul has been irreversibly disrupted, and the sector has become a mass-market industry. Now airlines are preparing for the next battle in the sky: the fight for the long-haul traveler. With lower regulatory barriers and the latest long-haul aircrafts delivering on their promises, new business models are emerging, from “long-haul, low-cost” (LHLC) to the revisited “ultra-long range” Therefore, no one seems immune: neither legacy airlines around the world, nor the mighty Gulf carriers. All may have to rethink their strategies.