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If 2016 hasn’t been your favourite year you’re in good company. The year that brought us Zika and the loss of David Bowie and Prince on one hand, and some major political changes on the other has been disruptive to say the least.
The airline industry
has always been intimately familiar with volatility and disruption, especially so here in Asia Pacific, so 2016 in contrast has been a relatively good year for most. The collapse in oil prices has stimulated traffic growth and boosted profits for many airlines, but as CAPA’s Executive Chairman Peter Harbison warned at the recent Asia Aviation Summit in Singapore, in a strong wind even turkeys can fly. And good weather doesn’t last forever.
Fuel prices are expected to start ticking upwards in 2017 and competition from low-cost airlines, gulf carriers and (increasingly) Chinese airlines will only continue to intensify. After all, the downside of the high growth in Asia Pacific is that everyone wants a slice of the pie.
So how are airlines in APAC preparing to ensure they stay afloat when the winds die down, or, to paraphrase Warren Buffet, not get caught swimming naked when the tide goes out? Hedging against uncertainty is a foremost priority, and in an era where disruption is the only constant – traditional ways of doing things are being re-evaluated, and strategic alternatives aggressively pursued.
Malaysia Airlines is undergoing a major transformation, which has seen it cut unprofitable long-haul routes and put more focus on its regional network. It also plans to dispose of its A380s. More and more airlines including Singapore Airlines, Thai Airways, and Garuda Indonesia are adopting a dual or multi-brand strategy. In some parts as a defensive strategy to protect against market share loss, but also to capture growth from new, previously untargeted segments. Amadeus has responded in kind, with our acquisition of Navitaire, which powers the passenger service systems of most LCCs. By owning both Altéa as well as New Skies we have the opportunity to improve connectivity between airlines on both systems. This is significant, as of Navitaire's passengers – 35% are on airlines that are LCC units of full service airlines.
Partnerships have always played a crucial role in the airline world to build scale, reduce costs and expand networks. In an increasingly crowded market, these become even more pertinent, and collaboration and consolidation will be key to battling the severe overcapacity in the region. Airlines have various options, from codeshares and alliances all the way to mergers. InAsia Pacific we are seeing a growing popularity in joint ventures which allow airlines of all sizes the benefits of a merger without the complexity of integrating two different organisations and two sets of cultures.
Lastly, there is no better time for airlines to invest in technology than now. Profits from a good season should go into investments that help airlines brace themselves for future turbulence. Systems that cut operational inefficiency and boost customer loyalty are particularly critical. Next-generation revenue management systems that address the new ways in which air products are bought and sold and which can accurately calculate a traveller’s willingness to pay based on real-time data can help airlines improve yields and maximise profitability even on highly competitive routes. But more than just understanding a traveller’s willingness to pay – airlines that can offer their customers the experience they want, sold to them in the way that they want, and at a price that they consider to be value for money will not only grow revenues per passenger, but also secure greater customer loyalty in the long run.
Experts are forecasting choppier waters in the year ahead, but let’s not forget that airlines in the region have strong fundamentals they can continue to build on. On one hand, growth in air traffic to and from Asia Pacific remains unabated. On the other, Asian airlines have always had a real passion for quality and a relentless commitment to putting their customers first. This has helped them dominateairline rankings year after year and should stand them in good stead to capture an increasingly discerning and demanding pool of travellers, especially if they can continue innovating around personalisation, customer experience and managing disruption. If there is anything that 2016 has taught us, it would be to assume nothing and be ready for anything. And in diversifying their businesses, pursuing collaboration and investing in technology, airlines in APAC are charting the right course to a brighter future.