I'm on Delta 17 from LA to Sydney. It's December 14th, 2011. The lie-flat seat is comfortable and I have managed to sleep for 9 out of the 13 hours that the flight entails. I'm eagerly awaiting the breakfast I can smell beyond the curtains. This year so far, I have 167 travel days and by year's end my tally will comprise 6 months of travel outside of my home base of Sydney. Airlines have taken me to consulting, interviews and speaking engagements in Amsterdam, Stockholm, Phoenix, Hong Kong, San Francisco, New York, Ho Chi Minh City, Perth, Auckland, Charlotte, and coincidentally I have even managed to advise two of them - Air New Zealand and Delta on the future of the aviation industry. No, I am not George Clooney in 'Up in the Air'. However, aviation ideas inspire and inform the future of all communication trends.
The future of travel is a topic that is divisive and which runs deep amongst frequent travellers. In many ways the industry and its loyalty programs constitute an esoteric second economy, with frequent flyer miles the second largest currency behind the US dollar in 2008. The conversation at conferences and between seats 1A and 1B often surrounds platinum status, credit cards loyalty schemes, concierge services, and upgrade stories, and whether the herringbone structure of business class seats is the most optimal design and privacy lay-out in a plane. While business class travel is reserved for the privileged few, and may give cause for future 'Occupy SFO' by the 99%, the business reality is that business class travellers fund the historically low prices for economy travellers. It's an interesting inter-play between luxury and utility that is defining the future of an entire industry.
The aviation industry is one we are heavily reliant on, and which greases the wheels of international commerce. When an airline is beset by strikes, affected by ash clouds or when they decide to lock-out its staff, the cost to national and international economies frequently reach billions in lost productivity. While Cisco projects that 90% of all data on-line will be video by 2014, and have managed to cut their own travel costs by 80% as a result of adopting their own telepresence systems, it seems like the rest of the economy is lagging behind, and that an interface hasn't been able to replace a human face in human interactions yet.
While money, music, games, and movies are all going digital, human trust hasn't been digitised - yet. Airlines play a central role in serving human, non-economic interests, and physical presence. For avid viewers of The West Wing, you'll have noticed the amount of travel and facetime spent by the key players like Sam Seaborn, CJ, and President Bartlet. Physical presence is not being overtaken by telepresence yet, but it is a formidable STEEP threat to the aviation industry.
If we take a STEEP (socio-cultural, technological, economic, environmental, political) perspective on the industry we notice several disruptive impact points. In an industry where profit margins are close to 1%, these disruptions are what sinks airlines.
So let us take a look at some disruptive trends impacting the aviation industry, before we then scenario plan a 2020 vision for the future of airlines and aviation.
Large emerging economies like Brazil, Russia, India and China are currently witnessing a sizeable proportion of their population officially embrace middle-class behaviours, like the expectation and realisation of international travels. While this will involve new intra-national routes, it will also strengthen already busy routes for investors and developed economies seeking physical access and building of trust within the BRIC economies. Meanwhile, budget airlines like Ryan Air and South West Airlines, and their BRIC emerging equivalents, are seeking to disrupt the market with increasingly a la carte offers, including 'standing seats', charging for luggage, and enabling on-line reservation of seats and tailored meals, at a cost of course. Generationally, this also taps into the economic sensitivities of Generation Y, who no longer consider transport a product but a service (think of carsharing schemes like Zipcar and GoGet for example). You will increasingly pay for what you use, and airlines will focus on increasing choice while simplifying the selection process at the economy and budget side of things. Some airlines will go as far as Virgin in charging for entertainment and access to movies/games, which is also logical given the propensity of travellers to bring their own mobile devices. Demand for travel is unlikely to taper off at a moment when Facebook is reducing our degrees of separation, diasporas can once again connect with their emerging economies of cultural connectedness, and social media is introducing us to new and exciting travel destinations.
Meanwhile, the idea of status update anxiety is also taking even greater hold on our consumption patterns, including where we 'check-in' via our mobile devices. The airlines have been one of the premier drivers of status with its frequent flyer loyalty schemes over the years, and that status is now being transferred into a social setting with travellers commenting on travel experiences, checking-in to lounges digitally, and sharing travel advice via social networks as part of their personal branding campaigns. Future focussed airlines can tap into this trend by enabling conversations, and becoming brand butlers that help frequent flyers tell the world about their exotic destinations, their experiences, and importantly, how they flew there.
if we look at the jet engine for a moment, it has not drastically changed in recent years. What we are noticing is a shift in how airlines are thinking about technology. Rather than thinking about their aircraft as mere products, they are reconsidering what proportion of their fleet they can viably own versus lease, but even more interesting is the trend towards buying the service or utility of what an engine provides, burst of energy that propel the aircraft forward. Just like Cloud-based services are enabling an entirely new way of thinking about IT infrastructure, so the Boeings and Airbuses of the world are now rethinking how they charge for their technology. This may speed up technological innovation because airlines will have less sunken costs in particular types of technology and may be able to more quickly upgrade or downgrade their needs depending on the vicissitudes of the marketplace. This is what happens when you move from product innovation to service innovation.
Technology is also redefining the client relationship for airlines. Qantas and Air New Zealand are both using RFID and NFC technologies to enable their frequent flyers to check in at the airport by swiping their card chips over sensors. Checking in their luggage is equally high tech. This removes the need for face to face interactions with grumpy staff, which is surely to the benefit of the airlines. In the US, clients check in on curb-side straight off the taxi rank, or via computer monitors where a check-in agent multi-tasks between 4-5 computers as a kind of IT support. In Hong Kong, this process happens at Central Station or Kowloon, prior to departure on the fastspeed train to the airport, which is another customer focussed innovation that leaves international and local travellers raving.
As technology improves and consumers adapt their behaviours to match the new opportunities, we are likely to continue seeing new customer touch points. On websites like www.SeatGuru.com travellers can view seating maps, and request seats that are recommended by experts and peer-to-peer reviews. Review sites like www.Expedia.com and www.Tripadvisor.com are also becoming increasingly social, which means that airlines are forced to focus on even better customer service (which is going to involve the training and attitude adjustments of an entire generation of customer facing staff), and to engage with travellers in a more engaging way. Great examples of this was the support provided to stranded Qantas travellers by Emirates and Virgin which held outreach programs to travellers afflicted by Qantas' Nov 2011 lockout of staff. Qantas was less diligent in using social technologies to communicate with travellers, and suffered a big branding loss as a result. KLM meanwhile is planning to introduce a "Seat and Meet" social service which integrates with Facebook and Linkedin to enable business travellers to connect with, and pre-arrange seating with 'interesting parties' - a development which sounds both scary and invasive, but which highlights the potential impact of socio-cultural / technology trends on the aviation industry.
This trend is powered by mobile devices, which present a great opportunity for airlines. Scandinavian Airlines recently offered a new mobile app which enables travellers on other airlines to see how delayed their flights are compared with the airline in the world with the most on-time departures, Scandinavian Airlines. Other airlines are co-operating with traveller's social networks to offer maps integrated with the GPS devices in smart phones, so that travellers can easily find their ways from gate to gate while transiting, be invited to certain lounges based on real-time frequent flyer status updates or be sent reminders of weather, travellers need, and VISA checks. Many of the roles that travel agents used to fill, are now being automated via mobile devices. Equally, Delta have instituted smart phone re-charge stations at their gates which presents further branding opportunities, and I am looking forward to an airline adopting Amex' example at SFO, where Amex gives free Wifi access to travellers in exchange for studying your online behaviours. Surely, airlines could use this opportunity to offer Wifi around its gate boarding area to provide another touch point for its clients, and to ensure they continue the conversation, and capture the emotions / patterns of a traveller who is just about to depart.
Airlines are hostage to oil producing countries and to the mercurial movements in oil prices. Slight shifts in volatility and foreign exchange rates can throw even the most well-hedged airline into the red. Two of the most heralded airlines of recent years - Emirates and Etihad - enjoy subsidised fuel, and are better able to invest their resources into creating amazing customer experiences, while competing airlines are increasingly looking to squeeze the supply chain. The big question here is whether the future focus of airlines can continue relying on oil as their primary fuel source, given peak oil and disruptions to the supply chain in the Middle East through political events.
Heavily unionised airlines, particularly in the West, are increasingly viewing their staff as part of their resource supply chain, and British Airways, American Airlines, and Qantas have all seen major disruptions flow from union fights and strikes. In efforts to compete with Asian airlines that enjoy lower staff costs, and with the Middle Eastern airlines, some of these traditional airlines have taken to Thatcher-esque methods of dealing with various unions. At the end of the day, customers suffer from these dynamics with disengaged staff and disruptions to routes two of the effects, not to mention the potential for safety oversights. This is an area that airlines must solve flexibly under the current business model in which they are operating. Alternatively, they must figure out an aviation business model that enables better conditions for staff, and similarly better profit margins. Ultimately these are tough trade-offs and involve a decision where on the luxury - budget spectrum an airline wants to position itself.
While economic events like the Global Financial Crisis in 2008 can have short term impacts on the aviation industry, the larger economic trend is toward more, not less demand, for air travel. While alternative forms of travel like high speed rail travel are popping up around the world, and service some routes extremely well, the competitive economic threat to the aviation industry is small, and very foreseeable given the infrastructure lag and costs involved in building rail-ways from Beijing to Shanghai for example. Here the aviation industry might have something to learn from the distributor networks of the world like FedEx, DHL, UPS or TNT, who have managed to create extremely efficient networks that move bits around the planet. What these organisation have managed to do extremely well is to enable the new form of global commerce enabled by the internet and ecommerce. Goods are being shipped by Amazon, Net-a-porter and Wiggle to all parts of the world, and the cost to the consumer is small. While we are not packs of books, or French lingerie, airlines like Ryan Air are not dissimilar in how they treat customers who opt to be simply shipped from A to B and perhaps fairly so, given the business model.
The other development that airlines need to be aware of in an increasingly transparent world, with economic shocks like the Eurozone crisis constantly looming on the horizon, is that employer branding and customer facing brands are increasingly merging. This is a result of social media transparency, and it can be embraced or rejected by airlines. Air New Zealand is a leader in this regard as the 2011 winner of the Randstad Employer Brand Award in New Zealand, while Virgin Airlines won the equivalent award in Australia in 2011. This certainly boosts their customer facing brand credentials, as people are such an important differentiator in the aviation industry. Here, many old, established and dusty airlines have a lot to learn. A disengaged employee can do enormous brand damage, and directly contribute to an airline's profitability in accordance with the service value chain model outlined by James Heskett in the Harvard Business Review. To get an indication of the value and current state of your airline's brand, you can visit Brand Karma for the latest social insights.
The aviation industry is one of the largest emitters of carbon in the world. While they have attempted to pass on the costs of carbon emissions to the customer, in reality this has not worked particularly well, and ironically many green advocates are opting not to offset the carbon cost of their seats. A law introduced at Shiphoel airport to tax the airlines using its premises was quickly overturned after several airlines simply re-routed to more cost-effective European hubs, leaving Shiphoel in the commercial dust.
An area for opportunity for airlines is to more closely watch the defence industry which counter-intuitively tends to drive green technology adoption. For example the US Department of Defence has the ambition to power 50% of all energy output with renewable resources by 2020, which puts a strong word out to defence contractors like BAE Systems, Boeing and Lockheed Martin to boost their green credentials. Incidentally, these developments will benefit commercial airlines, with similar technologies being introduced over the coming years, and more fuel efficient aircraft like the Dreamliner going mainstream. The aforementioned development of infrastructure/technology-as-a-service may also boost the green tech credentials of airlines and their partners, as the cost transparency of energy output will become clearly identifiable, and may lead to new metrics of efficiency.
Another interesting field to watch is bio-mimicry. This emerging field is already responsible for the design of the Shinkansen trains in Japan, which are inspired by the beak of the Kingfisher. The engineers that designed the train needed a design which was suitable for moving from one medium of airflow in fields to a second medium of airflow in tunnels, with minimal loss in speed while minimising sound pollution. Their solution was found in nature, where the kingfisher dives from the air into water without making a splash with minimal loss of speed. The same sorts of innovation can be found in diving suits modelled on shark fins, and in green, self-cooling buildings in Africa modelled on termite mounds. Of course, the very idea of flight is modelled off birds, and it will be interesting to watch the aviation industry going back to basics and seeing whether effective commercial flight can be modelled more closely to birds, or perhaps even insects...
The aviation industry is an industry which has been beset by the tensions between public and private enterprise for a long time. National laws around majority ownership, shareholders interests, and union militancy have all contributed to an explosive molotov cocktail of considerations. With airline fuel costs subsidised in certain parts of the world and with heavy government interests vested in the future of national airlines, it will be interesting to see how relative newcomers like Virgin continue to fare against the behemoths like British Airways. Similarly, because of alliances like Star Alliance, OneWorld and Sky Team, customers are becoming less loyal to individual/national carriers, and are becoming more loyal to an ecosystem of carriers within a particular alliance. Those umbrella, ecosystem or meta brands are more difficult for states to control and meddle with, and represent the future of a globalised airline industry.
From my personal experience, I was recently on a flight from Asia to Europe, and standing at a gate for a flight which I believed was a Qantas flight. Meanwhile other travellers believed that it was an Iberia, Finnair, or KLM flight. Codesharing can do that to you. At the end, travellers seem increasingly loyal to their alliance ecosystems as they are to a national carrier. As a member of Qantas, Virgin, Air New Zealand, and Emirates I am hedging by bets across 4 major alliances, and enjoy global / local bonuses from all. Like car-sharing, I care less about a particular brand, than I do about an ecosystem of services.
Political events like September 11, bird-flu, increasing introspection, or war can of course severely disrupt the airline industry. While some could be potential game changers, customer behaviours are perhaps the greater indicator of what we are looking for in a travel experience, and the political trend of globalisation will ensure that there is an enduring demand for the services of airlines and their alliances for many years. The opportunity lies in even greater collaboration, and ensuring that customers' status and loyalty get rewarded across ecosystems and that barriers are increasingly broken down to ensure that brand loyalty can continue to be built for the alliance, not just the national carrier.
At the end of the day, planes have become a microcosm for society - defined by different eschelons, tailored services - a place where dollars buy convenience and bespoke experiences. The airline industry entertain dreams of a better future, a connection with family and loves ones, and it facilitates romance. It enables the crossing of physical and virtual borders, and its future is likely to shape the way humans interact, and paradigm or evolutionary shifts in its future focus will dramatically shift the way we think, feel and relate to the world. Scenario planning its future is as much about looking at one isolated industry as it is perhaps at looking at the human condition.
Thus, the lessons in this STEEP scenario plan of the future of aviation from a 2020 Vision perspective can be referenced in any disruptive trend focussed conversation about the future of connection, communication, and global thinking.
What do you think? Please add your comments on the future of airlines and aviation below.
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