Op-Ed: Long-haul real estate – who will get it right?

Rotation

Success in the airline industry can be measured by one’s ability to show up at the office and turn the lights on. Why? Traditionally, airlines are short-term thinkers and have been forced to make decisions impacting “today” with little regard for “tomorrow”. However, things are beginning to change as airlines, particularly new start-ups with no “excess baggage”, are run as real businesses rather than as “airlines”.

Predicting the future of how long-haul air carriers will differentiate themselves is a difficult undertaking due to the continuously challenging and evolving nature of the airline industry. The internal makings of an airline are challenging enough without even thinking about the vast external challenges airlines are plagued with.

It can be argued no air carrier has perfected the airline business model and this is perhaps the largest challenge faced today. Is there such thing? Can it be accomplished? In the long-haul market, there have been many failures over the past decade including product differentiators like MAXjet, Silverjet, and EOS. In each of these cases, the airline attempted to market business or first class seating, pre/in/post-flight amenities, and high-end service, at reasonable fares, often falling at the high end of economy prices. In theory, the business models were sound but external factors killed them. These airlines competed on dense, competitive routes served by the “big boys” who had greater access to resources and the ability to strategically undercut fares while improving passenger loyalty programs. Additionally, the new airline business models launched during a period of record breaking fuel and oil prices adding increased pressure quickly changing the way of thinking from innovative to survival mode.

The long-haul airline of the future will experience many face lifts as a result of the need to remain competitive with other air carriers. Today, from the perspective of a passenger, all long-haul airlines seem to be the same. The only real difference is the color of the livery on the tail. New planes with multi-class seating configurations, lie-flat beds, and high-tech IFE systems are the norm. Is this really the future?

Social, mobile, and the cloud are trendy buzz words today and it’s only a matter of time before long-haul airlines implement marketing and branding strategies to essentially exploit new product and service offerings associated with each. In the short-term future, this will be a reality but if one looks further ahead, there will be another period of change in the evolution of the long-haul business model.

Rather than concentrate on what the competition is doing to differentiate itself, it is important to determine the future needs of passengers and how the long-haul air carrier can tap into this by being at the forefront. The answer is, Asia!

The world can be defined by six geographic regions including: North America, LatAm/Caribbean, Asia-Pacific, Europe, Middle East, and Africa. Despite the ups and downs of the world economy, Asia continues to grow and it is the Asian passenger that will greatly assist in determining what the future of long-haul air carriers look like. Between the two main aircraft manufacturers, Airbus and Boeing, the former gets it and is developing new product lines succumbing to the needs of the passenger of the future.

Traditionally, price and time have been the instigators behind demand for travel followed by “luxury” amenities often available in a smorgasbord environment. Although still important factors, the future long-haul model will be about comfort, sleep, wellbeing, relaxation, and productivity.

Asia is an emerging market with an increasingly affluent population (ages 18-34) and a high propensity to fly variable that is expected to increase dramatically. First time career people combined with established mid-career people, are likely to travel more frequently for business and personal as the need for “me” time becomes a more dominant factor in Asian society. One of the end results for the “new” type of passenger will be the demand for a specific type of seat. The challenge, and the opportunity, for the long-haul provider is to be able to offer an environment that meets the needs for the passenger beyond price and time.

Sleep, wellbeing, and relaxation equal productivity and this is the future opportunity for the long-haul air carrier model. The challenge is being able to tap into each of these factors in a cabin configuration that must cater to a diverse range of passengers (low fare to high fare). The future cabin will offer increased width, pitch, and legroom combined with adjustable seating, quiet zones, and more arm room. In other words, it’s all about real estate! Every seat occupies space and the greater the space, the more valuable the property.

The long-haul cabin of the future will be complimented by high quality service from the inflight crew, communication technology that is available 24/7 for increased business productivity, and perhaps 3D or 4D IFE offerings. As aircraft manufacturers strive to produce better aircraft in the future, factors like improved air quality and mood lighting will become important aspects of improving the wellbeing of the passenger.

At the end of the day, all airlines, no matter what type or size, need “butts in seats”. Long-haul air carriers have the added challenge of long routes meaning less aircraft rotations compared to short and medium-haul carriers resulting in a decreased opportunity to generate seat revenue. The big challenge, for the long-haul air carrier, will be catering to the passenger of the future while fine-tuning the economics of how the business can be run profitably.

Real estate – almost always a good investment! Who will get it right?

John QAbout the author, John Wensveen, Ph.D.

John is partner and executive VP, airline start-ups for Mango Aviation Partners. He is responsible for leading development of new air carrier projects as well as restructuring of existing airlines. He can be reached at john.wensveen@mangoaviation.com

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