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A look at the transforming aviation industry

Sustainability and digitalisation bring big challenges to the aviation industry, but also excellent tools and justifications for further cost savings. This means that all airlines have to improve their efficiency and attractiveness constantly, in order to keep up with the competition.

Published : 22.11.2021

The history of the Aviation Industry starts most probably at the Chicago Convention in 1944, where most of the common rules for the international aviation was agreed upon. These rules still exist and form the basis of the global aviation laws.

From luxury service to commodity

The business practices of aviation in 1944 also reflected the market understanding of that time. Aviation business opportunities were quite heavily restricted and it was quite common that each country had one legacy carrier, which was at least partially owned by the government. The monopolies were very common. Obviously this raised ticket prices. Air travel was not for everybody, but rather luxurious and glamorous.

The markets started to open up in 1978 when the Airline Deregulation Act was approved in the United States. This removed the regulations regarding fares, routes and market entry for new airlines. Other countries followed this development soon.

The industry started to see new entrants coming to the market. These new airlines were typically providing less services than the legacy carriers and the tickets were cheaper. Air travel was slowly starting to transform from a luxurious service to a normal and affordable commodity.

Legacy carriers and low cost carriers targeting costs

Commonly legacy carriers have had better services with first, business and economy classes, lounges and loyalty programmes. They have offered flight connections, transfer services, etc. The list is long.

The airline industry is probably one of the most competed industries in the world. It is also probably one of the most hurt industries in the world because of the Covid-19 pandemic. Therefore every airline, regardless of it being legacy or low cost status, currently drives very hard towards cost savings.

Does the service differ when flying with a legacy carrier in economy class or the same flight with a low cost carrier? Very few legacy carriers still offer free meals or even free drinks during the flights. Meals, drinks, newspapers, wifi, etc. can be purchased. But the same applies to the low cost flights. In either case there is no access to the lounge. In both cases there most likely exists some kind of a loyalty programme.

Many legacy airlines are trying to get more and more ancillary revenues to compensate the lower ticket prices. This means that the services included in the ticket price earlier have to be purchased now separately. This is one of the basic low cost airline methods.

Competition forces towards customer orientation

I believe that the line between the legacy carriers and the low cost carriers is disappearing very fast. The world is changing. Currently there is a wide variety of airlines that have unique strategies and that apply service and operations palettes from both legacy and low cost sides. Very many legacy carriers have gone bankrupt since the deregulation. Maybe they didn’t adjust to the competition.

Sustainability and digitalisation bring big challenges to the aviation industry, but also excellent tools and justifications for further cost savings. This means that all airlines have to change and improve their efficiency constantly in order to keep up with the competition.

In the future, we will see services of many airlines becoming similar to each other. Is it a good or a bad thing? With certainty the airline who has the most interesting strategy and the service offering will be among the winners. The airline that has true respect for its customers, will not fail.