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Last week, I had the opportunity to attend the Airlines in Transition conference in Istanbul, organized by CAPA. The main draw was the list of leading airline CEOs who’re at the helm of mostly “hybrid” carriers – those that are neither legacy, nor purely LCC. The discussion that ensued over the couple of days at Ciragan Palace was thought provoking for sure.
And since I didn’t have to speak for the second time in the same week (first being the Eyefortravel summit in London), it was good to sit back and just be a sponge. I’m sharing here some of my key observations, as well as quotes from some of the CEOs at the conference.
1) Cost Leadership is critical
Time and again, we were reminded that a low-cost base is the most critical factor in making an airline successful. Alex Cruz, Vueling’s CEO emphasized that while they may consider code-sharing with airlines other than Iberia in the future, it will only be done if there are no incremental costs. He shared the example of how they’ve been able to put in-flight magazines on-board Vueling flights, only after the costs of producing the magazines and the cost of fuel required to carry the additional weight in the plane had been paid off fully.
It’s all [about] managing cost and only the carriers with the lowest costs will survive,” Alex said.
Azran Osman-Rani, the CEO of low-cost long haul AirAsia X, and someone I’ve looked up to for a long time, also re-iterated that vendors who pitch him products should be prepared to show how the investment is fully recovered in a given period of time. Moreover, Azran mentioned that when it comes to making profits, “percentage market share of a destination is much more critical in making a profit than sector length”
2) Innovation may suffer, with the focus on costs
Something (a little disturbing) that emerged from all the discussion on keeping costs as low as possible, was that the focus on innovation may not be supreme. Azran was quite clear in stating that he’d rather make AirAsia X the HTC of the airline world, rather than the Apple. Which is to say he’ll offer more features at a lower cost, and have someone else be the first mover.
Unfortunately, since most of the CEOs concurred that they’d like to keep their costs low, I couldn’t really tell who’d take up the mantle and be the Apple. Perhaps a new airline startup (of which there aren’t too many), or an industry outsider (remember what Apple did to the phone market?).
3) No strict airline models
Over the three years that I’ve been part of the airline industry, I’ve seen ample debate on the dilution of the LCC model – with purists constantly favoring a bare-bones model of a budget airline, with a single plane-type, no code shares, online-only bookings etc. However, the conclusion I have reached after Istanbul is: When in Rome, do as the Romans do. Conditions should define approach.
In an interview with SimpliFlying (to be published soon), Mr Borghetti also mentioned that he sees metal-neutrality and multiple-code sharing as the future, and the days of the big-three alliances may be numbered.
Aer Lingus CEO Christoph Mueller went so far as to exclaim that, “we should clearly say that seamless product sold by alliances is a big smoke screen.”
4) Need to look beyond flying
In addition to airline CEOs, there were a number of thought leaders and academics who spoke at the conference. Professor Rigas Doganis, a non-executive Director at easyJet, mentioned that the airline business is structurally flawed. Other speakers also eluded to the same fact – that new business models need to be sought.
Prof Nawal Taneja, a well known thought leader in aviation mentioned, “the airline industry has to learn to make money consistently, through all the crises and cycles. There is a need to change airline business models, owing to several factors including a continuously unacceptable ROI and the daily emergence of new, more powerful internet-based marketing,”
Datalex CEO Cormac Whelan suggested airlines should build their strategies around the customer and not around flying aircraft as they currently do. “The retail opportunities for airlines are unbelievable, because they have so much [more] context and information about their customers than the average retailer has. They have to use this to add value to the customer journey,” Mr Whelan said.
So, where does innovation come from?
During one of the Q&A sessions, I shared latest statistics of in-flight wi-fi usage and offerings, and while four of the five CEOs on the stage were open to the idea of giving wifi for free to the passengers if a sponsor paid them, none of them seemed keen to take the first step.
So certainly, there’s opportunity out there, but I got the feeling most CEOs are too busy transporting passengers from point A to B to think about this seriously. Perhaps change may come from the likes of Alex Cruz and Azran Osman-Rani who in their attempt to keep costs low would drive innovation. At the other end of the spectrum, CEOs like John Borghetti may drive innovation by constantly adapting their models to changing conditions.
Either way, the aviation industry is as exciting as ever. It gives me an adrenaline rush just to be part of this industry, because there’s constant change, which leads to pro-active (or forced) innovation, which ultimately translates into lots of new opportunities. Don’t you think so?
Keep flying! SimpliFlying 🙂