Two key fundamentals of the airline industry are about to be uprooted – in tandem, as they are interrelated and, in some sense, feed off each other. The regulation of flying and way tickets are sold are changing and the result will be a vastly different industry where airlines become mere pipelines, and retailers become the platforms for sales.
Ownership and control rules (O&C) are being overturned steadily by a combination of “cross border joint ventures”, cross border equity investments, and the rising influence of the new markets of China and Asia Pacific. Removal of O&C transforms the bilateral market access system that has lasted 70 years.
New non-aviation retailers, armed with highly specific data and the skills to exploit it, are about to take on the role of selling end to end travel, of which the airline segment is only one part. Meanwhile, airlines are confined to (usually) poorly exploited data about (only) their own customers, and to infighting with intermediaries: GDS companies, OTAs, metasearch, and others.
It seems inconceivable that the structure of an industry with so many artificial constraints can remain intact much past 70 years, while all around it has changed. But why are airlines so unprepared?
This decade alone has been witness to major disruptions in the travel and transportation industries. Most prominent have been in ride sharing – Uber – and in hospitality – Airbnb. Telecommunications, media and music industries have also been turned on their heads; banks and payments are in the firing line; retail generally is being rapidly transformed. There is scarcely an industry whose fundamental structure remains intact. Except the airline industry.
In all cases disrespectful start-ups, usually applying relatively simple but sophisticated IT solutions, have taken on legacy operations. The legacy industries under attack typically involve extensive capital investment, and are often characterised by significant, unhelpful, and highly intrusive government regulation that restricts competition.
Certainly the legacy airlines have had to deal with a new breed of low cost operations, long and short haul. But almost without exception those legacy operators are still there, fundamentally unchanged. In terms of other industries, this is no more than fiddling around the margins. And time is running out.
With this level of surrounding and internal turbulence, does it seem likely that the airline business – governed by 70 year old regulations – will stay intact? Above any other industry, airlines are captured within an arcane regulatory framework designed 70 years ago, and whose purpose was to achieve little else than protect against new entry.
It is a capital intensive heavily unionised industry, and it is dominated by legacy models still focused on buying and flying expensive metal. But at its heart the airline offering is just another consumer retail product. As such, it is just as susceptible to upheaval as mainstream retailers who have been upended by Amazon in many markets.
This suggests that the airline industry as we know it will be unrecognisable by 2025, as fundamental features are uprooted and this process will be accelerated because of the confluence of disruption in each of the key aspects of commercial aviation: flying and selling.