Flight Economics: Innovative Strategies for Resilience and Agility

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Not only do airlines need to fulfil the demand for personalisation coming from their consumers, but they need to do it faster and better than their competition-in a more unpredictable, constrained, and complex world.

While the industry navigates this uncertain reality, cashflow protection continues to be key to the survival of most airlines. Cost-efficient measures must be applied to every aspect of the business. In addition to capital expenditure cuts or reductions, airlines must also be strategic in identifying areas of their business where operations can be optimised to reduce costs without damage to their competitive advantage in this recovery period.

  • Airlines must prioritize personalization to meet consumer demands in a fast-paced and competitive industry.
  • Cashflow protection remains crucial for airline survival, necessitating cost-efficient measures and strategic optimization.
  • Business models are evolving, with traditional airlines adopting characteristics of low-cost carriers and focusing on ancillary revenue.
  • Alliances, partnerships, and diversification are becoming essential strategies for airlines to navigate market changes and increase operational flexibility.
  • Technology, particularly cloud-based architectures and AI/ML capabilities, is enabling airlines to enhance customer experience, optimize operations, and stay ahead of the competition.
  • Sabre's partnership with Google is driving innovation in AI/ML technology for the travel industry, offering solutions like Sabre Travel AI™ for dynamic pricing and market demand forecasting.

Blurred lines: evolving business models

The fiercely competitive landscape drives a need for airlines to anticipate market changes and move faster to gain share. Further increasing the competitive pressure is the continued hybridisation of traditional FSC and LCC business models. The erosion of fare prices and yields has pushed FSCs to follow their LCC counterparts, evolve their model and limit free onboard service, unbundle fares and increasingly focus on ancillary sales. The ancillary revenue potential is huge-while the global ancillary revenue accounted for 12.1% of the total airline revenue in 2019, it was close to half of the revenue of some LCCs and hybrids like Spirit, Allegiant, Wizz Air, Viva Aerobus and Frontier1. FSCs will want to catch up quickly to capture the incremental revenue that is now critical to their survival.

FSCs have also adopted point-to-point services to attract the current leisure and VFR demand. United, American Airlines and Lufthansa have now launched nonstop services from/to non-hub locations, where all these routes could have been routed through their existing hubs. Point-to-point services have allowed them to tap into existing demand as other holiday destinations remained restricted.

Further, the long periods of inactivity have accelerated FSCs fleet standardisation and simplification efforts, which allows for greater flexibility and efficiency. In some cases, this means the permanent retirement of old and large aircraft from service. American Airlines, as part of their Project Oasis, kicked into high gear last year and now operates 4 aircraft families down from 8. Simplified fleet is more closely associated with LCCs who can operate a fleet of just one or two aircraft types-take Southwest for example, that operates an all B-737 fleet.

Some LCCs are also blurring the lines by adopting characteristics more commonly associated with FSCs. To maintain their growth trajectory, LCCs are tapping into the traditional FSC customer segments by using primary airports, frequent flyer programs and GDS distribution. In August 2021, JetBlue began flying to the coveted Heathrow (LHR) Airport, featuring an all new Mint business class product-including cooked dining and lie-flat beds. Heathrow was long considered as an "out of bounds" airport for LCCs, but this is a new era for aviation.

Spread your wings: Alliances, Partnerships and Diversification

Alliances, partnerships and diversification can now be the silver lining that some airlines need to get to the other side of this turbulence.

Traditional alliances have always shielded FSC fares from LCC competition in their predominant markets. In 2019, they accounted for 71% of the overall global capacity. With domestic traffic leading the recovery, and higher market consolidation, the alliance landscape is evolving. We're witnessing FSC and LCC partnerships (such as codeshare agreements) that complement traditional alliances and consolidate domestic/intra-regional traffic towards hubs.

We also see partnerships and expansions beyond air. For example, Azul has expanded into a logistics business to handle individual packages door to door. United Airlines has also partnered with Archer, a startup mobility company to provide shuttle services to its customers to and from its hub airports. The parent company of Allegiant Air is also developing a 22-acre resort in Port Charlotte, Florida and JetBlue is planning to enter the short-term rental business.

This new era of airline partnerships increases the operational complexity and drives a need for flexibility for airlines.

Technology is your biggest enabler

Our airline partners are looking to us to help them transform as they rethink their economic engine and aim to reduce costs, outpace their competition and reevaluate partner approaches. Airlines want to accelerate digital transformation not only to deliver on customer demands for personalisation, but also to ensure more efficient and flexible operations and data driven decisioning to manage the complexity and move faster, ahead of the competition. They want to become more agile.

Migration to cloud-based architectures enables the technological capabilities airlines need to respond efficiently to demand while providing the seamless experience that travelers expect as they venture out again. Sabre is accelerating its multi-year technology transformation with cloud migration and mainframe offload, moving our products, systems and clients to Sabre's new platform running on Google Cloud's highly available and secure services.

Today, ~65% of our total compute footprint is now in the cloud, which includes key Commercial Planning solutions: Planning and Scheduling, Revenue Optimizer, Distributed Availability and Digital Experience are in the cloud. This also includes modernising Sabre's IT infrastructure and creating the Google Cloud (GCP) foundations, global cloud infrastructure and new data centers to host our products, platform and disaster recovery.

An emphasis is also placed on new sources of data--combined with Artificial Intelligence (AI) and Machine Learning (ML) technology--to increase customer value, accelerate go-to-market and power automation. Sabre's 10-year partnership with Google includes the Sabre + Google Innovation Framework, pairing Sabre's travel industry experience with Google's advanced artificial intelligence and machine learning capabilities. Google Cloud's data analytics tools - including their best-in-class AI/ML functionality - will enhance the capabilities of current and future products, help improve operational efficiency and create and optimise travel options.

Created as part of the Sabre + Google Innovation framework, Sabre Travel AI™, makes scalable, practical artificial intelligence real for the travel industry-with the potential to enable dynamic pricing of air and ancillaries. The upcoming release of Market Intelligence enhances market demand forecast for 12 months in the future, powering next gen network planning and scheduling.

The AI-and ML-based services created as part of Sabre Travel AI ™ have broad applicability across retailing, distribution and fulfillment.

For more intel on Sabre Travel AI ™, visit sabre.com/sabretravelai