While airlines face fierce competition, the industry’s players are not fighting a worldwide economic war. Not all airlines compete in the same markets, after all. Traditional and low-cost airlines, for example, compete only in the short- and medium-haul markets. Traditional corporations and those from the Persian Gulf, on the other hand, exclusively compete in long-haul markets. Finally, we occasionally find ourselves on routes with only one or two firms on many regional lines. Finally, rather than a global economic battle, I believe we are fighting a war on multiple fronts.
This fierce competition takes the form of a price war in the bulk of these markets. Competitive aggressiveness globally has ramifications on affluent areas, such as traffic on the northern transatlantic line. Companies compete on their ability to innovate to set themselves apart from the competition. In this scenario, the competition isn’t about the price because the focus is on the quality of the things on board, with the goal of enticing people looking for something new.
In what theaters of confrontation does this competition manifest itself?
Players in the aviation industry compete for limited and mostly intangible resources. As a result, an airline’s challenge is obtaining pilots or planes and acquiring the ability to fly wherever it desires.
On the one hand, airlines encounter issues with traffic rights for foreign flights. These niches have gradually evolved into a bargaining chip and a regulator of competition distortions. Consider the Gulf countries, which discovered that their respective growth and expansion in terms of flights were constrained by agreements inked with the European Union or other parts of the world. One of the critical obstacles continues to be the availability of airport slots: The problem is securing several spaces in airports when many of them are already overcrowded. This is frequently the case at Orly Airport, which has limited room and runs on a fixed schedule.
When a player in the sector or a regulator wishes to censure or limit a company’s dominance, the first reaction is to ask it to give up a slot in one of Europe’s leading airports. The European Union decided that Air France would grant airport slots to competitors like Vueling in exchange for its subsidies following the Covid-19 issue.
Why is long-haul business class the lifeblood of airlines? What are the issues and the strategies adopted to attract passengers?
First and foremost, we must distinguish between the two types of people classified as “passengers.” There are two types of passengers: “leisure” passengers who travel for personal purposes or tourism, and “business” passengers who go for professional reasons. There isn’t a perfect balance between economy class and “leisure” travelers or between business class and “business” travelers. Passengers in business class can travel for personal reasons, whereas passengers in economy class can travel for business purposes. In both circumstances, business and business class travelers are considered high-contribution passengers. In other words, they only account for 20 to 25 percent of the seats in the theater, but they account for 60% to 75% of the earnings.
Furthermore, the longer the route, the more significant their contribution: passengers in business class (or at the front of the plane) contribute more to the income of a long-haul flight than passengers in medium or short-haul flights. When the price of a ticket in business class rises dramatically in proportion to the number of kilometers traveled, the cost of a key in economy class increases more slowly. In other words, economy class passengers pay less than the actual price: business class subsidizes economy class.
Airlines are exploring tactics to capture this clientele and balance costs based on this finding. Thanks to loyalty programs, they can keep customers on board. The Covid-19 problem, on the other hand, may have transformed the situation: lines are progressively reopening, and “leisure” travel is restarting. However, professional aviation traffic is still battling to restore to pre-crisis levels. This is a severe source of worry because traditional airlines’ economic models are in jeopardy unless this industry recovers.
Strategic efforts aren’t centered on price reduction because “business” clients aren’t as price-sensitive as “consumer” consumers. On the other hand, the quality of onboard services (seats, food, and entertainment) is essential. Companies increasingly rely on loyalty programs to provide much-appreciated statutory benefits such as lounge access and priority boarding. Customers who have been lured by a program and have accumulated loyalty points no longer look at competitors for fear of losing the benefits they have gained.
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