How Customer Evolution Has Affected Airlines

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Table of Contents

Passenger Changes
Airline Effects and Adaptations
Conclusion
References

Over recent decades, the demographics of air travel have changed dramatically. It became accessible to much larger numbers of people, expanding geographically and becoming more affordable. As a result, passenger numbers grew dramatically, a trend that is likely still ongoing, and their demographics changed substantially. These developments necessitated changes in the highly competitive airline environment, which depends on recognizing and serving customer needs. The emergences of low-cost carriers and global airline alliances are among the phenomena that can be linked to changing customer demands. This essay aims to show that the increasing demand for convenient, inexpensive travel has led most airlines to either cut costs dramatically to provide affordable flight options or move to less competitive environments. To prove this point, it will review the recent changes in the characteristics and behaviours of airline passengers and the measures that airlines have taken in response.

Passenger Changes

Passenger Influence

A passenger airline typically relies on its customers as its principal, and likely only significant, source of revenue. Hence, it is essential to its success that it recognises the needs of its passenger base and serves them accordingly. If it fails to do so, a competitor will likely become a more compelling option to the underserved customers, leading to substantial revenue reductions and negative consequences up to and including insolvency. As Taneja (2017) confirms, most airlines are aware of this danger and collect extensive data on their passengers, which they use to formulate their branding and marketing strategies. However, if they recognise a substantial shift in the customers’ needs and preferences, they may engage in larger structural changes to retain passenger loyalty. Alternatively, new companies can emerge that aim to serve these new customer segments and formulate their entire structure around this proposition.

Air Travel Demand

The first significant change in passenger statistics that has taken place recently is the growth in demand for air travel. As Graham and Dobruszkes (2019) highlight, Airbus predicts 4.4% annual passenger-kilometre growth until 2036, while the United Nations projects an annual 3.3% increase in traveller numbers through 2030. However, Graham and Dobruszkes (2017) identify a potential limit to this growth, with people of low socioeconomic status or with personal circumstances unlikely to become frequent flyers regardless of industry changes. Development has been taking place for a considerable time in the past, as well, leading airline companies to consider ways to satisfy this rising interest. They have expanded their routes and introduced new ones, with the locations where unsatisfied demand was the highest taking a priority. These differences in demographic distribution warrant consideration, as they have changed the primary regions on which airlines focus.

Regional Developments

Due to the high costs of air travel in the past, airlines were most successful in wealthy developed nations, where there would be many people who could afford the services. Goetz and Budd (2016) identify the North American and European markets as critical to the early development of the aviation industry. However, with the recent reductions in air travel costs, it has become accessible to more people. Therefore, more regions became potentially attractive for airlines, leading to growth in new locations. Raghavan et al. (2018) cite Airbus and Boeing’s forecasts, which expect Asian demand for new aircraft between 2016 and 2035 to be between $2271 billion and $2500 billion, more than North America and Europe combined. Regions such as Africa do not demonstrate the same tendency, however, likely due to their low spending power at this time.

Demographics

Initially, only wealthy people could afford air travel due to its limited availability and prohibitive price. However, as it became accessible to increasing numbers of people, their overall characteristics have changed substantially. Doganis (2019) claims that, as international trade developed, younger junior staff and skilled workers have begun travelling more, while senior executive and high-paid professional traffic has remained stable. Additionally, Doganis (2019) finds gender disparities in travel, with women contributing to 25% of business air travel in Europe and 45% in the United States, though men and women are equally represented on leisure flights. Overall, the average passenger appears to be becoming younger, less wealthy, and more likely to be female.

Travelling Behaviours

Air travel can be separated into two distinct types based on their length, which are typically known as long- and short-haul flights. Long-haul travel typically takes a substantial amount of time and preparation to obtain the necessary permissions and settle affairs before departing (Camilleri, 2017). Hence, the passengers will typically purchase their tickets ahead of time, and the demand can be managed without substantial effort. However, the short-haul market presents a different situation, which has to be taken into consideration. Shaw (2016) claims that short flights are often spontaneous and require a return trip the same day, which puts pressure on airlines to provide frequent flights, especially in the morning and evening. The increasing proportion of short-haul routes pressures carriers to adapt to the new model if they intend to satisfy this category of traveller.

Qualities Expected and Loyalty

When choosing a flight to take, travellers are likely to consider two principal items: service quality and price. The former is particularly relevant in long-haul flights, where the passenger will likely have to spend an extended period without moving from their seat. However, Budd and Ison (2017) state that less than a quarter of passengers considers business-class arrangements, which offer increased comfort at a higher price, good value for the cost. At the same time, over half of all air travellers are either price-conscious or value-seeking. Loyalty is also not a relevant concern for most passengers, as Sierpiński (2016) states. They will choose the most attractive offer without considering their relationship with the brand that provides it.

Airline Effects and Adaptations

Costs and Profitability

As a result of competition for the influx of new passengers, airlines have had to lower their prices to attract customers. Scotti and Volta (2017) analyse 53 airlines and discover that the increases in variable costs and decreases in prices have been associated with small and inconsistent changes in profitability, which tend to be negative but range between -6% and 5%. At the same time, carriers have become much more productive and efficient, indicating that this change was the result of a widespread effort to cut unnecessary costs to stay profitable while presenting attractive offers. Low-cost carriers, which focus their entire business model on trying to find and use cost-cutting opportunities (Gross & Lück, 2016), have likely also contributed to this change. They can be considered some of the most significant outcomes of the evolution of passenger needs and warrant a separate discussion.

Business Model Evolution

Two significant developments can be identified as the result of increasingly fierce competition between airlines: low-cost carriers and airline alliances. The former are founded on principles such as point-to-point travel as opposed to the hub-and-spoke system as well as a comprehensive cost-saving system. As Forsyth (2018) finds, despite heavy resistance from incumbent airlines, carriers such as Southwest were able to prosper and expand their market share dramatically, lowering prices and increasing traffic as a result. With that said, low-cost carriers are typically limited by their model, which is suited to short-haul travel more than long-haul. Global airline alliances formed to take advantage of deregulation and secure the international travel market through superior services such as seamless travel and cost-cutting via shared facilities, coming to control 73% of the traffic at world’s ten busiest airports in 2016 (Fleming et al., 2018). Overall, the short-haul market is currently dominated by LCCs, while alliances hold a massively powerful position in international travel.

Fleet Strategy

To satisfy the growing demand for air travel, carriers have had to purchase additional aircraft, as their capacity at the time was inadequate. This purchasing practice had the side effect of phasing out older, smaller, less efficient aeroplanes in favour of larger new models (Vasigh & Gorjidooz, 2016). Low-cost carriers such as Southwest also chose to maintain fleets of a single aircraft model because it would enable their pilots and technicians to be able to work with each vehicle competently and efficiently. However, this tendency has recently been changing because, as Clark (2016) points out, airlines prefer to continue benefiting from the competition between Boeing and Airbus. Regardless, the overall approach stands, with low-cost carriers operating highly uniform fleets that consist of a small number of different models.

Markets Served

There have been both a local and a global response to the increased attractiveness of various aviation markets worldwide. Numerous new carriers have emerged throughout Asia in the 21st century in both legacy and LCC variations, and their formations have coincided with growth in air travel to different local destinations of between 7% and 46% over five years (Duval, 2016). Global airlines have also become interested in this growth, forming alliances and using code-share flights to enable themselves to reach destinations in otherwise inaccessible markets without excessive investment (Lawton, 2017). With that said, Seredyński et al. (2017) note that 25% of potential alliance connections remain unused, particularly in emerging regions such as Asia. As such, it would appear that local airlines are responsible for satisfying most of the growing demand in these markets.

Services Offered

Previously, the prohibitively high costs of air travel necessitated excellent service to justify it, and many legacy carriers specialised in it. However, the emergence of low-cost airlines and intensification of competition have led to cost-cutting efforts that have in part affected in-flight service. Koklic et al. (2017) state that, while quality expectations for LCCs are lower than those for full-service airlines, the differentiation between the two is decreasing. Nevertheless, customer satisfaction and factors such as intent to repurchase depend on factors such as personnel quality more than tangibles. With that said, airline alliances have found alternate ways of providing superior service that would be unavailable to individual airlines, such as airport lounges (Bruce et al., 2017). Overall, amenities appear to have become secondary to the price in most cases, with only premium and low-cost options surviving.

Advertising and Marketing

Due to the low overall differentiation between airlines’ services and the focus of competition on price, their marketing and advertising are also focused on it. Customers expect the best value, which mostly consists of the price combined with the service quality. However, it is challenging for them to evaluate the service quality of an airline unless they have flown with it before. Hence, marketing will typically focus on spreading brand awareness and attempting to associate it with low prices. Jeng and Lo (2019) highlight lowest price guarantees as a significant predictor of customer purchasing intention, especially when they are combined with strict refund conditions that improve the believability of the offer. Customers will often be satisfied with a low price, and airlines are focusing on ensuring that their flights are seen as superior to the competition in that regard.

Conclusion

With the increases in passenger traffic following events such as deregulation and the development of new aircraft models, both passenger traits and airline strategies have changed substantially. Passengers have become younger, less wealthy and more price-conscious, spontaneous and spread throughout the world. They have started demanding frequent, inexpensive flights and have the influence necessary to make carriers try to satisfy their needs. In response, aggressive competition has taken place in aviation, which has led to the emergence of LCCs in local markets throughout the world and the consolidation of long-haul carriers into alliances with global coverage. Prices are now essential determinants of airline offers, and they recognise this fact and integrate it into their marketing and cost-cutting initiatives, sometimes at the expense of service. Overall, aviation has become more democratic and available to everyone regardless of their economic status or location, though the process that has led to this result is still ongoing.

References

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