Managing a Patchwork: Airlines in Consolidation

In order to survive in today's dynamic market, airlines need a full array of flexible tools, scalable from very local activities to global changes of structure. Partnering and consolidation are the answers to this. But entering this fields is higly complex. Let me explain you, why.

For years, the airline market in Europe, as well as in the rest of the world, has constantly depicted massive overcapacities. However, this did not prevent new players from entering the market, even though on the average margins in the airline industry are low, compared to other types of business. This permanent inflow of capital and capacity surpasses the real grow of demand. The first consequence is the continuous, secular, decline of the average revenue per passenger seat kilometer. Immediate cost reduction potential is limited, therefore there is a permanent need of consolidation and restructuring. In parallel, demand and environment require extreme agility. Market forces and external factors of influence change almost every day. For this reason, new response scenarios have to be invented almost every moment. The traditional strategy of acquisition and “static” full merge are outdated. In parallel, being a member of an alliance and “that’s it” is far from sufficient.

 

Today's Challenges: Managing a patchwork

In order to survive in this dynamic market, airlines need a full array of flexible tools, scalable from very local activities to global changes of structure. Everything is on the table: from code sharing on one single city pair to acquiring another airline of similar size and completely absorbing it. The manifold the ways of partnering and consolidation are, the needs in all of the situations are the same:

 

  • Various solutions have to be combined. The right answer is not: “We do partnerships” and “We do codeshares”, “We do wet lease” and “We are looking for a competitor do be acquired”, but “We do all of this, in parallel”.
  • Any solution has to be seamless. Customer expectations of today have for long outdated the public service attitude of legacy airlines, as well as the now start to outdate the “shut up-and-pay” mentality of some LCCs.
  • Any solution has to be reversible, and any road can be gone both ways.

 

To sum it up: Airlines need to respond to the highly complex challenge of consolidation and partnering. They have to learn to manage a permanently changing patchwork of routes, fleets, AOCs and resources in order to survive. The right array of processes and tools in order to manage the required flexibility might be one answer here.

 

It’s time to move now

Last but not least - apart from this above more technical questions - let give you the answer to an even more important question: What makes this airline consolidation challenge even more critical for airlines? My answer: The reaction has to be quick. Why? Because a solution delivered in two years does not mean a solution, but a new problem. Think about it!

I look forward to hearing your ideas or feedback here or via email: toni.reitz@lhsystems.com

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