PwC released its annual Tailwinds 2016, which provides an overview of the current state of the global airline industry and highlights the latest emerging trends. This year’s report delves into how airlines are allocating profits and suggests ways to prepare for long-term growth while satisfying the needs of stakeholders.
With low fuel prices, growth in air travel, and capacity discipline, airlines have reached record profitability for their fifth consecutive year, but what’s next? According to PwC, airlines will need to work harder to secure profitable growth in the future under today’s changing economic conditions.
Here are 5 ways airlines can sustain growth, according to PwC:
1. Become known for reliability. In addition to being attractive for flyers, airlines run much more smoothly and efficiently when they’re on time. To achieve excellence in reliability requires investment in logistics, data analytics, information systems, and processes. It also means giving employees the technology tools they need to reduce the number of exceptions they deal with such as lost baggage and missed connections.
2. Achieve unit-cost efficiency. It is easier for an airline to use price as a weapon when it has its unit costs under firm control. Airlines can achieve this in a few ways, one of which is to build the capabilities to reach faster aircraft turn times, resulting in additional flights with the same aircraft. Focusing on day-of-operation capabilities will also be key, such as rational fuel tankering, the ability to adjust flight cost factors on-the-fly to recover schedule integrity, and real-time predictive maintenance analytics that reduce delays and cancellations.
Develop a noteworthy customer experience. Airlines should channel their innovation to create greater convenience for passengers with harder-to-duplicate services. From improvements to Wi-Fi connectivity to additional overhead “space bins,” airlines can improve passenger experience in many ways. Perhaps an airline’s mobile app can alert a passenger to traffic conditions and TSA wait times then recommend what time to leave for the airport. Checking in bags can also become more seamless by automatically checking in using a specialized tag in the passenger’s bag or through a mobile app. These types of capabilities are a moving target, as customers need change, but it’s hard to keep ahead of the competition.
3.Formulate a new tax plan. Due to significant profits, many airlines are, or will soon be, paying cash federal and state income taxes, meaning that US-based airlines will have an unfavorable effective tax rate in relation to airlines based abroad. According to the report, this is a good time for airlines to rethink key performance indicators related to tax. External factors are creating new challenges across all tax functions, including a growing problem of tax-related business identity theft, as well as an evolving set of compliance requirements required by changes in the regulatory and legislative environment. Airline tax functions will find the need to work closely with the business to identify tax efficiencies across the organization.
4. Invest in innovative new technologies. Revitalizing the airline industry will depend on investment in new innovations and technologies. As airlines look to technology advances to affect step-change efficiency and customer service improvements, more airlines are working with start-ups and considering venture capital opportunities. PwC also anticipates increased investment levels in existing and new joint venture-type arrangements.
It’s up to the airlines to invest in ideas now for a sustainable and profitable growth path while they have the opportunity to allocate their profits. The new industry realities require a different playbook than the one airline executives have followed in the past; airlines will need to reassess how they will compete, what strategic model they will pursue, and how to invest in the long-term.
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