In 2010, things are expected to look a lot brighter for the airline industry buffeted by one of the severest economic recessions in 2008-2009. To cope, in the past year, airlines have been forced to respond by cutting back on flights, rescheduling existing routes and searching for new revenue streams such as charging for aisle seats and baggage. Some have also turned to business process outsourcing and outsource travel services.
According to IATA, the first green shoots of recovery are likely to be evident in 2010; passenger traffic is likely to reach the peak levels of 2007 even as airlines drive down non-fuel unit costs by 1.3 percent. As a result, there is likely to be a tempered optimism in the airline industry in 2010.
There are some key themes emerging in the ‘flight path’ of 2010
1. Increasing travel demand: Two of the top six U.S. airlines saw their best traffic results in 18 months this past November. While Southwest recorded a 12 percent increase, Continental registered a 2.8 percent increase, respectively, in miles flown per passenger. These figures represent absolute increases in ‘warm bodies’ flown – a more reliable metric than passenger load factor.
Clearly, the slump in air travel is ending. IATA has now revised its passenger traffic estimates for 2010 upwards by 4.5 percent (as against the previous forecast of 3.2 percent in September 2009). An estimated 2.28 billion people are expected to fly in 2010, bringing the total passenger numbers back in line with the peak recorded in 2007.
2.Airline-supplier consolidation: As airlines improve services while implementing aggressive pricing strategies, many plan to forge new links with distributors, including travel management agencies that don’t rely on the traditional GDS connections. A trend that first started two years ago, airlines are expected to continue to implement direct-connect models to manage products and inventories, and establish closer ties with their customers. For example, last October, American Airlines indicated its plans to move all indirect volume to direct connections.
This will change the nature of Airline-GDS relationships. One notable potential by-product of this trend could be GDS / TMC consolidation. With Amadeus and Travelport considering IPOs, the cash raised could be used to purchase a major global TMC. The GDS would like to have a more direct impact on their revenue potential from the carriers and, if this were to occur, a whole new dynamic will impact the already convoluted distribution model.
3.Environmentally-responsible aviation: By March 2010, EU-based airlines must provide carbon dioxide emission reports. That’s why, over the last six months, several EU airlines have begun using bio-fuel either wholly or in part on certain routes. This trend is now spreading to North America where several airlines have indicated their interest in buying eco-friendly jet fuel. In addition, several EU airlines have begun developing carbon offset programs as well as implementing shorter routes and efficient landing operations as well as best practices in fuel management to reduce emissions.
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