Unisys Predicts 10 Trends That Will Drive Global Airline Industry Transformation in 2005

Enterprise Networks & Servers, Jan 2005

Transportation consultants at Unisys have unveiled a list of trends that will likely drive global airline industry transformation in 2005. While cost reduction remains a key priority, forward-looking companies are showing interest in transformation projects which will help them become more agile and able to make faster and smarter business decisions.

To survive in 2005 and beyond, the transportation industry must continue to reduce costs and reinvest in solutions that can help them more easily and quickly respond to changes in their business, technology, and consumer-buying trends. According to Unisys, following are trends for this year.

1. More bankruptcies are unlikely, but some legacy and smaller fringe carriers will disappear.

2. Some legacy carriers will demonstrate that they can deliver a streamlined business-traveller service offering a relying on lower unit costs and revamped hub networks ã to ensure their long-term survival.

3. Legacy carriers could vanish from U.S. non-hub transcontinental markets and other non-strategic markets as they re-focus on their streamlined hub-and-spoke networks.

4. There will be more consolidation in the European airline industry in the fashion of Air France and KLM.

5. New low-cost carriers will continue to emerge around the world, but the new-generation industry will continue to consolidate.

6. Low-cost transatlantic service will emerge successfully and begin to spread.

7. Airports will begin serious efforts to reduce airport costs in response to increased pressure from airlines worldwide.

8. Airports and government security agencies will continue to seek ways of streamlining passenger flows through airports.

9. Airlines and hotels will continue to increase their use of kiosks.

10. Traditional cargo carriers must adopt a new business model in order to better control prices and retain market share over the low-cost cargo carriers.

"While the past several years have been daunting for the air transport industry around the world, we see many signs of growth and positive transformation occurring now and well into 2005," said Olivier Houri, president and general manager, Global Transportation at Unisys. "Legacy airlines are definitely making headway in controlling costs in line with those of the low-cost airlines. The overall trend that we see as true evidence of industry recovery is the renewed focus on technologies that streamline operations, improve passenger facilitation and loyalty, and create flexibility in changing business processes, which will eventually result in lower costs."

Houri provides the following additional details on these trends.

1. Brighter days are ahead for the airline industry - notwithstanding continued cost pressures, more bankruptcies are unlikely, but some legacy and smaller fringe carriers will disappear. The existing North American legacy carriers not already in Chapter 11 will weather the storm. Consumers will soon begin to see the fruits of airlines' restructuring efforts as unit costs, excluding fuel, plummet and the offering of low fares day-in and day-out become sustainable. In other parts of the world, the worst is already over. Legacy airlines that do not restructure themselves will face their toughest challenges yet and continue to fail. In Europe, Alitalia is in a very difficult position in terms of being able to prosper and Swiss is in a weak position. SAS is working hard to restructure its business in order to form a new path into the future.

2. Some legacy carriers will demonstrate that they can deliver a streamlined business-traveller service offering, relying on lower unit costs and revamped hub networks, to ensure their long-term survival. The news in 2005 will be the revival of the North American legacy carriers. With genuinely low costs, restructured balance sheets and smartly revised network and product strategies, they will be able to shine. At the same time, new-generation airlines will suffer from growing pains and, particularly for start-ups, face limited availability of new aircraft. On service strategy, for example, United Airlines has begun to shift service on two routes from twin-aisle Boeing 767s, seating 168 passengers to single-aisle Boeing 757s, reconfigured to seat 110 passengers in three classes. This demonstrates that the legacy carriers are re-thinking the fundamentals of their service offerings and looking to capitalize on the "differences" vis-a-vis the new-generation airlines that they can bring to the market. These newly restructured U.S. legacy carriers will be able to bring their low costs and new products to international long haul European and Asia-Pacific markets as well as to domestic markets, placing increasing financial pressure on their foreign competitors.

3. Legacy carriers could vanish from U.S. non-hub transcontinental markets and other non-strategic markets as they re-focus on their streamlined hub-and-spoke networks. The U.S. legacy airlines are fighting for market share in the face of losses, and the low-cost airlines are finding markets that make money. It has become increasingly difficult for legacy carriers to compete profitably on the traditional transcontinental routes not core to their networks. The obvious lesson taught by the successful hub-and-spoke carriers a that networks matter ã will finally be learned by the teachers.