Airline Trends & Predictions to Look Out For in 2023
The airline industry has been through the wringer the past couple of years—a pandemic that brought the industry to its knees, followed by a surge in demand that it couldn’t keep up with due to staff shortages. However, it is expected that 33.8 million flights will have transported 3.8 billion passengers by the end of 2022 and that industry revenues will have reached $782 billion (up nearly 55% from 2021 and 93.3% from 2019). The IATA’s outlook for the industry indicates industry-wide profitability in 2023.
However, airlines are facing eye-watering fuel costs, with Brent crude oil prices kept high due to the war in Ukraine and the high spread between crude and jet fuel prices well above historical averages due to refinery capacity constraints. When fuel accounts for 24% of overall costs (up from 5% since 2021) and is the industry’s largest cost item (with a $192-billion price tag), it is imperative that airlines get creative with finding new ways to increase profitability while minimizing cost.
As business partners, Pricefx and Travel Technology Specialist, Ann Cederhall, have been working together for a while now to help companies across all industries define pricing strategies that prepare them for an uncertain future; providing the tools to help them optimize price, maximize profitability, mitigate risk, and stay ahead of the curve.
Ann has years of experience helping airlines solve the distribution puzzle, and in this article, she discusses some of the airline industry trends in 2022 that surprised her, her predictions for 2023, and what airlines should be doing now to prepare for growth in the years ahead.
What Airline Trends Surprised Us In 2022?
It has been a busy year for airlines. Some of the 2022 airline industry trends included: a focus on sanitation and contactless technologies, investments in passenger self-service, enhancements in biometrics, advancements in self-driving vehicles and the rise of the digital nomad.
But there were some things I noticed in 2022 that I wasn’t expecting….
I was shocked, especially coming out of one of the worst years to ever have impacted the industry, at the lack of innovation in the industry. While a handful of airlines are starting to think about things differently, the vast majority seem to have simply returned to how they did things before the pandemic; doing the same thing again and again but expecting a different result.
Take Alitalia, for example. Following years of unprofitability, the airline went into Chapter 11 (administration) in 2017 and (after a [questionable] €900 million cash injection) ceased operations in 2021. ITA Airways emerged from the ashes and, after being cleared of over a billion dollars of its predecessor’s debt, took over flying the Italian flag. They had a massive opportunity to start afresh, renegotiate deals, reduce distribution costs, and embrace new technology. But instead, they did another Alitalia… and things don’t look good. Could they make airline history by entering Chapter 11 twice? 2023 will tell.
Ryanair, on the other hand, has always done everything differently. They focused entirely on online distribution (making huge savings) and famously unbundled their prices so customers could choose which individual elements to add to their basket. While some customers gripe about being nickel-and-dimed, others are glad to make savings where they can. For the first time in aviation history, Fast Track was something a regular customer could purchase, and it made them feel like rock stars!
However, we see a reluctance in the industry to innovate and learn from others and I feel this is a big missed opportunity.
The other thing I can’t quite fathom, is why airlines don’t seem to have got the memo on the importance of delivering a good customer experience. With the notable exception of United Airlines (who did a remarkable job during the pandemic) and AirAsia (whose reputation precedes them), customer experience in the airline industry leaves a lot to be desired. Inconsistent messages, poorly designed apps, a lack of flexibility, the requirement to speak to an (inevitably irritable) human to get anything done… airlines have totally missed the opportunity to embrace automation and their customer experience suffers for it.
So let’s take a look at what we foresee for the year ahead.
Top 6 Predictions and Trends in The Airline Industry In 2023
1. Making Sustainability The Big Talking Point
The most important thing for airlines in 2023 will be sustainability.
According to the International Council on Clean Transportation (ICCT), global CO2 from commercial aviation has increased around 30% in six years, reaching 920 million tons in 2019. By 2050, this could triple.
I expect to see airlines doing more in the name of sustainability; questioning traditional processes and re-examining long-held structures (like offering indirect flights for lower prices when direct flights are more environmentally friendly).
Why? Because passengers demand it and, Gen Z and Millennials especially, aren’t afraid to make their voices heard.
It’s time to get more talkative and transparent about sustainability. Tell your customers what you’re doing and how it’s making a difference. Ryanair, named the No.1 airline in Europe for ESG performance, isn’t afraid to show off its efforts.
“Passengers who switch to Ryanair … can reduce their emissions by up to 50% per flight, proving that with Ryanair tourism growth can be delivered in a more sustainable manner…. we are campaigning to accelerate reform of European ATC to eliminate needless flight delays, which will substantially reduce fuel consumption and CO₂ emissions.”
This is what customers want to hear. Even Skyscanner tells its users when their chosen flight emits less CO2.
The writing is on the wall. Airlines need to take sustainability very seriously in 2023.
2. Updating Payments To Match Customer Preferences
There seems to have been no change in the airline payment space for the past 20 years and the process is crying out for innovation. Airlines that only accept Visa and MasterCard are living in 1995. Customers expect to use Apple Pay, Google Pay, even Bitcoin and Cryptos. BNPL agreements would allow customers to fly now, pay later.
Airlines need to get where their customers are at with payments to ensure greater profitability and better experience for their passengers. And on that note…
3. Catching Up with Customer Centricity
While a handful of airlines are making waves with their passenger experience, there is a woeful lack of customer centricity in the industry and I think that 2023 is the year airlines will finally address this. Understanding what your customer wants and putting them back at the center of things (as was the case 30 years ago) is going to be a keen focus this year.
American low-cost airline JetBlue recently beat The Big Four (Southwest, Delta, United, and American Airlines) in the American Customer Satisfaction Index. And Ryanair’s Customer Panel, which provides the airline with valuable insights and suggestions to help improve its offers and service, has proved hugely popular among its passengers. How are the low-cost airlines winning in this space?
In 2023, airlines should be focused on nurturing customer loyalty, and on enabling the one-order “connected journey”, where customers’ flights, hotel bookings, limo services, and train tickets are all linked. Only about 10 of the major airlines are currently doing this well.
4. Greater Focus On Ancillary Revenue And Partnerships
I expect to see ancillary revenue (from food and drink, seat selection, checked baggage, flight flexibility, priority boarding and fast tracking) to grow in importance through 2023.
Globally, ancillary revenue is estimated to have earned airlines around US$60 billion in 2020 and, according to the IdeaWorksCompany’s 2021 CarTrawlerYearbook of Ancillary Revenue report, Allegiant, Spirit, Viva Aerobus, and Wizz Air all made more than 50% of their total revenues in 2020 from ancillary revenue.
The majority of airlines have very strong branding and can utilize it to encourage cross selling and upselling.
Airlines should also look at destination partnerships and marketing. Air Canada recently partnered with Canadian tourism board, Destination Canada, and StatusMatch to launch a time-limited program that encouraged frequent American travelers to visit Canada. This was the first time a tourism organization had used status-matching in this way. There is a lot of untapped potential in such partnerships.
5. Embracing Digital Transformation
I’m hopeful that 2023 will be the year that the airline industry embraces better technology. So many airlines are stuck using legacy technology and simply don’t have the capabilities to evolve with either the industry or the customer.
We expect to see airlines starting to replace traditional tools with those that help them streamline processes, provide a smooth and friction-free passenger experience, enable a connected customer journey, and automate everything automatable.
It’s all very well pushing an app out, but if the data feeding it is incomplete or delayed or if customers can’t do what they need to do or access the content they require, then it’s more of a hindrance than a help. Getting a notification that you’ve been gifted free lounge access when you’ve already paid for it isn’t going to go down too well. As I like to say: when my banking app is sexier than my airline app… something is wrong.
6. More Consolidations in The Market
After the worst two years in the industry, it won’t come as a shock that we predict further mergers, and acquisitions, especially considering the huge number of unprofitable airlines out there.
Steven Udvar-Házy, Executive Chairman of Air Lease Corporation, says he expects more airline consolidation in Europe, (naming Scandinavian Airlines, ITA, and TAP Air Portugal the likely acquisitions). JetBlue Airways agreed to buy Spirit Airlines for $3.8 billion earlier this year, and as I write, there is speculation that IAG International Airlines Group is potentially looking to acquire TAP Air Portugal or EasyJet.
Consolidations are a good thing as it helps makes strong airlines stronger and more resilient, something that they (and their passengers) need at times like these.
How Should Airlines Prepare for Our Airline Industry Trends in 2023?
So now that we have an idea of what to expect in 2023, how should airlines be preparing for it?
1. Get Nitty-Gritty with Your Processes
All too often I see airlines adding processes rather than simplifying—trying to fit square pegs into round holes.
There has never been a greater need for airlines to peer deep within every process in the organization to see where there are opportunities for improvement (the customer experience, process efficiency, increased profit) and areas of risk (passenger dissatisfaction, inefficiencies causing delays and increased costs, prices that aren’t working).
You should be asking questions like: Is my revenue management siloed from my pricing management? What is my process for loyalty? Why does my website look different for loyalty customers than it does for regular consumers?
It’s time to gain crystal clear visibility of your costs, processes, and prices. What additional data would support your pricing decisions? How would a price change impact overall profitability?
It’s also time to benchmark against your competitors and learn from them. How are they doing what they’re doing? How would the same apply to your organization?
Look for every opportunity for improvement whether it be the overall way you operate, your internal processes, the experience the customer has with your brand, the deals you negotiate, or how you determine and present prices.
Don’t fall into the trap of thinking that people will always need airlines and if you’re in trouble the government will bail you out. Taxpayers are sick and tired of subsidizing airlines with tax money needed for roads and healthcare.
2. Embrace Digital Transformation and Technology
It is time to let go of ‘computer says no’ mentality. It only results in passenger dissatisfaction. It is no longer acceptable to forbid basic name changes or to only accept MasterCard—these things can all be automated! The customer is used to an exceptional experience from every other industry and expects it from yours.
A particular bug-bear of mine is the one-liner: our revenue accounting systems don’t support it. Repeat that phrase! If your revenue accounting system cannot support more revenue, you are clearly using the wrong revenue accounting system!
When there’s so much technology out there ready to support you, why are you limiting your ability to delight the customer? Why are you still pricing in excel spreadsheets, curbing your potential for profitability and growth?
Airlines should already be incorporating automation and Artificial Intelligence (AI) into their processes to mitigate the impact of staff shortages and to leverage the incredible insights and efficiencies it brings. Using AI in first management, for example, would likely reduce workload by 50% or more.
With the right technology, airlines can embrace a post-mortem culture where they can analyze why something didn’t work, where it failed, why it failed, and gain a much clearer picture of their business and customer. The creates an infinite loop of wisdom and improvement.
2023: A Year of Opportunity for Forward-Thinking Airlines
Sustainability, innovation, automation, win-win partnerships, and customer centricity are going to be the name of the game for airlines in 2023.
In order to keep up with customer demand, passenger expectations, and the times, airlines need to be taking a good hard look at their traditional structures, processes and technologies and swapping them out for those that make them more efficient, nimble, and attractive to customers. They need to focus on the customer experience and providing a connected customer journey. They need technology that automates, streamlines, and simplifies. Tools that enable deep analysis, complex negotiation management, entire-waterfall visibility, what-if scenarios, value-based pricing, risk mitigation, and multi-element price optimization strategies.
If you’re interested in learning more about continuing to maintain profitability in the potentially uncertain and testing times for the economy in 2023, check out this article below:
About the Author
Ann Cederhall has more than 20+ years of experience as an independent consultant in the aviation industry. She has proven expertise in retail, e-commerce, digitization, innovation, project management, and delivery. Key knowledge areas include NDC, ONE Order, corporate booking tools, airline website management, shopping, and merchandising. She also has an extensive record of delivering business value across the globe having lived and worked in 10 countries.