Over the last decade, the paradigm shift on how airlines do business and the developments in supporting technologies directed an increasing number of people to affordable and easily accessible air travel. As of today, we have reached a point where we can observe the longer-term effects of these changes, more confidently anticipate future passenger demands, and come up with ways to proactively address them. Airlines responded to these rapidly evolving passenger expectations with increasingly complex ancillary offerings, fare families and bundles, which for the most part worked out well. However, there is an inherent risk in this success: The foundational aspect of getting a passenger to buy an airline product -regardless of what the product may be- lies in being able to deliver that product offering to the passenger in the first place. Accordingly, airlines should be thinking about their distribution strategy and more specifically how it could be kept ahead of the curve and stay relevant to prospective passengers of both today and tomorrow, or else they risk having their finely tuned ancillary offerings lie on the wayside gathering dust.
Taking a closer look at today’s passenger demographics and near term changes over the next 5 years yields a mixed bag of predictable outcomes as well as a couple of surprises. According to numbers from The World Bank and IATA, the largest segment of air travelers will remain as the 25-54 age group with a healthy 4.8% growth. Familiar with the core value proposition of air travel and with a fairly good grasp on evolving passenger service channels, airlines targeting this broad group can hardly go wrong. But the downside of this obvious good choice is, of course, that it is too obvious: Pretty much every other airline also thinks and acts along the same lines, thereby making this prime customer segment a scene of very fierce competition. The outcome is hardly ideal, especially for the airlines feeling the downward pressure of recovering fuel prices on their already precarious margins.
The traditional wisdom to branch out of this hyper-competitive field has been to look towards the young: The 18-24 age group has seen tremendous growth thanks to more easily accessible air travel through better direct channels -especially mobile- and fares becoming more affordable with low-cost practices. Since the 18-24 demographic is almost entirely detached from old school agent sales channels and also highly price-sensitive to boot, airlines have been scrambling to offer their lowest fares to as many online distribution channels as they could get their hands on. And those managing to get it right have reaped massive benefits, as we have seen major LCCs surpassing long-established legacy competitors.
It turns out one can have too much of a good thing after all: According to passenger studies done by Atmosphere Research Group on behalf of IATA, almost half of the passengers in this age group believe they waste too much time having to “shop around” for the same flight on different websites and other B2C channels. Indeed, Expedia research shows that today such a traveler interacts with 38 different digital touchpoints on average, which constitutes an incredible 72% increase over the previous 5 years. There are simply too many similar offerings by competing airlines spread all over the Internet, and the price-sensitive traveler is getting tired of having to check them all, which also contributes to a less obvious but potentially even more dangerous threat for airlines: the threat of commoditization, meaning airlines losing their individual brand identities and unique offerings, and just becoming a price attached to an air ticket. The same ARG passenger survey indicates 39% of the aforementioned travelers already consider airlines to be “pretty much the same” as part of their online shopping experience. This should come across as no surprise to our community as Hitit has been drawing attention to this particular problem over the last several years and proposing potential solutions, and the latest data confirms it.
What might be surprising though is that the passenger numbers in the 18-24 group are no longer the kings and queens of explosive growth. On the contrary, The World Bank anticipates that this particular demographic will shrink by 2.1% over the next 5 years. The “fastest-growing demographic” crown will then be picked up by an unlikely contender: The 55+ age group is expected to grow by an impressive 15% over the same period, mainly due to the macro-trend of an increasingly aging population in wealthier countries. As an added bonus, IATA passenger surveys show that an incredible 69% of this demographic is actually price-insensitive in the sense that they value getting their ideal travel experience more highly than how much they would have to pay for it, an almost complete reversal in spending behavior when compared to the 18-24 age group. For the most part airlines have been ignoring this specific demographic so far, which creates a gap travel agents have been all too willing to fill on their behalf, but clearly, airlines can continue to do so at their own peril.