Looking to 2020, it can seem that the only thing we can be certain of is uncertainty. With increased economic and geopolitical volatility ahead, it is more important than ever that corporate travel buyers equip themselves with rich insights to support their planning.
Below are some keys trends and insights from the 2020 Air Monitor from American Express Global Business Travel (GBT).
The Air Monitor has been developed by our Global Business Consulting team of aviation experts. For our forecast pricing conditions on key business routes around the world as well as advice from our global air practice team on building “nimble” air contracting programs, fill out the form below to download the full report.
Airline performance
Overall, growth in global demand for travel slowed in 2019 and is likely to continue to do so in 2020. However, capacity growth largely slowed at a similar pace, resulting in only minor increases to load factor. Rising costs for oil, labor, and infrastructure continue to squeeze margins, compelling airlines to recoup costs via higher fares and/or a push for increased ancillaries. However, fierce competition is restricting their ability to raise fares.
While economy base fare yields have been largely flat in 2019, premium fare yields have been on the rise since 2017 on stronger business demand. This has been particularly true on long-haul/ transatlantic flights. If economic headwinds and reduced trade diminish demand among business travelers, look for prices to soften accordingly.
Low-cost, long-haul
In last year’s Air Monitor, long-haul low-cost carriers (LCCs) looked poised to have a significant impact on travel. However, with the exception of those providing inter-regional services in Asia, long-haul LCCs have largely floundered. Despite a set of strong Q3 2019 results from Norwegian, the failure of several long-haul LCCs, including Primera and XL Airways, have cast doubt on the viability of this model going forward.
The year 2020 could be even more challenging for long-haul LCCs. While mainline carriers may initially have overreacted to the threat from long-haul LCCs, they are now taking a more measured approach. Lufthansa has pulled back on its Eurowings LCC brand and IAG is doing the same with LEVEL. It’s a different story on short-haul routes where LCCs continue to thrive, putting pressure on the mainline carriers.
Fare segmentation
Fare segmentation, or unbundling, continues to grow and evolve as a way for carriers to simultaneously meet different needs and budgets – and respond to the competitive challenge posed by LCCs. With basic economy fares generally priced close to where the original main cabin fares used to be, this has essentially become a way to bump more passengers up to a higher fare. In fact, some US carriers have found that a large percentage of shoppers ultimately move up from the basic/unbundled fare into a more profitable standard fare type.
Fare segmentation is not limited to economy fares: Emirates recently became the first airline to offer unbundled business class fares, while Lufthansa is planning to charge a premium for some business class seats (such as the “throne seat”) on its new 777X. Look out for other carriers following suit at some point. For corporations, the availability of cheaper option business class seats could open up new opportunities in negotiations with carriers.
Airline retailing
Changing airline retailing strategies are presenting challenges for those managing corporate travel programs. Some airlines have chosen to remove fares from the global distribution systems (GDSs), and/or add distribution surcharges to tickets.
The API technology standard known as New Distribution Capability (NDC) has often been misleadingly cited by airlines as necessitating these moves – but, in fact, withholding content or charging fees are commercial decisions by airlines, not the result of NDC. GBT is at the forefront of working with the GDSs to make NDC-enabled content available to business travel buyers. GBT is successfully working with many airlines around the world on joint retailing initiatives, based on core distribution principles: aggregated, transparent content; simplicity for users; cost efficiency; and servicing abilities – all of which help deliver value to corporate buyers.
Aircraft issues
The grounding of the 737 MAX in March 2019 following two fatal crashes has had a significant impact on airlines, compelling many to cancel services or delay the retirement of older aircraft. For some carriers, notably Southwest and Ryanair, the absence of the 737 MAX has made it difficult to increase capacity. Timelines for the 737 MAX’s return to service have been repeatedly pushed back, creating uncertainty and putting pressure on airline revenues.
In December 2019, Boeing suspended production of the aircraft. A separate issue with the Boeing 737NG pickle fork (a structure that joins the wing to the 737’s fuselage) began grounding 737s in late 2019. This grounding will heap extra misery on carriers with large 737 fleets who are already struggling with the capacity impact from the 737 MAX grounding.
Sustainability
Concerns about air travel and climate change are coming to the fore, particularly in Europe. In the second half of 2019, there has been an increasing amount of media coverage about the environmental impact of air travel. The flygskam — “flight shame” in Swedish — phenomenon in Scandinavia is a product of growing public concern about carbon emissions from aviation. Many of the world’s largest airlines including Lufthansa, Qantas, United, and Delta, have introduced carbon offset or biofuel surcharges. Upping the ante, EasyJet has announced it would become “carbon neutral,” offsetting emissions by investing in forestry, renewable energy, and water projects.
Regulators are also taking a growing interest in the topic: in 2019, French President Emmanuel Macron proposed a jet fuel tax in Europe and the government of Germany announced a climate package for 2020 that will increase taxes on aviation while cutting the tax rate for rail travel.
For more strategic advice specifically configured for your travel program, please get in touch with our Global Business Consulting team.
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