We will look back on 2018 as the height of a golden era of airline travel. We sampled freshly squeezed juices from a linen-draped mimosa cart, dined on unique amouse-bouche treats and pretended we were all alone as we closed the compartment doors on our private business class suites.
This may seem like an ambitious forecast, but bare with me, the proof is in the tea leaves. We have reached peak airline, the point at which ambition and aspiration collide with economic reality. Enjoying your suite and shower service on an Emirates A380? Just remember those wood-paneled, velvet-lined flying boats that used to dock at La Guardia Airport.
Certainly some airlines will continue to improve into the future, and new business models centered around transportation are likely to transform how we think about luxury travel in the future, but the traditional three class, hub-and-spoke airlines face strong headwinds in the near future that will likely erode much of the luxury that we’ve enjoyed for the past decade of airline resurgence.
Big Airlines Are Getting Too Complex For Their Own Good
Old airlines revel in building systems and business models around concepts of sometimes nauseating complexity. There are myriad boarding groups, frequent flyer tier levels, entire financial services departments, fare rules, revenue maximization algorithms, the dizzying idea of mileage-backed securities. Stacked up like a Jenga tower, all of the complex mathematical games big airlines use to maximize quarterly earnings become precarious in the long run.
The leaning tower of points, perks and fare buckets has fallen in the past. Surely, it will again.
Consider, at the “big three” U.S. airlines, revenue growth in co-branded credit card products over the past year has far outpaced revenue growth from ticket sales. These airlines are now growing more in the financial services business than in the airline business.
New players with simple, inexpensive business models are easy to maintain and scale. These fierce startup airlines can easily undercut bigger competitors whose balance sheet assumptions rest atop a bespoke house of cards. Historically, supply-side shocks that affect operating costs (ahem, fuel, economic downturns) tilt the board in favor of upstarts.
Southwest Airlines was the first upstart airline built around an ethos of simplicity. The airline started at the beginning of a long downturn in the airline industry, beset by the structural changes that came with deregulation.
Once a one-off Texas operation, Southwest was so successful in capturing market share that it grew to overtake all other global airlines. The quirky Texas airline now carries more passengers than any airline in the world, and it doesn’t have any form of global network or even an international alliance. It functions in essentially the same way it did the year it launched service between Dallas Love Field and Houston Hobby Airport.
Clouds on the Atlantic Horizon
While U.S. airlines have enjoyed a remarkably stable market over the last decade, underpinned by mergers that have limited competitive forces, many of Europe’s largest air carriers are feeling an uncomfortable squeeze.
U.K. competitors British Airways and Virgin Atlantic, long pioneers of luxury and service, are now saddled with persistent fiscal concerns. These airlines are being squeezed in two directions by startup foreign competitors.
On one side of the equation are the high-gloss Emirati carriers, Emirates Airline, Etihad Airways and Qatar Airways. These young airlines, benefactors of heavy government subsidy, have lured away discerning and monied flyers in lucrative Europe to Asia and Middle East markets.
On the other end of the bracket, simple, cost-effective upstart airlines like Norwegian Air Shuttle and Primera Air are winning younger travelers and leisure travelers. Big European airlines are now adjusting their economy products with basic classes and bag fees, mimicking discount airlines. This further adds complexity to their business model. The ensuing confusion is bound to frustrate flyers and further encourage the insurgent competition.
Market studies have found that many of the complex programs bigger airlines have designed to maximize revenue are actually turning off younger travelers. Many in this community were surprised to see JetBlue’s TrueBlue frequent flyer program beat out all others in J.D. Power and Associates’ annual study of loyalty rewards programs.
Despite the incredible value United’s MileagePlus program affords in the way of international long-haul business and first class flights, more American travelers seem to actually prefer the simpler, if much less rewarding, JetBlue program. United’s program, coveted by travel hackers, finished dead last in the J.D. Power survey.
Let The Service Cutbacks Begin
United had a mimosa cart, then it didn’t. There were meals on Chicago flights, then there weren’t. Virgin Atlantic — for decades — offered free haircuts and spa services to business class passengers. Now they don’t.
Pressured by immense competition for luxury flyers, not only from subsidized foreign carriers but increasingly accessible private alternatives, major airlines are forced to compete with one another on price and margin.
First class on long-haul flights is becoming an increasing rarity. As the business class seats are upgraded to compensate, they are fewer. American’s reconfigured Boeing 787-8 Dreamliners have fewer business class seats than some Boeing 737s.
Airlines that are investing in more lavish appointments are also scaling back inventories to help protect margins. Singapore Airlines’ new suites offer the most personal space of any commercially available seating product, ever. There are also just six of them on the Airbus A380, half the number under the previous suite configuration.
Many of the diligent travel observers in the Boarding Area cohort have documented slow, but steady premium service cutbacks in the past two years on airlines like Cathay Pacific, which is facing pressure from Middle East competitors, as well.
And while Emirates has successfully grown its Dubai hub into one of the largest in the world — turning a profit in the meantime — it is now constrained by growing labor shortages. Rival Etihad has reduced service frequencies to many U.S. destinations.
Small Planes: Advantage Small Airlines
The Airbus A380, a platform for the most lavish onboard cabins in history, is an endangered species. Meanwhile, small, single-aisle jets are now flying across vast oceans.
Consider new flights operated by Brazillian carrier Gol on Boeing 737 MAX 8s, between Brasilia, Miami and Orlando. Such a service would have been unthinkable just five years ago, when the only aircraft capable of covering such a distance were large, widebody jets.
The overhead cost of large aircraft and marketing challenges associated with filling hundreds of seats were previously entry barriers for smaller airlines. No more. The walls are coming down.
JetBlue now plans to fly across the Atlantic ocean using Airbus A220s, further challenging the likes of British Airways, Virgin Atlantic and others. Transoceanic travel, once the exclusive realm of those with the gumption, vision and overhead to acquire jumbo jets, can now be accomplished more cheaply and more reliably on planes the size of large regional jets.
This trend favors smaller, simpler airlines that are likely to lure with price, not luxury.
The past decade in travel has been incredible. Boarding Area has served as a platform of documentary of this era, leveraging perks, benefits and rewards to enjoy luxuries aloft that approach the realm of royalty.
I’m not arguing that 2018 is a bad time to fly. Onboard entertainment and seating are at never-before-reached levels on all three major U.S. airlines.
But the future looks quite different. I expect, in another 10 years time, we are going to be flying on smaller planes, perhaps on smaller airlines geared to compete on a price-first basis.
I certainly wouldn’t count on booking an abundance of first class suites using credit card points in the year 2025.