As the aviation industry eagerly awaits traffic recovery later this year, this will undoubtedly bring new impulses for airline consolidation – something what has been happening for a long time already.
Over last fifteen years (2004 – 2019), we saw annual number of passengers more than doubling - from 2 to over 4,5 billion per year. At the same time, the number of commercial flights increased by 46%. Yet when we look at the marketing (ticketing) carriers, we see a growth of roughly 3% over the same period – a clear sign of commercial integration, bringing significant opportunities on the revenue and sales efficiency side.
The operating side is slightly different: in 2004 there were 787 individual operators (AOCs), growing to 892 in 2019. This translates into 13% growth, indicating that the integration there is slower, although still present. Simultaneously, the operators are getting bigger – producing on average 33% more flights than 15 years ago and arguably getting more cost efficient.
The operational integration can have various forms – from two airlines merging into one (typical in the US or with smaller entities elsewhere, particularly if both are located within the same country), up to setup of complex airline groups with different levels of independence.
Both actions have many common topics. The most crucial, particularly in the case of the airline groups is to find the long-term purpose for every individual AOC. Our experience shows that it should be unique in the context of strategic reasoning (including, but not limited to brand), organizational compatibility and long-term contribution. While it seems obvious, it is not so straightforward and sometimes it is important to acknowledge that the integration process might not be linear and the number of the operators within the group might temporarily grow, before shrinking to the optimum.
In the mid to long-term outlook it is of course necessary to achieve the simplest and most efficient possible setup. Although this might sound like a cliché, the fact is that the complexity and distraction caused by not achieving it is usually underestimated and leads to costly failures.
Aircraft, crew and process harmonization/standardization is another aspect of the integration, in the case of the airline groups ideally leading to interchangeability. Where relevant (particularly among same or similar operating models), further efficiency can be achieved by setting up a central service organization – something which many low-cost groups world-wide have mastered, but still not so usual on the legacy side. While the design or re-design of every organization is always tailor-made, Lufthansa Consulting has derived some major design criteria in its latest white paper and podcast.
Naturally, overall modernization and digitalization should not be left aside when integrating – quite the contrary. But that all will not work without considering another important and often underestimated factor – change management – particularly when blending two or more different cultures. Finally, the passenger interaction must be taken seriously as the customer should not face confusion and errors due to incompatibility of sales, check-in, in-flight experience, loyalty and other platforms.
Lufthansa Consulting has a significant experience from supporting airline operational integrations in the last three decades. Regardless if your topic is strategy, change management or technical issues, such as aircraft and crew transfers, we would be happy to discuss it with you and support you in making things right.