Regional Market Middle East
The aviation sector has developed tremendously in the Middle East and is a key region for our company. We have provided management consultancy services to significant players in the area and contributed to their success. We see the Middle East aviation industry as an important driver of economic growth. The challenges facing airlines, airports and authorities in the different countries are as diverse as the different nations in the region.
Due to its favorable geographic position the Middle East offers exciting opportunities for your future business ventures and developments. I would be happy hear from you and discuss your plans.
Now that Christmas and the new year are just around the corner, it's high time for us to send our warmest season’s greetings.
Happy holidays! Thank you for your continued trust, collaboration and loyalty in 2022. We wish you and your family peace, happiness, success, and especially good health for the New Year!
All of us at Lufthansa Consulting look forward to working with you again and supporting you in the coming year 2023!
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EASA (European Union Aviation Safety Agency) just recently released their 2022 report on the review of standard passenger weights. The authority issues and evaluates safety regulations within civil aviation in Europe and periodically conducts research, where the average weight of passengers and their baggage is important. Already in 2008, EASA collected the standard weight of passengers in a study. The goal was to determine the passenger weight, the weight of carry-on baggage and that of checked baggage on domestic, international, and intercontinental flights, in order to update the set of standard masses for the purpose of aircraft mass and balance. The update now will also help assessing if a review of the applicable EU legislation is needed.
Since fluctuations in the values were to be expected, EASA in 2021 commissioned Lufthansa Consulting to conduct a field survey to obtain up-to-date data. Over a period of 10 months, data was collected at six European airports: ATH (Athens, Eleftherios Venizelos, Greece), BRU (Brussels, Belgium), CPH (Copenhagen-Kastrup, Denmark), MXP (Milan Malpensa, Italy), MUC (Munich, Franz Josef Strauß, Germany) and SOF (Sofia, Bulgaria). A total of 4,164 passengers were surveyed, as well as their baggage and 1,998,070 pieces of checked baggage. In order to collect as accurate data as possible, the survey was conducted in the winter season and the summer season. In its PMO role, Lufthansa Consulting contracted I&O Research who were responsible for the in-person fieldwork activity. The subsequent statistical analysis was performed by SEO Amsterdam Economics.
According to the survey’s findings there was little difference in passenger weight from 2008/09. An average male passenger in 2022 weighs 82.5kg and a female passenger 67.5kg. Furthermore, it has been found that male passengers have more carry-on luggage. If we compare the weight of checked baggage from the previous study with today's results of averaged 16kg, it is clear that the weight of checked baggage decreased by 0,8kg. It was also observed that business class passengers carry more baggage on long-haul flights than other passengers.
With the Covid-19 pandemic increasingly moving out of people’s daily lives and immediate attention, it is time for airlines to leave crisis management behind. Instead, the focus of airline boardrooms throughout the world needs to be on coming out of this challenging time as a stronger, leaner and more capable organization, one that has been tested and tried rigorously, but ultimately showing that the aviation industry is crisis-proof.
Going into the summer of 2020, even the most optimistic projections for the recovery of the aviation industry were rather grim, projecting demands below 2019 levels up until 2025. In reality, these projections were beaten by a wide margin, mostly driven by the rapid recovery of the US and European markets while the Asian market lagged behind as a consequence of a delayed reopening and stricter Covid-19 related immigration measures.
Now that the industry has beaten the odds, it is necessary to reflect upon the lessons learned throughout the last few difficult years and use them as guiding principles to return to the growth mindset that was so prevalent in the industry prior to 2020.
Here are five key areas in which airlines must now excel:
1. Be Digital
The post-Covid economy is filled with its own unique set of challenges and opportunities. Labor shortages make FTE-heavy processes costly and inefficient, while one upside of the pandemic has been the pace at which digital solutions have become commonplace in otherwise change-resistant demographics and markets. These two factors go hand in hand, and capitalizing on them is a way to both cut back on organizational inefficiencies on the airline’s side and to improve upon many stages of the customer journey.
Take airline apps for instance. This is a field in which the variance in quality and functionality is arguably even greater than pre-pandemic. Those airlines that realized early on that their apps are the key to providing more capable self-service offerings to customers were able to more flexibly adapt their rebooking and cancellation policies. US airlines – widely thought to be at the forefront of digitalization – have since mostly discarded change fees in what is essentially a customer-friendly move aided by a capable digital environment.
Digitalization offers opportunities to airline employees as well, and these go far beyond using software to facilitate conference calls. Take for instance crew information management: during the pandemic, policies, rules and regulations – especially those regarding immigration and health procedures – were ever changing. Traditional knowledge management and information distribution systems were struggling to keep up with the wide array of updates crucial to operations. A single piece of information could be the difference between operating and cancelling a flight, a single update could make or break crew rostering, a single regulatory procedure amendment stood between a regular layover and hotel room quarantine. Ensuring that crews are well-informed at all times and receive the “back-office-support” necessary to safely carry out their tasks amid a jungle of regulatory red tape was – and still is – crucial. Digital solutions in the fields of crew briefings, knowledge management and CRM have given airlines that were early adaptors of these technologies the edge over their competitors. This is a trend that will continue.
2. Be Loyal
Loyalty is a two-way street. Customers have returned to the skies, demand is back and fares are up. Now is the time that airlines have to give back to their most loyal customers. Frequent flyer program status extensions and lowered (re)qualification requirements were appropriate during the crisis, but now the value proposition that airlines offer must be made clear once more. Say it loud, and say it clear: fly with us, you will be rewarded.
It is no secret that the general trend in the world of airline loyalty programs has been towards revenue-based accrual and dynamic pricing, making it increasingly difficult for passengers to earn outsized rewards and to get a great deal redeeming their miles. From a revenue management perspective, this is great news for airlines. From a loyalty perspective, this leads to passengers adopting a free-agent mindset, foregoing long term loyalty as they feel increasingly alienated. For airlines in competitive markets with little to no real product distinction, the lack of a rewarding frequent flyer program also leads to price wars, sacrificing long-term yields for the sake of short-term load factors.
After every major crisis in the aviation industry, airlines had to fight to win back their customers, and then some. Once again, it is time for that fight. Frequent flyer programs can carry their own weight in the times of credit card deals and a diverse portfolio of non-aviation partnerships. The times of loss-making programs written off as marketing expenses are over. Loyalty programs run as profit centers can afford to reward their most loyal customers even more than before. There is simply no reason not to in today’s environment.
3. Be Present
The pandemic has shrunk airline networks to a bare-bones operation for a good while. Only the most profitable routes were left operating, frequencies were slashed and passenger aircraft were flying cargo routes as demand dwindled. Now demand is back, and airlines need to seize this opportunity to recalibrate their network and grow back into the right markets. Airlines need to be present in those markets that matter the most for the future, and not where they were present before the pandemic.
One example for this is the shift in premium cabin demand. Whereas pre-Covid the majority of business and first-class seats were filled by road-warriors on corporate accounts, we now have a more balanced demographic. The business traveler is still the most significant, of course, but the willingness of leisure passengers to pay a reasonable premium for a better travel experience has increased noticeably. Couple this with the fact that many companies now have a better idea of which meetings can be done via video call and it now becomes reasonable to assume that the suit-and-tie crowd’s share of the pointy end of the plane will not be the same as before the pandemic. Therefore, airlines must now evaluate whether an aircraft with a premium-heavy configuration is best utilized on yet another London Heathrow rotation or to launch a leisure route to the Maldives.
Being present in certain markets also means having the right answer to the competitive environment. Take a close look at what your competitors are doing, because it is probably not the same as it was before the pandemic struck. The same approach to competition will not work, as the competition has fundamentally changed as well. Re-evaluating value propositions and strategic targets in fleet and network planning are essential in order to plan not just for the immediate future, but for the years beyond. By asking the right questions you can ensure that your airline is equipped to react to structural and competitive changes in your most important markets.
4. Be Flexible
As we know from our airline clients, flexibility is important., We have already briefly touched upon this when talking about change policies in the context of digitalization and self-service offerings. But what about the airline organization itself?
Crisis management and change management are two closely related fields. Airline employees and executives have gone through plenty of both over the last two or so years. The pandemic has put airlines through challenge after challenge, testing the capability and willingness for all the different stakeholders to adapt to less than ideal situations. This is where the proverbial cracks in the foundation usually begin to show, and it is these cracks that can provide the best lessons learned for any organization. The most effective way to get rid of the “don’t fix it if it isn’t broken” mindset that all too often stands in the way of innovation is to break something. Now that the pandemic has done the breaking, it is up to the airlines to do the fixing – the right way. Rethink organizational structures, trim down convoluted processes and empower employees and management to succeed. The age of micro-management and compartmentalized corporate setups is on the way out – Covid has just shown it the door a little faster.
The pandemic has required airlines to think quickly, act and react fast and to resort to measures previously thought of as unconventional. Now that we are thankfully returning to normality, we must not let these new skills and important lessons fall into obscurity. The “Covid skillset” is a tool worth perfecting, as the next challenge for the aviation industry is a matter of “when” and not “if”.
5. Be Bold
A new generation of managers and executives is climbing corporate ladders on the way to airline boardrooms from Frankfurt to Chicago, from Tokyo to Dubai. With them come fresh ideas, ways of thinking and a newly placed value on flexibility. These are all powered by a positive attitude towards change and a strong drive for innovation. It is the responsibility of the current leadership to embrace the next generation, creating an environment in which the ideas can prosper in the future.
Now is also the time to be bold with product offerings and value propositions. As previously discussed as part of loyalty, merely competing on price can have detrimental impacts on yields. Service and hard product differentiation is crucial in competitive markets. Falling behind in these fields early on will condemn an airline to competing on price point. Improving the customer experience with bold innovations should be a priority for every airline looking to make the most out of the post-Covid demand recovery.
Being bold is a good note to end on, since it also sets the tone for the other four things an airline must get right; be bold in adopting digital innovations, be bold in rewarding loyalty, be a bold presence in key markets and be bold to be flexible.
Author: Victor Kis, Associate Consultant and member of the Solution Group Organization & Strategy
To learn more and discuss how your organization could benefit from Lufthansa Consulting’s expertise in airline strategies, please contact us.
Further insights from Lufthansa Consulting’s aviation experts are available at https://www.lhconsulting.com/insights/news/
The UN’s aviation body formally committed this October to achieving net decarbonization of the aviation sector by 2050. This ambitious resolution is supposed to mirror the Paris Agreement on climate change targets from 2015 and is a historic milestone towards making the skies “green”. This pledge and others aim at reaching CO2-neutrality through a well-orchestrated transition to eco-friendly technologies and fuels, enhanced operations and offsetting regulations.
This article discusses the different pillars of decarbonization strategies and identifies the merits and limitations of each one. It sheds light on the upcoming difficulties and offers a perspective of how the crucial CO2 Net Zero goals could be achieved.
Legitimate concerns about the growing adverse impact of fossil fuels on the environment urge all industry sectors to evolve and reduce the impact of anthropogenic activities on the environment. According to The International Council on Clean Transportation, the aviation sector contributes 2,5% of the global CO2 emissions. This is a relatively small percentage to global CO2 emissions. However, aviation is one of the fastest growing CO2 emitters and arguably the hardest to decarbonize due to the cost and scale of the industry. Hence, its anthropogenic impact will disproportionally grow larger should the industry’s decision makers not change course now. IATA and other entities responded decisively by opting for a tangible roadmap aligned with the Paris Agreement.
The set targets are necessary to ensure a sustainable future for our planet. The feasibility of these targets and the credibility of the roadmap are essential to gain public trust and support. Let’s try to examine that: Is the transition towards aviation CO2-neutrality feasible by 2050?
The four pillars for CO2-neutrality in the aviation industry
Sustainable Aviation Fuel
Sustainable Aviation Fuel, known as SAF, refers to bio-fuels produced environmentally friendly. Bio-fuels produced through unsustainable practices are not considered SAF. This type of fuel will play without doubt an important role in limiting carbon emission in the short and medium term. It can drop straight into existing infrastructure and engines, causing minimum operational and financial disruption and an immediate and tangible effect on CO2 reduction. Its use leads to a carbon reduction of up to 80% compared to fossil jet fuels according to IATA. Assuming further research and development in its production will make the required amounts available and reduce its cost (currently three times more expensive), SAF in itself is a great alternative to fossil jet fuels.
Currently, 0,01% of global aviation fuel is SAF as per sources IEA (2020), Renewables 2020, IEA, Paris. IATA’s roadmap foresees at least 7 billion liters of SAF production in 2025 and approximately 500 billion liters available in the market by 2050. That means production will need to at least triple every five years for thirty years straight. Such a steep ramp-up in producing anything is unheard of. Making SAF available at industrial levels in the short- to medium-term is therefore improbable.
Shift to new generation aircraft/engines
IATA’s plan foresees a wide entry-into-service of novel environmentally-friendly technologies by 2035. The first technologies to be introduced into the market would be incremental changes to the current most-advanced propulsion systems. These have already demonstrated 20% lower CO2emissions. Manufacturers are already working on additional incremental improvements such as open-rotor engines, increasing turbine entry temperatures by introducing new materials and further increasing by-pass ratios. Thanks to leaps in technological development, it is nowadays possible to mature technologies within years rather than decades. Thus, it is perceivable that incremental changes will amount to the set goal of 30% less CO2 by 2035. Another upside of incremental changes is their implementability with relatively low financial burden to the airlines: It is possible to mate new technologies with older ones through retrofitting campaigns without major capital investment (e.g.: SAF certification of existing engines through minor fuel system adjustments). Hence, the short- to medium-term goals seem within reach. Airlines should embrace these new technologies to accelerate decarbonization.
The 30-year technological horizon is where the outlook becomes blurry: IATA is planning with having revolutionary technologies available at an industrial level starting 2040. The key technological advances would be in electric and hydrogen propulsion systems. While short-haul electricity-powered flights are a viable option, flying hundreds of passengers for thousands of kilometers with electricity is simply not. Large-scale electric flights as we know them today are not feasible for one simple reason: The most advanced battery today has an energy density of 1% of Jet-A fuel: An aircraft would need 100 times more weight for energy storage to compensate for the low energy density, hence rendering the whole idea obsolete (flying without a payload). Hydrogen on the other hand has a much higher energy-density and is the most abundant element in nature allowing it to be sustainably sourced. It is an excellent replacement for SAF on the long run. However, it too comes with a catch: its storage and delivery are arguably the most challenging aspect both technically and economically. Extremely high capital investments would be required. Countries would need to re-design their entire energy infrastructure from scratch (pipelines, road transportation, maritime transportation, etc.).
The aviation industry puts safety beyond any commercial aspects, and rightfully so. This gave the aviation its reputation as the safest means of transportation. While prioritizing safety is legitimate and no concessions in this area should be allowed, it is also necessary to allow for new technologies to penetrate the aviation sector in due course. Sticking to proven technologies and processes over decades meant inefficiencies piled up across all aspects of aviation. For example, ATC systems still being used even in some developed countries are from the eighties (half a century old technology). The equipment available today and the ability to communicate and optimize routes can greatly enhance the way we fly, leading to lower carbon emissions.
Operational excellence in aviation can and should be pursued to minimize carbon emissions. The best practices for fuel consumption reduction have reached their limits. State-of-the-art techniques and innovative approaches offer new leverage towards fuel efficiency, thus carbon emission reduction. The untapped potential is substantial and can be set free quickly and cheaply. Nearly all operational aspects of aviation, from planning, steering to performance management are areas to be fine-tuned for this purpose.
Carbon Offsetting is the practice of counteracting anthropogenic emissions by exercising an opposite activity. In the case of aviation carbon offsetting, the different aviation actors would be driving carbon emission reduction in other fields, for example by sponsoring forestation or carbon sequestration projects. The United Nations has a dedicated scheme, namely “CORSIA”, which aims at ensuring any rise in international aviation emissions above 2019 levels are offset elsewhere. Up to 2026, voluntary states are subject to offsetting requirements. Starting from 2027, all international flights will be subject to mandatory offsetting requirements. Airlines wanting to expand their operations will be subject to offsetting fees as their CO2 footprint will increase beyond 2020-levels. Through this measure, the growth within the aviation sector is set to become carbon-neutral. This approach gives the airlines a strong incentive to invest in fuel efficient aircraft, transition towards sustainable fuels and optimize their operations.
The offsetting requirements will financially strain airlines still recovering from the COVID-pandemic aftermath. The additional costs will not be swallowed by airlines due to the competitive nature of the business. They will probably be passed to the customer, leading to an increase in fare prices and in return in a slow-down across the industry. This outcome is obviously undesirable and should be avoided through smart and business-sensitive regulations.
Forecasting future emissions will become an important part of budgeting for mandatory CO2 offsetting fees and establishing financial reserves. The EU is due to make ESG (Environmental, Social and Governance) disclosures mandatory by 2024. Airlines should start putting processes and staff in place to ensure a timely compliance with the new requirements.
How to make the skies green by 2050 from the Lufthansa Consulting perspective
The IATA 2021 roadmap sets ambitious targets for the decarbonization of the aviation industry. The agreement on such a resolution within the aviation community is a first great achievement. This crucial topic has gained momentum within the aviation community and is being considered the biggest challenge facing an industry still recovering. The IATA plan, while conservative in some aspects, is in Lufthansa Consulting’s view overly-optimistic and requires fine-tuning.
The resolution is often labelled as an alignment of aviation to the Paris agreement. This statement however lacks context. The Paris agreement has set temperature-rise limits, hence adopting a symptomatic approach to global warming (1,5 degrees Celsius by 2050). The IATA resolution on the other hand has set decarbonization goals (Carbon-neutral by 2050), hence adopting a causal-approach. CO2 is one important element amongst other anthropogenic emissions. The IATA plan should reflect this fact by adding contrails and other emissions to its reduction aims. Otherwise, the plan can be perceived as not conducive to the end-goal of limiting global warming and be undermined.
Furthermore, the plan’s strong belief in the scalability of the SAF production makes it vulnerable to criticism. The estimates of future SAF production are extremely optimistic and are just not substantiated by the facts on the ground. The point is, as already mentioned, less than 0,01% of total annual jet fuel consumption in 2020 was SAF. An increase of to up to 65% by 2050, while possible, is improbable.
New technologies are estimated to contribute with 13% to decarbonization by 2050. The short to medium term goals seem reasonable: New field-tested technologies (higher by-pass rations, gearbox systems, etc.) delivered promising results in terms of fuel consumption and emissions. The propulsion industry, while facing supply chain issues in the short run, is more vibrant than ever. Talent and capital are available within this sector. The mandatory offsetting requirements will provide tailwind for airlines to purchase greener aircraft, hence incentivizing manufacturers to further fund R&D work in the field.
Optimizing the operations does not receive nearly enough emphasis within the resolution although it is the area with the quickest and easiest possible wins. The potential for improvement is substantial and should be looked into. Pursuing operational excellence should be mandated by law to give airlines the incentive to cut CO 2 emissions. This area does not require large investment and wouldn’t strain airlines financially.
Carbon offsetting is the only credible option to neutralize the aviation’s carbon emissions in the short and medium term. This approach can also serve as a fallback plan in case SAF scalability or new technologies faced headwinds. Offsetting, however, comes with an additional financial burden to airlines, which they would pass to the customers, hence slowing down the industry growth in the medium term and making aviation accessible to fewer people. It is therefore indispensable for airlines and governments to work together on environmentally friendly and financially sound policies.
The four pillars of decarbonization will be the main contributors towards an environmentally friendly aviation sector, however with different weights. The IATA resolution should be tweaked to reflect reasonable expectations regarding SAF projections. When reviewing predictions from independent entities, it becomes obvious that offsetting measures will have to compensate for emissions on a larger scale and for a longer period of time. Operational excellence can also play a role in softening the over-estimated carbon emission cuts from predicted SAF consumption. We cannot stress the importance and potential of this area enough. Lufthansa Consulting has dedicated experts pursuing operational excellence solutions for their customers and is constantly looking to assist airlines to optimize their operations for more sustainable flying.
Lufthansa Consulting due to constant interaction with various players in the aviation industry, has a unique perspective into the topic of aviation sustainability. This enables the aviation experts to support and link all parties involved in transitioning towards sustainability and brings more stakeholders together.
Together, we can make flying greener.
Author: Ramzi Ben Abdallah, Consultant, Aero-engines technologist and member of the Solution Group Maintenance and Engineering
To learn more and discuss how your organization could benefit from Lufthansa Consulting’s expertise in sustainability, please contact us.
Further insights from Lufthansa Consulting’s aviation experts are available at https://www.lhconsulting.com/insights/news/
Lufthansa Consulting’s Associate Partner Michael Kunz, Partner Catrin Drawer and Senior Consultant Sascha Vogel look forward to meet the airport community at the GAD World Global Airport Development Conference from 2 - 4 November 2022 in Amsterdam, Netherlands. This year, Lufthansa Consulting is an Associate Sponsor of GAD and will be ready with its team of experts for a lively personal exchange on site.
On 3 November 2022 Michael Kunz will moderate the panel discussion “Considering new approaches to agile airport operations to enhance cost management & ROI”. In the session the panelists David Dowling (Managing Director Airport, AMP Capital), Eugene Gan (CEO, Changi Airports International) and Serkan Kaptan (CEO, TAV Airports) will focus on
More than 350 of the world’s leading airport operators, major investors, financiers, regulators and renowned industry advisors will attend the airport privatization and finance forum GAD World to examine the latest opportunities, challenges and expectations for the airport business in 2023 and beyond.
Significant savings in airline maintenance costs achieved through identification of shortcomings in maintenance processes and identification of key cost drivers. The project management provided on-site support to develop cost saving initiatives and successfully implement the cost reduction measures.
Development of a business strategy aiming to create a commercially sustainable aviation group and to drive added macroeconomi c value and local prosperity. Comprehensiv e business plan addressing weaknesses and risks and giving access to funding. Expansion opportunities into as yet unexplored sectors of the aviation industry.
Performed technical and economic analysis forecasting the investment and maintenance cost over the engine life time. Recommended most efficient engine solution for the carrier’s operational profile. Identified areas to improve terms and conditions offered by the OEMs resulting in >20% CAPEX and OPEX reduction over the entire life cycle in comparison to initial OEM proposal.