How low cost carriers disrupted the global airline sector Travel Tech Aerospace and Aviation News

How low cost carriers disrupted the global airline sector

Consolidation will continue in the global airline sector, as full-service carriers are increasingly forced to compete with low-cost competitors, Irish aviation expert Patrick Murphy told delegates at a Travel Massive event in Dublin.

Murphy is a former chairman of Ryanair, began his aviation career at flag carrier Aer Lingus, and worked for IATA before providing consultancy to clients such as Gulf Air and All Nippon Airways. He currently works with Peach Aviation, the Japanese low-cost airline.

He was interviewed at Travel Massive Dublin by Ornagh Hoban, CMO of Datalex, in a packed auditorium containing representatives of Ireland’s travel tech industry.

Ireland is an established travel tech hub that includes companies such as Arvoia, which provides AI-driven technology to travel companies, ASD (Aerospace Software Development), and Flightman, developer of a suite of software products that synchronize data exchanges between aircraft and airline ground systems.

How low-cost carriers have disrupted the global airline sector

Murphy was appointed chairman of Ryanair in 1991. Three decades later, the turbulence caused by its arrival – and that of South West before it – are still being felt.

The dominant trend is now the efforts established airlines are being forced to make to compete with low-cost carriers. “They have to, their profitability depends on it,” said Murphy.

That’s a process that’s not going to stop. Low-cost carriers have already disrupted full-service airlines in Europe and the US, and are now doing the same in Asia, he said.

Consolidation will remain the order of the day. “There were 12 major carriers in the United States in 1990. There are now effectively three, plus three low-cost airlines,” he said.

“Consolidation is part of the inevitable effect of trying to get more competitive as a full-service airline. In Asia, we are seeing exactly the same phenomenon. Meanwhile, low-cost carriers can continue to do things differently.”

Will an ‘Amazon of travel’ emerge?

They are developing their offering and attracting passengers. Peach has been in business for seven years and is one of the few airlines that has been consistently profitable in Asia.

But while it may appear as if low cost and full-service airlines are fated to “meet in the middle”, homogeneity is in fact unlikely.

“There has to be differentiation. If you want to succeed in business, you have to differentiate in terms of your quality or your services or what you’re offering,” he said.

In what Hoban refers to as today’s “platform economy”, which is leaving businesses in all sectors grappling with the effects of the rise of businesses such as Uber and Amazon, which can deliver products and services with precision, how feasible is it for airlines to have a vision “of becoming the Amazon of travel?” she asked.

“The principle of doing that is absolutely right but the ability of becoming an Amazon is very doubtful because of the range and scope of what is involved,” he said.

That said, what is open to every carrier, whether low cost or full service, is the ability to offer “the complete package, including the transport to the airport from downtown, the changed bookings, the advertising, the promotion of other services, the hotel,” he said.

The days of consumers going to their airline website to book and then heading off to another site to book their hotel are now coming to an end.

While the likes of Google and Amazon are competitors coming at airline passengers with a comprehensive range of services, the airlines in fact still have a golden opportunity, “because you have the customer, you’re in direct contact with them, they are your customers,” said Murphy.

Opportunities for travel tech start-ups in Asia and beyond

He is optimistic about the opportunities currently open to travel technology companies. Even Google can’t move into travel by itself, he points out, it will need acquisitions to do so.

He advised travel tech companies keen to enter the Asian market to liaise with Enterprise Ireland, both for key introductions and for access to its extensive market research.

The market opportunities are enormous. Taking China as an example, whereas people previously traveled just once a year to visit parents, today they fly for holidays, parties and events. “It’s like the old days when the only reason Irish people traveled on ferries was price. Lower the price of air travel and they’d fly, and that’s exactly what happened,” said Murphy.

All airlines have begun driving non-ticket revenue growth, but are still only at the tip of the iceberg, he reckons. This too creates an opportunity for travel tech companies.

“We’re dependent on technology companies to help us provide all the personalization, the retailing platform, the integration with passenger booking systems, and all that essentially needs to be pulled together,” he said.

Airlines, which have traditionally been characterized by silos, will need help doing that so that the data can be comprehensively brought together. By their nature, airlines are not good at retailing either, he said, which creates further opportunities for travel tech.

Those airlines that don’t innovate “are out of the game,” he said.

“We are going to see more and more consolidation. So the prospects are good for everyone who is profitable and can continue to grow profitably. But anyone who slips up, slows down or doesn’t put the investment in – they’ll be out and there’ll be more for the rest. I’m confident the big low-cost airlines will be the survivors but the traditional FSAs still need to adapt and change to the competitive environment.”