3 key challenges for airlines
- May 2022
- Phocuswright Research
Airlines face significant short-term headwinds in rebuilding their profitable pre-2019 world and reviving their long-term retailing plans. According to Phocuswright’s latest travel research report Air Merchandising and Retailing: Short-Term Survival and Long-Term Promise, airlines need to navigate reluctant travelers, unpredictable demand, depressed corporate travel, growing inflation, the "great resignation" of 2020-21 and unfolding tragedy in Eastern Europe in 2022.
How airlines innovate to tackle these short-term yet significant challenges will determine when long-term investments in retailing finally take off. Here are three key challenges for airlines:
- Travelers Look for Reassurance, Safety and Sustainability: For many people, flying has always levied some level of stress: delays, crowded airports, uncomfortable seats, lost baggage. The pandemic added new concerns, which travelers are seeking to alleviate with better information and more efficient interactions. Moreover, consumers have become increasingly attuned to the environmental impact of their travels, so they want airlines to offer clarity on their sustainability initiatives.
- Corporate Flyers Shift to Virtual: Business travel is likely to remain suppressed for some time. More than eight in 10 business travel managers cited the pandemic as the reason for the drop in travel spend - fewer trips, lower travel budget.
- Historical Data Is Less Valuable: The pandemic laid waste to decades of typical leisure and business travel patterns; booking behavior in 2020-21 bore scant resemblance to past trends. This is a major challenge for airlines that have relied heavily on historical data to drive key business functions. Critically, this also upended airlines' seat pricing and revenue management practices, which mainly forecast demand based on historical bookings.
Coupled with novel approaches to sell uniquely bundled and specially-promoted products, airlines have the potential to revamp and revitalize their segment, if they capitalize on the moment.
The full article uncovers how airlines will in the coming years make further retailing advances by improving their demand forecasting, consumer segmentation and offer optimization.
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