Flight for Survival
By taking all of these actions, and simultaneously addressing remaining distribution disadvantages, the major airlines could reduce their unit cost disadvantage for leisure travel by 70 to 80 percent — from about 15 cents to 8 to 10 cents for a 500 to 600 mile flight — bringing it more in line with that of the low-cost carriers. One downside the hub and spoke airlines would experience with these complexity-cutting strategies is revenue loss from shrinking connecting passenger volumes. But the airlines could make up this revenue loss by using their lower cost base to stimulate market growth and open point-to-point routes that were unprofitable at the former cost levels. In other words, with a lower cost structure, the large airlines would be better positioned to launch a marketplace battle against low-cost carriers, rather than being on the defensive in price wars.
|“Although transformation may seem daunting, the risk of inaction is much greater than the risk of acting and dealing with some missteps along the way.”|
Although this transformation may seem daunting, the risk of inaction is much greater than the risk of acting and dealing with some missteps along the way. At this writing, one major U.S. airline has already retreated into Chapter 11 and others may follow. The first airline to implement a fundamental business model change will shape the new competitive landscape. The prize that awaits first-comers is significant, not just in terms of lower costs, but also in considerable growth opportunities.
Tom Hansson, [email protected]
Tom Hansson is a vice president in Booz Allen Hamilton’s Los Angeles office. He focuses on strategy and operational restructuring in the airlines and travel arena.
Jürgen Ringbeck, [email protected]
Jürgen Ringbeck is a vice president in Booz Allen Hamilton’s Düsseldorf office. He focuses on strategy and transformation for companies in global transportation industries, such as airlines, tourism operators, postal and logistics companies, and railways.
Markus Franke, [email protected]
Markus Franke is a principal in Booz Allen Hamilton’s Düsseldorf office. He focuses on strategy, network management, sales, and distribution in the airlines, transportation, logistics, and rail industries.