tailwinds 2017 airline industry trends - pwc · this publication provides an overview of the...

Tailwinds 2017 airline industry trends

Spotlight: Increasing flexibility in onboard product strategy

www.pwc.com/us/airlines

B Tailwinds: 2017 airline industry trends

Welcome to our 2017 edition of Tailwinds

This publication provides an overview of the current state of the global airline industry. Part one analyzes airline industry metrics and emerging trends from a global perspective, including profitability, yield forecasts, revenue, backlog, and capacity. Part two examines the value of incorporating flexibility into an onboard strategy, using in flight connectivity as an example of putting flexibility into practice.

1 Tailwinds: 2017 airline industry trends

Part one: Current global industry trends 2

Part two: Increasing flexibility in onboard product strategy 10

Contacts 20

Table of contents


The airline industry had another excellent year, with record profit and operating margins. However, passenger and cargo yields declined for a fifth straight year, indicating softening demand and increasing capacity. Revenue per available seat mile (RASM) and the cost per available seat mile (CASM) both dropped, reaching their lowest levels in over 10 years. The decline in overall costs was a reflection of low fuel prices, since other costs rose. Given less incentive to retire older, less-fuel-efficient aircraft, airlines have cut back on orders for new planes, although there is still a substantial production backlog. Analysts have also voiced some concern about the ability of airlines to maintain capacity discipline, which is seen as critical to profitability. Our research supports this idea, showing an increased correlation between capacity and profits.

Part one: Current global industry trends

Profitability levels stabilize

The global airline industry ended 2016 with a 5.1 percent net profit margin, matching 2015’s record profits and remaining well above the post-recession average of 2.7 percent (Figure 1). Operating margins also remained at a record 8.3 percent in 2016, well above the post-recession average of 5.1 percent. This heightened performance was largely attributable to sustained profitability from the North American, European, and Asia-Pacific markets. Profitability in the global airline industry is inching closer to the performance of companies in the S&P 500, which has an average net profit margin of approximately 9 percent.¹ Unfortunately, profits seem to have hit a cyclical peak, and global airline margins are expected to decline by 14 percent in 2017.2


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Figure 1: Operating and Net Margin

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Source: © International Air Transport Association, “2016 End-Year Report,” December 2016

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Figure 2: Commercial Airline Yield

Source: © International Air Transport Association, “2016 End-Year Report,” December 2016.International Monetary Fund “World Economic Outlook,” October 2016.

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Uncertainty in the yield forecast

Passenger and cargo yield declined for a fifth straight year, down 8 percent and 12.5 percent, respectively (Figure 2), in part because of the continued strengthening of the US dollar relative to other currencies. Nevertheless, 2016 yield decline showed a modest improvement from the prior year. While the International Air Transport Association (IATA) predicts continued improvement and yields stabilizing in 2017,3 recent news of capacity increases from major US airlines may change expectations. In March 2017, one legacy network carrier reported a 3.8 percent capacity increase, while another revised its full-year capacity growth guidance from 1-2 percent to 2.5-3.5 percent. Despite modest improvements in the US, there are indications of stagnating global demand and increased capacity. The risk is that yields will continue to decline in 2017 globally.


Unit costs and revenues decline

Both RASM (revenue per available seat mile) and CASM (cost per available seat mile) declined by more than 8 percent in 2016, reaching their lowest values in over 10 years (Figure 3). While RASM decline was driven by the decline in yield, CASM decline was primarily driven by a continued decline in the price of crude oil. In 2016, the annual average price of oil dropped 17 percent, after a 46 percent drop in 2015 (Figure 4). Due to the nature of outstanding hedging contracts and existing inventories of jet kerosene, the large crude oil price reduction in 2014 was not fully realized by the airline industry until 2016. CASM dropped 14 percent in 2015 and another 8 percent in 2016 for a total decline of 22 percent over the past two years. Meanwhile, excluding fuel (ex-CASM), unit costs increased by 2 percent in 2016 and are expected to rise by another 2 percent in 2017, driven in part by increasing wages in newly signed labor agreements and additional pressure on pilot availability.

Figure 3: RASM, CASM and CASM ex-fuel

Source: © The Airline Monitor, "Update of Commercial Aircraft and Engine Market Forecast 2017 – 2040," February 2017.

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Figure 4: Jet Fuel and Crude Oil vs. Consumption

Source: © International Air Transport Association, “2016 End-Year Report,” December 2016.

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A new strategy in the Middle East: slowing capacity growth

Carriers in the Persian Gulf (Emirates, Etihad and Qatar) have developed a reputation within the global airline industry for their aggressive growth strategies. Over the past decade or more, these airlines have offered lower fares or best-price guarantees for high-traffic destinations, such as Milan and Mumbai, sometimes at the expense of profit margins. The carriers have fought for and continue to seek “open-skies” agreements in order to obtain access to more routes and expand market share. Meanwhile, major US carriers, such as American, Delta, and United, have lobbied to restrict access to expansion opportunities, citing unfair competition and government subsidies.

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Figure 5: EBIT Margin by Region

North America Europe Asia-Pacific Middle East

Source: International Air Transport Association, “2016 End-Year Report,” December 2016

Aggressive strategies to increase share have been relatively unsuccessful. Gulf carriers still trail their US and European rivals. Profit margins for the Middle Eastern airlines are among the lowest in the industry and

continue to show weakness, dropping to 1.7 percent in 2016 (Figure 5). More recently, the Gulf airlines have been adjusting capacity growth in order to improve profitability.


Managing an inflated backlog

With lower fuel prices, airlines will likely look to optimize existing capacity and postpone the retirement of older planes. Already, new plane orders are down over 45 percent from their peak in 2014 (Figure 6). Orders are expected to drop by another 50 percent in 2017 and remain low for the next 5-10 years. While deliveries are predicted to exceed orders over the next several years, the existing backlog of over 14,000 aircraft is expected to decline only modestly.

Figure 6: Global Aircraft Orders, Deliveries and Retirements

The Airline Monitor, "Update of Commercial Aircraft and Engine Market Forecast 2017 – 2040," February 2017

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A beacon of hope in Latin America

Over the past six years, passenger traffic and capacity growth in Latin America have declined. These measures have moved in unison, indicating that airlines operating in Latin America have been agile in matching supply to demand. Since 2011, passenger traffic growth went from 11.3 percent to 3.5 percent and capacity growth dropped from 9.3 percent to 2.2 percent.

However, recent data from IATA show a break in the trend, suggesting that capacity growth will overtake passenger growth in 2017 (Figure 7). This may be an indication that the airline industry sees an opportunity for growth in the Latin American market as economic conditions in that area improve and demand rises.

Figure 7: Passenger Traffic vs. Capacity in Latin America

Source: International Air Transport Association, “2016 End-Year Report,” December 2016

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Tailwinds: 2017 airline industry trends6


Facing pressure to reduce capacity

In 2016, inflation-adjusted revenues dropped by 2.4 percent, the same as the 2.4 percent reduction in costs. While airline revenues are expected to grow by 1.7 percent in 2017, potential cost increases signal a sustained decline in profitability. Also, capacity has been outstripping demand, putting downward pressure on earnings. The S&P Airline Index for 2016 (Figure 8) indicates that US investors are reacting to these conditions by backing away from the market. Considering that airline equity performance has been closely tied to airline capacity over the past 15 years, some analysts are expressing concern that airlines are not maintaining sufficient capacity discipline.4

On a televised interview with CNBC on February 27, 2017, Warren Buffett expressed concern about excess capacity in the airline industry, saying that it is a very tough business and “what kills you is when you have too many airplanes around.” Despite this comment, he is bullish on the airline industry and has recently taken large positions in the four largest US carriers. The US airline industry should to take expert advice and better control capacity if it expects to sustain current profitability and attract higher investment multiples.

Figure 8: 500 Airline Index vs. Capacity

Source: Bureau of Transportation Statistics, Transtats “Operating Revenue All U.S. Carriers - All regions,” March 2017

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An increase in the linkage between capacity growth and RASM could indicate a structural change in the airline industry. It is now possible that capacity and revenues are more closely linked. While airline industry consolidation may be one factor accounting for this correlation, another possible factor is the industry's increased focus on sustained profitability.

Airline industry analysts have historically assumed a relationship between airline capacity and RASM, but the link between the two measures was unquantified. When considering year-over-year growth, we see a correlation in the relationship between the two variables in the US. There is a moderately strong coefficient of determination of 0.77, when considering post-recession RASM and ASM-GDP growth performance (Figure 9). And the relationship appears to be getting stronger over time: In the five years before the great recession, the coefficient was only 0.35.

Coordination and agility as a way forward

In 2016, the global airline industry took advantage of industry consolidation and low fuel costs to improve margins and increase profitability. Over the past few years, airlines have also become adept at finding new revenue streams (most notably through ancillary revenue) and controlling costs. Meanwhile, investors are now using a stronger bond between capacity and revenues to pressure airlines to better manage their fleets. These are all examples of increased rationality in the airline industry, which have led to fewer efforts to win business with unsustainably low fares. However, 2016 results are foreshadowing a more difficult environment. The global economy is still fragile, airline capacity is growing, and fuel and labor costs are expected to rise. Airlines will need to carefully coordinate improvements in operations to deal with these challenges. The key to success will be to invest in flexibility where it matters. See Part II for a closer look at how to create a sustainable growth strategy.

Figure 9: RASM vs. ASM-GDP Growth

Source: Bureau of Transportation Statistics, Transtats “Operating Revenue All U.S. Carriers - All regions” March 2017

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Tailwinds: 2017 airline industry trends8

The link between capacity growth and RASM

10 Tailwinds: 2017 airline industry trends 10

Context

Since 2010, US airlines have experienced unprecedented profitability and growth, with seven consecutive years of positive net income and a 15 percent increase in the number of passengers. Among the positive signs:

• Average domestic US fares (unadjusted for inflation) dropped 10.9 percent from $392 in 2014 to $349 in 2016.5

• On-time performance was up by more than 80 percent last year.

• Bag-mishandling rates improved significantly, with the rate worldwide decreasing in 2016 more than 12 percent from 2015.6

• In 2016, more than 80 percent of flights were on time.7

Part two: Increasing flexibility in onboard product strategy

Profits are being returned to shareholders, but airlines are also investing in their business by purchasing more efficient aircraft, enhancing mobile functionality, and improving the quality of inflight Wi-Fi and entertainment. As a result, overall passenger satisfaction is at an all-time high8 despite some recent negative headline-grabbing incidents.

When times are good, airlines can focus on refining long-term strategies and preparing for future margin pressures. On the cost side, fuel, which has traditionally comprised one-third of airline costs, remains vulnerable to price spikes as well as gradual increases expected in the coming years. Also, employee compensation at US airlines is

increasing by 17 percent9 as a result of recently negotiated labor contracts.

On the revenue side, ancillary revenues collected by US airlines have continued to grow at 5 percent annually, but they are unlikely to have as significant an impact on prospective profitability as in the past several years. And while capacity discipline has allowed airlines to improve profitability, there are always new competitive challenges, especially from the low-cost carriers.

This is the ideal time for airlines to review their onboard product strategies, revamping or eliminating unprofitable and stale offerings and maximizing the financial and customer satisfaction returns from investments.


Review your onboard product strategy

The variety of onboard offerings (e.g., in-flight connectivity, entertainment, catering) has multiplied over the past decade. These products have been a boon to airlines, bringing in substantial revenue. However, to maintain or increase ancillary revenue, airlines need to have a coherent strategy for developing and refreshing products.

To accomplish this objective, an airline should consider four key components:

• Portfolio coherence

• Revenue maximization

• Valuation of free offerings

• Product sustainability

Build a coherent portfolio

Airlines should consider each existing and new product offering both individually and as part of a portfolio. Is the product critical to an airline’s objectives? Does one product cannibalize or diminish the value of another product?

As an example, many airlines, in their rush to add inflight connectivity (IFC) to aircraft, neglected to accelerate installation of in-seat power. On longer-haul flights, this meant that once mobile devices lost power, IFC service was inaccessible. By taking a portfolio view, airlines would have better coordinated the introduction of both products and not incurred some of the negative press concerning unusable Wi-Fi. That same pressure to quickly connect aircraft led to some

poor quality IFC offerings. Passengers reacted negatively, in some cases pushing NPS scores lower. Applying a portfolio view that preserved consistent quality of products and services could have mitigated the negative reaction.


Maximize revenue

Airlines are finding it useful to formalize cross-functional collaboration between revenue management and other groups, such as marketing and IT, to maximize revenue. Together, these groups are able to use data to dynamically and continuously evaluate, refresh, and re-release each product, answering key questions such as those listed below:

• Where? Is the product’s distribution strategy comprehensive across all channels and partners?

• When? Is the product offered at multiple points in a booking flow?

• How much? Are take rates and product usage meeting financial and customer-satisfaction objectives?

• Why? Do passengers continue to positively view the product’s price and quality?

The answers to these questions can help airlines determine the best prices for an onboard product, on a specific flight, and for each service class. As connectivity increases, data will become easier to obtain and allow for greater personalization.


Quantify the value of ‘free’

“Free” can help define the brand and provide a competitive differentiator that creates positive brand image.

Sometimes, airlines attempt to buy goodwill with freebies. But this tends to be a short-lived tactic, especially when the cost of providing the service outweighs the customer benefit.

But airlines must continuously measure the value created by a free offering; i.e., its qualitative or non-monetary benefits. To help ensure “free” still means “value add,” airlines should consider the following: How much customer satisfaction is generated by a free offering (e.g., an increase in Net Promoter Score)?

How effective is the free product at creating demand for a premium version of the product? If charging for a previously free offering, what will be the decline in take rates?

Introduce sustainable offerings

Benefits are easy to introduce, harder to sustain, and even more challenging to take away. So it is important to evaluate new and existing products on whether they are sustainable as conditions change. The cost of providing a service should be weighed against its financial benefit and intangible “other value” (see Figure 10) A free or subsidized product is especially hard to sustain

financially unless the cost is low or can be shown to produce value indirectly (e.g., increases passenger retention or allows for a higher base fare).

Every carrier has a different threshold of sustainability. For an ultra-low-cost carrier, the offer of a free service during good times can become an albatross during tough times. For a network carrier, the sustainability threshold is likely to be lower. In any case, an airline must know what is most valuable to each of its customer segments when it rebalances its portfolio as financial performance changes.

Investment/Cost

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• Customer satisfaction

• Increased loyalty

• Market share capture

• Competitive differentiator

Figure 10: How do you measure “other value”?


The move from strategic road map to execution

Once an airline has completed its review and developed a strategic road map, it can proceed to execution. If airlines build flexibility into their vendor contracts and technology investments, they will be better prepared to manage changing economic conditions, stay on par with competitors, and quickly respond to evolving customer desires.

Contractual flexibility.

Historically, contracts for products and services included fixed-cost pricing and minimum service levels. But these kinds of contracts are impractical in today's rapidly changing world. Inflight Wi-Fi, one of the industry’s most innovative and rapidly changing products, is an excellent example (see the accompanying inflight Wi-Fi story). Most contracts signed five or more years ago provided airlines with limited control over key decisions, including how much to charge for usage. As those contracts end (or as airlines sign their first IFC contracts), airlines are negotiating for more flexible contract terms that provide them with greater control.

Technology modernization.

While airlines continue to rely on large-scale platforms to run major operational functions (i.e. Passenger Service System, crew, flight ops), most airlines are using their newfound profitability to execute against multiyear technology roadmaps. These road maps are being used to invest in initiatives that increase flexibility in an airline’s core technology: centralizing data stores, introducing flexible integration architectures, and upgrading from long-outdated, heavily customized systems.

Leading airlines are doing more. Their technology upgrades are coherent at the airline and function levels and ensure that investments are fully leveraged across functions. They are also focused on lowering the cost of transactional processes to free up resources to invest in strategic, differentiating processes.

Furthermore, they are exploiting opportunities to make technology investments that both improve the employee experience and allow employees to better serve customers. Satisfied employees are not only more loyal, but they also raise the level of customer service and represent a competitive advantage that is hard to replicate.

Flexibility in practice: inflight Wi-Fi

The current imperative

Inflight Wi-Fi began appearing on commercial flights 10 years ago. Currently, 39 percent of available seat miles (ASMs) globally have Wi-fi service, up from 36 percent last year.10 In the US, where airlines began rolling out the service earlier than other regions and providers focused their investment, 83 percent of ASMs have coverage, up 6 percent from a year earlier.11 Wi-Fi service is expected to grow even faster in 2017, as initial service contracts expire and increased competition among service providers helps reduce costs.

In the US, where customers routinely expect inflight Wi-Fi, airlines are focused on providing faster internet service. “Mobile device streaming” speed is becoming the new standard, which will be widely adopted over the next two years as new satellites provide more simultaneous connections and additional bandwidth per connection.


One recent global survey found that 54 percent of passengers would opt for connectivity over a meal.12 In a survey of millennials, almost half said they would choose another airline if Wi-Fi were not available, and that they expect their inflight Wi-Fi experience to be as good as on the ground.13

Given these statistics, it’s hardly surprising that airlines are already using or planning to use inflight connectivity as a differentiator: faster connections, larger coverage areas, free for all customers or elite fliers, or discounts if purchased before flight. But, as conditions for connectivity change along with customer desires, airlines will have the opportunity to reposition their connectivity strategy and better differentiate their in-flight experience.

Game-changing technology

Currently in the US, Ku- and Ka-band satellite communications are replacing air-to-ground (ATG) technology, providing significant increases in capacity. One new service, using dual Ku-band antennas, is delivering speeds up to 70 megabits per second, a huge jump from the top speed of 10 Mbps for ATG systems.14 Another vendor is already delivering 12Mbps per user.15 Airlines in other parts of the world are moving in the same direction, although global fleet connectivity does lag the US.

Evolving ecosystem

In addition to changes in customer expectations and technology, other elements of the IFC ecosystem are in transition.

Implementing flexibility

An effective way to manage potential disruptors is to build flexibility into all stages of the IFC roadmap. Each of the steps in the IFC strategic road map below (Figure 12) requires that airlines address key questions for strategic alignment, technology review, vendor selection, contract negotiation, and implementation planning.

Given the volatility of the airline industry and the ongoing evolution of inflight connectivity, robust planning needs to include ongoing adjustments to the IFC strategy

Technology Changes• Incremental upgrades (flat panel antennas, upgraded modems)• Breakthrough technology (new spectrum, low earth orbit, improved ATG)

Vendor Issues (IFC/OEM)• Vendor changes and profitability• Increase in supplier furnished equipment, restricting options

Disruptive Elements

Inflight Connectivity

Figure 11: Evolving IFC Ecosystem

Satellite Marketplace• Increase in aviation-focused capacity• New satellite launches

Customer Demands• Free Wi-Fi• Streaming quality

Macro-Economic Changes• Fuel price increase• Economic downturn• Regulatory changes

Airline Strategy• Change in fleet plan• New routes or regions• Partnerships & alliances


In the short-term, carriers need to be able to respond to changes in competitive offerings and prices, which may require shifting from a revenue-sharing model, where the supplier sets prices, to a wholesale model, where the airline retains control over pricing and service decisions. Airline control over how bandwidth is deployed can also support innovative operational uses of connectivity and new products such as free text messaging. But to maintain competitive retail pricing, airlines have to keep their own costs under control, by negotiating for better contract terms and conditions, including shorter contract lengths, mark-to-market reviews, and most favored nation pricing.

Building in flexibility for the longer term is challenging because of the potentially high cost of changing providers and technologies. But this cost can be moderated with technology-driven termination rights, vendor commitment to support smooth transition to a new supplier, and adherence to industry standards for equipment installation.

Figure 12: Inflight connectivity strategy review roadmap

Strategic Alignment• What do customers expect from inflight Wi-Fi?• What are competitors delivering?• How does pricing fit with brand?

Technology Review• What are technology options?• Which vendors best suit our needs?• What technology choice best meets future needs?

Vendor Selection• What is vendor's Wi-Fi experience and reputation?• Will vendor meet needs on price, terms, and flexibility?• Can vendor meet future growth aspirations?

Implementation Planning• What fleet rollout plan supports vendor choice and internal resources?• What kind of program management and governance structure supports implementation?

Contract Negotiation• What SLAs and quality guarantees should be written in the contract?• What are optimal contract terms and prices?• What are protections against vendor changes?


Endnotes1 Yardeni, Dr. Edward, and Joe Abott. "Stock Market Briefing: S&P 500 Sectors & Industries Profit Margins." Yardeni Research, Inc., July 24, 2017.

https://www.yardeni.com/pub/sp500margin.pdf2 IATA. "Economic performance of the airline industry - Industry Forecast." June 2017.3 IATA. "2016 End-Year Report." December 2016.

4 Reed, Ted. "Stock Market - Business News, Market Data, Stock Analysis." TheStreet. March 22, 2017. Accessed June 30, 2017. https://www. thestreet.com/ story/14054878/1/airline-shares-fall-as-capacity-gains-and-unit-revenue-guidance-raise-doubts.html

5 "Annual U.S. Domestic Average Itinerary Fare in Current and Constant Dollars." Bureau of Transportation Statistics. Accessed June 30, 2017. https:// www.rita.dot.gov/bts/airfares/programs/economics_and_finance/air_travel_price_index/html/AnnualFares.html

6, 7 Whitemay, Martha C. "Investing in Tech to Tackle an Awful Annoyance: Lost Luggage." The NY Times, Business Day Section, May 15, 2017. https://www.nytimes.com/2017/05/15/business/investing-in-tech-to-tackle-an-awful-annoyance-lost-luggage.html8 Sumers, Brian, and Bloomberg Justin Bachman. "New J.D. Power Survey Says Airlines Passenger Satisfaction Is at All-time High." Skift. May 10, 2017. Accessed June 30, 2017. https://skift.com/2017/05/10/new-j-d-power-survey-says-airlines-passenger-satisfaction-is-at-all-time-high/

9 Bachman, Justin. "Higher Fuel and Labor Costs Mean You'll Pay More to Fly in 2017." Bloomberg.com. January 05, 2017. Accessed June 30, 2017. https://www.bloomberg.com/news/articles/2017-01-05/higher-fuel-and-labor-costs-mean-you-ll-pay-more-to-fly-in-201710, 11 “2017 Wi-Fi Report.” Routehappy. Accessed June 30, 2017. https://www.routehappy.com/insights/wi-fi/201712 "Inflight Connectivity Survey." Inmarsat. Accessed June 30, 2017. http://www.inmarsat.com/aviation/commercial-aviation/in-flight-connectivity-survey/.

13 Mineau, Lauren. "Millennials Expect Same Wi-Fi Experience in the Air as at Home, Study Says." Electronics360. May 17, 2017. Accessed June 30, 2017. http://electronics360.globalspec.com/article/8743/millennials-expect-same-wi-fi-experience-in-the-air-as-at-home-study-says.

14 Estes, Adam Clark. "Every Major Airline's Wifi Service, Explained and Ranked." Gizmodo. May 04, 2015. Accessed June 30, 2017. http://gizmodo. com/every-major-airlines-wifi-service-explained-and-ranked-1701017977.

15 Nelson, Patrick. "Next-gen 100 Mbps satellite broadband expected by 2019." Network World. February 18, 2016. Accessed June 30, 2017. http:// www.networkworld.com/article/3034358/internet/next-gen-100-mbps-satellite-broadband-expected-by-2019.html.

Positioning for success

Airlines that have expiring vendor contracts (or are considering signing a new contract) in the next 2-3 years are in an ideal position to negotiate for better deals. But, even if an airline has time left on existing contracts, it can position itself for the future. There are several specific analyses that airlines should perform to help define their IFC strategy:

1. Demand—to assess the minimum and maximum levels of demand on each flight, taking into consideration the duration of the flight, inflight entertainment options, number of devices per passenger, and usage changes.

2. Pricing—to help maximize both revenue and customer satisfaction by predicting take rates for a given product at a range of prices, on specific flights based on time of day and flight duration, and by passenger segment.

3. Partnerships—to evaluate options for sponsored content or advertising to help control costs or support improved service.

4. Marketing—to determine when and how best to market IFC before or during the flight and with what product (e.g., monthly, daily, hourly, or per flight passes).

5. Customer—to define what customers think about a current IFC offering, using surveys to baseline customer sentiment about IFC as a standalone service and as part of the inflight experience.

6. Supplier performance—using dashboards to help ensure compliance with service level agreements and measure usage and service improvements on a month-to-month basis.

In addition to these discrete types of analyses, there are organizational changes that can improve cross-functional governance and organization. IFC needs a single point of ownership and direction, typically in the marketing group. But other resources from IT, maintenance, inflight experience, strategy, and operations need to be brought together in a matrix organization to support a successful IFC program.

Timetable

This strategy review is not a one-time process. Given the rapidly changing IFC marketplace and technology, airlines need to review their IFC strategy on a regular basis. Below is a suggested timetable:

• Quarterly: vendor performance and adherence to contract service level agreements and quality standards.

• Annually: pricing and service offerings should be reviewed in depth at least annually, perhaps as part of the annual budgeting cycle. This requires review of current and potential competitive offerings as well as the usage and profitability of the airline’s current products.

• Every 3-4 years: technology review to ensure continued alignment and enablement of customer, financial, operational and technical alignment objectives.

While major changes to contracts and technology may be on a 7-10 year cycle, a review every 3-4 years can help identify midcourse strategy correction and allow an airline to plan for future conditions.

18

Jonathan Kletzel US Travel and Transportation Leader, +1 (312) 298 6869 [email protected]

Richard Wysong US Travel and Transportation Director, Advisory +1 (415) 498 5353 [email protected]

Alexander T. Stillman US Travel and Transportation Director, Advisory +1 (202) 487 8086 [email protected]

Bryan Terry US Travel and Transportation Managing Director +1 (678) 431 4676 [email protected]

Juan Kopp Industry Analyst +1 (203) 722 0074 [email protected]

Dr. Anil Khurana Airline Center of Excellence, Principal, Strategy & Operations; Middle East Consulting Leader +971508836369 (UAE) +1 978 943 2094 (US) [email protected]

Editorial contributor

Gloria Gerstein

Contacts

To have a deeper conversation about the subjects discussed in this report, please contact the following PwC airline/transportation specialists:

www.pwc.com/us/airlines

© 2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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