Mobility of People

• Business Models, Trends and Innovations

• Consumer Perspective

• Political Perspective

Mobility of Cargo

• Business Models, Trends and Innovations

• Political Perspective

Mobility of People

With only 31,3 million people boarding flights in Germany in 2020, there has been a massive plunge from 124,4 million departing passengers in 2019 which is of course attributed to the global COVID19-pandemic. [1]

But with the exception of 2020, aircrafts as a means of mobility have been rising in popularity for decades. [2] [3]

And there is currently no sign of this trend simmering down: The International Air Transport Association (IATA) predicts 8.2 billion annual passengers in 2037 - which would be twice the annual passengers of the year 2017. [4] [5]

To gain further insights into this main mode of mobility, we will now shed light on current and future business models of this means of mobility. Although the influence of other key contributors, like airport operators, on the industry and its development is indisputable, we will mainly focus on airlines and aircraft OEMs as the most important factor in the aviation industry network.

Business Models, Trends and Innovations

As of now, airlines generally follow different approaches in doing business and in trying to convince passengers of their services. One central approach is called “full-service airline” (FSA) which relies on flexibility, availability and reliability. A full-service airline offers a range of services and destinations while minimizing inconveniences for passengers. [6]

A holistically different approach are “low cost carriers” (LCC) which are value-based and target passengers who prefer low price levels first and foremost. [7]

Lower levels of service are made up for by lower prices. Especially domestic flights and short-distance flights are commonly offered by LCCs. [8]

Combinations of both are possible, even under one roof: Deutsche Lufthansa AG, for example, offers full service to passengers with its subsidiary Lufthansa Passage while also addressing price-sensitive customers with their LCC airline Germanwings. [9]

Another approach are charter airlines who basically work together very closely with travel agencies to handle seasonal and locational leisure tourism. By doing so, these airlines transfer some financial risks onto the travel agencies and are able to save provisional costs. This business model allows for them to offer flights at a much cheaper price. [10]

Additionally, airlines join (global) alliances like Star Alliance or Sky Team which offer them unique access to international routes at a much lower cost than what would be achievable through organic growth - And more often than not, joining such alliances is inevitable for financially healthy and sustainable airline businesses. [11]

These business models are not only the currently most frequently employed approaches to business among airlines, but will also stay that in the foreseeable future due to the aviation industry and its business models being very static and not very disruptive. In its report on the future of the airline industry from 2018, the IATA states that the only real challenges to the existing business models of airlines over the last 30 years were the introduction of low-cost carriers and the formation of alliances. [12]

But still, the IATA emphasizes that the next 30 years will be far more challenging [13] because changes to current business models will be necessary, but will take some time and will require a great deal of resources, and especially time and money to be invested into promising, new business models.

Three areas where business models are most likely to be disrupted, changed or adapted are introduced below:

Technology especially is identified as a driver of change by the IATA. [14] Of course, across many different economies and industries, technology has always been a cause of disruptive and significant changes [15] , but the urgent necessity to address and fight global issues, and thereof especially climate change, render radical technological transformations in aircrafts even more so as inevitable. [16]

Although these changes are necessary and will arrive eventually, novel propulsion systems or types of fuel are currently not yet suitable nor commercially available for long-distance aircrafts.

Additionally, the IATA recommends that secondary and tertiary airports add more connections to their portfolio in order to disburden central airports (so called “hubs”). This would allow for airlines to abstain from having to fly via hubs and could be the beginning of a more modal network of flights - offering flexibility and convenience to the customer. [17]

Thirdly, the seating concept of airplanes has always been rather static and efficiency oriented - for the customer as well as for manufacturers and airlines. A future concept of aerial long-distance mobility that would shake this status quo up is Social Travel. This concept adds a social component to the act of being a passenger on a flight. Examples of social aerial travel are KLM’s Meet and Seat concept or Qatar Airways approach of allowing parties of four to be seated together in business class. [18] [19]

Consumer Perspective

One major problem that the aviation industry will face (and already faces) is the increase in consumers’ demands to travel ecologically responsible which seems to be incompatible with the current state of how aircrafts operate. Roland Berger states that the aviation industry accounts for 3 % of global CO₂ emissions and could, with the current trajectory, very well be responsible for ca. 24 % in 2050 because other sectors could become increasingly more ecologically friendly [20] [21]

Generally, consumers can be described as being ambivalent about aircrafts as a means of mobility. Although it is the fastest way of travelling from A to B for short as well as long distances, consumers become increasingly more environmentally conscus. As the Committee on Climate Change from the Imperial College of London states: “Flying is a uniquely high-impact activity and is the quickest and cheapest way for a consumer to increase their carbon footprint”. [22]

This trend is supported by the fact that 69% of German respondents favor using other means of transport than aircrafts when travelling. [23]

This attitude shift also manifests itself in political discussions: In Germany, the ban of short-distance flights has been politically charged for many years and peaked as one of the central topics prior to the Bundestag elections in 2021 with 67 % of Germans being in favor of banning short-distance flights to fight climate change. [24] [25]

Ecological factors aside, consumers also increasingly question the importance of business travels in general and by aircrafts especially. The global COVID-19 pandemic might change consumer and employer behavior for years to come: A Bloomberg survey indicates that 84 % of questioned businesses plan to spend less on business travel in the future. [26]

This is a result of the inevitable emergence of video conferencing as a means of communication in the course of remote work which rendered some business trips obsolete. [27]

Political Perspective

As a part of its plan to achieve climate neutrality by 2050 and reduce greenhouse gas emissions by at least 55% until 2030, the EU has targeted the aviation sector and its emissions which account for 3.8 % of CO2 emissions in the EU in 2017. [28]

While the future of long-distance passenger flights may be more ecologically friendly than the present, airlines are reportedly not content with current plans for the industry made by lawmakers like the EU. As Spiegel reports, an airline initiative called “Airline Coordination Platform” backed by some of the biggest European airlines like Air France, KLM or Deutsche Lufthansa, is very actively campaigning against environmental regulations that would restrict the airlines’ behaviors and force them to act more sustainable. While the initiative officially claims to be on board with the EU’s plan of reaching climate neutrality by 2050, it opposes all of the proposed actions against climate change, like taxing kerosine, alternative fuels or limitation of short-distance flights. [29]

Mobility of Cargo

Transporting cargo via plane has been a common and unique way of quickly bridging long distances for goods to reach their destinations for a long time. The quickness of air cargo has always been its major advantage over its alternatives, leading to an unique selling point for the industry This is also represented in air cargo figures published by the IATA:  Although air cargo only accounts for 1% of the global trade volume, it accounts for 35% of the global trade value. [30]

The biggest transporters of freight in 2020 were logistics companies FedEx and UPS with a combined 34 billion ton kilometers of cargo transported. [31]

Generally, we can distinguish between two main modes of air-bound cargo transport:

One being dedicated freight planes and the other adding cargo to passenger planes on their regular routes which can be done when the plane has not reached maximum freight capacity yet. [32]

In the following section business models of both modes of transporting cargo via aircraft will be examined and potential trends and possible changes will be discussed.

Business Models, Trends and Innovations

Compared to passenger revenues, freight business seems to be on the back foot: In 2019, only 14% of airline revenues came from cargo transport. A blessing in disguise for air freight revenues could be the global pandemic of 2020 grinding the industry to an almost complete halt: Very little passenger planes taking off led to a shortage of cargo space - normally provided by adding cargo to passenger planes - and a subsequent increase of freight-related revenues by 27%. [33]

But to increase profits long-term, cargo business models have to be rethought and improved: As of August 2021, capacities of cargo aircrafts have only been utilized by 54 % on a global scale, indicating large potential for improvement in this industry. [34]

Generally, the different approaches of passenger airlines towards cargo transportation can be categorized along a spectrum of different variations. On one end of the spectrum, airlines decide to heavily (and sometimes solely) focus on operating the flights themselves and hand over all other activities to third parties. On the other end of the spectrum, airlines follow a “subsidiary” approach where different industry sectors are dealt with separately and are not necessarily subordinate to the passenger business of the airline. [35][36]

As far as reshaping the industry goes, both freight and passenger airlines can both profit equally from rethinking business models and upcoming innovations in cargo transport.

During the pandemic, airlines that heavily relied on their passenger business were confronted with the difficulty of generating revenue and keeping the company afloat in case the passenger branch fails to deliver. Passenger airplanes were even transformed to cargo airplanes to be able to create revenue. [37]

As airlines now realized that cargo space is valuable and demanded, most airlines’ cargo branches will be most likely more heavily focused. But the increase in demand for air cargo also has a flip side: The industry could deal with under-supply for quite some time, leading to putting innovations on hold for the near future. [38]

Also, digitization of sales processes will have to be focused in the future. E-commerce channels are common standard for aircraft passengers and are expected to be for cargo transport as well. This would not only enhance touch points with customers but would also offer new sources of customer data and offer a new perspective on pricing, e.g. the introduction of dynamic pricing. Digitization could even go as far as introducing machine learning systems and artificial intelligence to generate demand forecasts. [39] [40]

Political Perspective

As the IATA states, a 1% increase in air cargo connectivity for countries results in a 6% increase of their trade volume. [41] This could result in governments focusing on enhancing their air cargo infrastructure to boost their respective country’s trade volume. This could very well be delayed due to many airlines relying on government bailouts for their shortfalls in generating sales during the pandemic. [42]

On the other hand, the air cargo industry will face similar challenges as its passenger counterpart: While relying on the same technology, the concern of aircrafts not being sustainable due to their high emissions and reliability on fossil fuels is of course self-evident. But still, the public focus could possibly be turned towards passenger aircrafts and reducing passenger flights, offering some leeway to air cargo providers to lead the industry into a sustainable future.

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