The airline industry is in tailspin, hoping for a recovery some time maybe next year.
It will take years to make up for last year's losses.
But it’s basically always the same story; losses in bad times wipe out the profits of previous fat years.
In good times the airline bosses get obese and act like there is no tomorrow.
But what does a real entrepreneur do when he’s about to hit rock bottom or when everything is going the wrong way? He reinvents himself.
Most industries in the world have been through a metamorphosis over the last ten years and many have adapted.
The music industry doesn’t make money the way they used to; the Telkom industries doesn’t; nor the computer manufacturers; or the movie industry - and the list goes on.
But the airline industry refuses to change. The best thing they have come up with so far is trying to disintermediate the resellers and fight with the distributors - ie the GDSs - and sell over the Internet.
SAS, for example, have done not one, not two, not three, but seven savings and turnaround plans and they still don’t get it right.
Now they are talking about the eight plan. SAS can do one 100 turnaround plans and they still won't get it right.
They are trying to get back to a market that does not exist anymore.
It is easy to forget even Ryanair once was a losing carrier just like everyone else. It took an absolute menace like O’Leary not to turn it around but redefine what business they are in.
But lets do something even more radical than Ryanair. Let’s look at crowdsourcing the aircraft.
Lets have a quick look at the problem in aviation.
For airlines, customer acquisition costs, distribution and general overheads are too high, they sell to few seats and at too low price.
The aviation industry also blames high fuel costs and the cost of aircraft leasing.
I’m not going to comment that here, because all industries have costs for producing a unit and you have to calibrate your business to compensate for the costs - or do something else, like selling hot dogs.
In short there’s a shortage of ownership and guts.
But lets look at how we could solve the actual problem, not counting; legacy problems, IATA, government involvement, politics, unions etc:
Say that an airline decides to crowdsource - effectively they will stop selling and give customer service at point of sale of its own inventory.
The airline also stops all marketing activities.
The airline basically focuses on finding the most attractive routes and to service them at absolute lowest costs.
In this scenario very little overhead will be needed. An airline can even have its registered base in a country where salaries and taxes are very low.
The airline opens its API for the inventory system to anyone, say a reseller or licensee.
To resell you have to license the API and sales system, which allows the airline to track all sales and payments in real time.
The airline has a rock bottom price, which cannot be undersold; the price should cover the basics to operate, airport fees etc but not more.
The airline can at any time decide to increase or decrease frequency or simply decide to discontinue a route. So, a lot of guts is needed.
The reseller/licensee is able to sell and package the inventory wherever, however and to whoever he wants. He can take as much or as little risk as he wants.
The reseller/licensee is the contracting party towards the passenger, not the airline as it is today.
The reseller/licensee would pay the airline a flat fee plus a percentage of the gross profit. The airline cannot yield and price as they do today, that will be at the discretion of the licensee.
This approach would open up a floodgate of innovative approaches from the market on how to price, sell, market and distribute the airline inventory.
And, potentially, in five years it would change the market dynamics.
There are of course hundreds of holes in the idea about the crowdsource scheme as described.
The core of my message is this: the aviation industry has severe problems that will not be solved by a few airline execs around the world.
What they should do is allow the crowd to solve its problems by simply letting go - people (all the fat overheads); the closed distribution models they operate under; the legacy; the business model; but, most of all, the prestige.
The airline industry is in tailspin, hoping for a recovery some time maybe next year.
It will take years to make up for last year's losses. But it’s basically always the same story; losses in bad times wipe out the profits of previous fat years.
In good times the airline bosses get obese and act like there is no tomorrow.
But what does a real entrepreneur do when he’s about to hit rock bottom or when everything is going the wrong way? He reinvents himself.
Most industries in the world have been through a metamorphosis over the last ten years and many have adapted.
The music industry doesn’t make money the way they used to; the Telkom industries doesn’t; nor the computer manufacturers; or the movie industry - and the list goes on.
But the airline industry refuses to change. The best thing they have come up with so far is trying to disintermediate the resellers and fight with the distributors - ie the GDSs - and sell over the Internet.
SAS, for example, have done not one, not two, not three, but seven savings and turnaround plans and they still don’t get it right.
Now they are talking about the eight plan. SAS can do 100 turnaround plans and they still won't get it right.
They are trying to get back to a market that does not exist anymore.
It is easy to forget even Ryanair once was a losing carrier just like everyone else. It took an absolute menace like Michael O’Leary not to turn it around but redefine what business they are in.
But lets do something even more radical than Ryanair. Let’s look at crowdsourcing the aircraft.
Lets have a quick look at the problem in aviation.
For airlines, customer acquisition costs, distribution and general overheads are too high, they sell to few seats and at too low price.
The aviation industry also blames high fuel costs and the cost of aircraft leasing.
I’m not going to comment about that here, because all industries have costs for producing a unit and you have to calibrate your business to compensate for the costs - or do something else, like selling hot dogs.
In short there’s a shortage of ownership and guts.
But let's look at how we could solve the actual problem - not counting, of course, legacy problems, IATA, government involvement, politics, unions etc:
- Say that an airline decides to crowdsource - effectively they will stop selling and give customer service at point of sale of its own inventory.
- The airline also stops all marketing activities.
- The airline basically focuses on finding the most attractive routes and to service them at absolute lowest costs.
- In this scenario very little overhead will be needed. An airline can even have its registered base in a country where salaries and taxes are very low.
- The airline opens its API for the inventory system to anyone, say a reseller or licensee.
- To resell you have to license the API and sales system, which allows the airline to track all sales and payments in real time.
- The airline has a rock bottom price, which cannot be undersold; the price should cover the basics to operate, airport fees etc but not more.
- The airline can at any time decide to increase or decrease frequency or simply decide to discontinue a route. So, a lot of guts is needed.
- The reseller/licensee is able to sell and package the inventory wherever, however and to whoever he wants. He can take as much or as little risk as he wants.
- The reseller/licensee is the contracting party towards the passenger, not the airline as it is today.
- The reseller/licensee would pay the airline a flat fee plus a percentage of the gross profit. The airline cannot yield and price as they do today, that will be at the discretion of the licensee.
This approach would open up a floodgate of innovative approaches from the market on how to price, sell, market and distribute the airline inventory.
And, potentially, in five years it would change the market dynamics.
There are of course hundreds of holes in the idea about the crowdsource scheme as described.
The core of my message is this: the aviation industry has severe problems that will not be solved by a few airline execs around the world.
What they should do is allow the crowd to solve its problems by simply letting go - people (all the fat overheads); the closed distribution models they operate under; the legacy; the business model; but, most of all, the prestige.