Beginning of air commoditisation on board LCCs?
2016 saw airlines handle 3.7 billion passengers, a 6% rise YoY highlighting that the demand for air travel remains as strong as ever. To keep up with demand and also to remain ahead of the competition, airlines are having to find new revenue streams in order to maintain profitability whilst keeping service levels at a standard now expected by an ever more discerning passenger.
August 2017 | by Julia Padgett, Communications Director
With over 670 airlines operating globally  both internationally and domestically the availability of flights worldwide has never been higher but with this has come increased pressure to be ever more financially attractive to the traveller. Driving this competition has been the boom of LCC market in recent years which more than doubled its share of the total air market between 2003 and 2014.
The rise in both prominence and popularity of this market has, on recent times, blurred the lines between LCCs and the traditionally more expensive regular scheduled airline market to the point where there is now little differentiation in product offering. According to IBM, in a report published in 2010 which highlighted this issue “most airlines need to increase the degree of segment specificity that defines their marketing program. Product development must be undertaken with only specific target customers in mind.”
As seen in the chart below, being one of the world’s largest airlines does not always guarantee profitability and with airlines facing an ever more challenging environment in terms of fluctuating fuel costs, lower fares; in 2016 the average fare fell by $44 USD , and increased competition, this statement may never have been truer?
Ways in which airlines are trying to achieve this have varied greatly with such an example being British Airways partnering with Marks & Spencer to provide their inflight food offering thereby trying to attract a more premium passenger.
Riding the wave of both increased passenger numbers and demand, LCCs are currently dominating the marketplace in terms of exposure and profitability; Ryanair recently reported latest financial figures for Q1 2017 of +55% to €397m. But as UK LCCs face up to the ban on charges for payments by credit/debit cards (2% by Ryanair & 1% by easyjet), removing a stream said to be worth millions of pounds per year, other sources of revenue are now being sought. In a recent move by Jet2, a £2.59 each way per bag surcharge is to be levied with the airline stating “On busy flights, we may need to ask you to put your 10kg hand luggage in the hold if we’ve run out of space in the cabin. If you want to be certain of keeping your hand luggage with you, simply add guaranteed cabin luggage now.”
Whilst future growth in the aviation sector looks certain to continue, some of the burning questions that airlines may need to answer in the not too distant future are; how well this is growth future-proofed and what can they do to differentiate themselves in an ever more competitive environment?
 Airline numbers taken from CiR Business Lounge Route Dashboard
 CiR Business Lounge – LCC Market Review Report
 Airlines 2020; Substitution & Commoditisation