As 2022 draws to a close, airlines can look to 2023 and set some aspirational goals.
It’s a good time to reflect on what happened as the year comes to an end. What worked well and where can we improve? Businesses need New Year’s resolutions just as much as individuals. Last year saw some positive news for US airlines, with an exciting new merger proposal and a return to profitability for most airlines. It was also another very safe year for US airlines, something we are all thankful for.
The final year leaves a lot of room for improvement. Operationally this is true, but adapting to a higher wage environment and a changed reality of business travel is also necessary. While American Airlines can be improved in many ways, here are five important ones:
Keep cancellations to a minimum
Delayed flights frustrate customers, but canceled flights really mess up a trip. In 2022, US airlines canceled over 3% of their flights. That might not sound like a lot, but when each cancellation affects hundreds of customers, you can see how it quickly makes headlines. The biggest way for airlines to reduce cancellations is to better coordinate the scheduling team and operations teams. The industry has a bad history of scheduling more flights than they can reasonably operate.
Even with that, things happen that result in flight cancellations. This could be from crew issues, maintenance realities, weather and more. While sometimes a cancellation will be the least disruptive action, airlines can adopt their policies to be more prudent when a flight is delayed versus canceled. By minimizing flight cancellations, airlines help customers in meaningful ways and also relieve a lot of political pressure. A lot of airline industry regulation comes from airlines deciding not to open solutions themselves. For 2023, significantly reducing cancellations is the most important operational step.
Offsetting labor wages with other cost savings
Salaries are. on the rise in many industries and workers have more leverage. In the airline industry, pilots have the most influence and over the next year they will see significant increases in their pay rate. This has already happened in the regional airline industry, as wage rate increases have been used to address significant pilot shortages. Beyond pilots, airlines are seeing pressure on wages at airports, flight attendants, maintenance and more. Labor has typically represented about 25% of an airline’s cost. Over the next few years, many have predicted that this will go north of 40%.
Passing this increase on to consumers with higher rates is an unrealistic response to this. While average costs are rising due to people paying more, marginal costs are still quite low. This puts pressure on prices and the industry cannot afford a reduction in traffic that is likely to result from higher fares. The best answer is to find other areas to cut costs to offset this expected increase in labor costs.
Technology is a big key here, including more customer self-service and automating simple, repetitive tasks. Frontier Airlines’ recent move away from call-based customer service also reduces their exposure to this work. Airlines can also simplify their businesses more, since complexity by definition increases costs. If airlines need to spend more on people, they should challenge themselves to spend less in other areas and use fewer people. This is an aspiration the industry needs as it moves into 2023.
Accept that business travel has fully recovered
In the first year or so after the pandemic, US airline executives talked about a full return to business travel and how quickly that could happen. Over time, business travel as a percentage of 2019 continued to rise, but the curve stated that it flattened to around 75%. Slower increases continued and it now appears that, on a volume basis, business travel has been limited to about 85% of 2019. Higher airfares for this group have resulted in business revenue almost flat compared to 2019 for some airlines.
Accepting this reality is a great 2023 resolution for the industry. Rather than clinging to an unrealistic hope that all volume will return, airlines need to better understand what this means and how they can adapt. American Airlines has begun creating products for mixed travelers. This recognizes that people combine business and leisure travel and airlines can make this easier for customers. Loyalty programs can be developed to both reimagine what loyalty means in a post-pandemic world and how these programs can be relevant to customers who don’t travel as much. This may also mean rethinking aircraft seating configurations and schedule density in terms of frequency per route.
Allow buses to take over very short flights
Bus service, for trips that can be run in two hours or less, is a more efficient and sustainable way to bring passengers to a hub that flies on very short trips. Companies like landlines are revolutionizing service by making it seamless. Customers can check in at their local airport, board a bus and pull up to a gate in the center and tie up their bag. On the bus, people are in a bigger seat than on a regional flight, with wifi, and so everyone wins. Airports like this idea, but it brings more people to the facility, but buses need as much infrastructure as airplanes.
This approach to landlocked cities eases a regional industry struggling to find pilots whose costs are making their food too expensive for the connecting airline. By converting these short flights to bus service, customers are better off with reliable connecting service. Regional airlines can focus on longer flights that are more efficient for them. By thinking of the bus as an airplane without wings, it can disrupt an inherent concern with integrating this type of service so close to major hub connections. For 2023, it makes sense for any airline with regional food to be considered.
Be Kind and Help
These two simple phrases can be adopted by the airline industry, both for how they think about customer service and how they deal with their employees as well. For the customer, when industry employees are kind and helpful, that’s exactly what customers want. As easy as these two phrases are to say, it’s amazing how hard it is to make them true every day and with every action. By reviewing all customer policies through this simple filter, airlines are likely to eliminate many policies and change others.
Within the company, being kind and helpful is a great way to think about employee relations. It’s the way we all want to be treated and it also calls us to action to help in the ways we can. If resolutions are aspirational, think how much better airlines can become if they adopt and live by these five words!
