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Boeing and Embraer versus Airbus and Bombardier! Is this the starting of a future monopoly or just a cozy duopoly?
I hope I can monopolize your attention for a while with this article.
First, let’s begin with a question. What do you think about monopolies?
Most of us have a love-hate relationship with monopolies. It mainly depends on which side of the fence you are: either the consumer side or the corporate side.
However, the monopolies of today are different from those of the past. Modern-day monopolies are morphing into what I consider hidden monopolies. The best examples are the current hi-tech companies.
The following headline is appropriate enough for highlighting my point.
The US Supreme Court will decide if Apple’s APP store is a monopoly!
Google, Microsoft, Facebook, Amazon, to name but a few, are today’s hidden monopolies. Those are companies, which have monopolized our attention and trust while gradually building dominance on a global scale, swallowing up competition or absorbing promising start-ups. A look at their profitability underlies the influence and power that they wield globally. Indeed, privacy and data protection concerns or rather data sharing issues have turned on the spotlight. The political pressure which mounted, as a result, seemed too little and too late.
The conventional theory had always argued that monopolies overcharge, under produce and extract surplus profits. Moreover, we have seen that to be the case in many government-operated monopolies. However, regardless of which way the argument goes, one thing is crystal clear: monopolies are changing rapidly.
The word “monopoly” has a lovely ring for the airline industry, which operates on razor-thin profit margins. Airline CEOs would love to have the monopoly on the routes that their airlines fly on.
After all, no competition implies high fares, better yields, average customer service, and a spotty on-time record. Passengers are stuck but with one choice: Air Monopoly! Well, the reality in today’s world is that there are not too many routes on which individual airlines do have a monopoly. However, we have seen airlines, especially in the USA addressing this by merging to form not monopolies, but oligopolies and duopolies. That is perhaps the reason why US airlines now enjoy the highest profitability in the world.
As far as Europe is concerned, what is changing is that the government-funded airlines of the past are being increasingly irrelevant and replaced with low-cost airlines. Those LCCs while not government-owned are behaving more and more like monopolies when it comes to their market power.
Developing markets also have their style of monopolies. China still tightly regulates their airlines under different brand names, distributing aircraft, airports, and routes to ensure that there is some balance.
In India, the domestic market is in danger of becoming a monopoly, since Indigo has more than a 40% share of that market.
However, airlines are extremely shrewd marketers, so they try to deflect attention from their side and rather point accusing fingers at airports for being monopolies. Such an accusation is true in many senses and cases.
Boeing and Embraer versus Airbus and Bombardier! Is this the starting of a future monopoly or just a cozy duopoly?
I hope I can monopolize your attention for a while with this article.
First, let’s begin with a question. What do you think about monopolies?
Most of us have a love-hate relationship with monopolies. It mainly depends on which side of the fence you are: either the consumer side or the corporate side.
However, the monopolies of today are different from those of the past. Modern-day monopolies are morphing into what I consider hidden monopolies. The best examples are the current hi-tech companies.
The following headline is appropriate enough for highlighting my point.
The US Supreme Court will decide if Apple’s APP store is a monopoly!
Google, Microsoft, Facebook, Amazon, to name but a few, are today’s hidden monopolies. Those are companies, which have monopolized our attention and trust while gradually building dominance on a global scale, swallowing up competition or absorbing promising start-ups. A look at their profitability underlies the influence and power that they wield globally. Indeed, privacy and data protection concerns or rather data sharing issues have turned on the spotlight. The political pressure which mounted, as a result, seemed too little and too late.
The conventional theory had always argued that monopolies overcharge, under produce and extract surplus profits. Moreover, we have seen that to be the case in many government-operated monopolies. However, regardless of which way the argument goes, one thing is crystal clear: monopolies are changing rapidly.
The word “monopoly” has a lovely ring for the airline industry, which operates on razor-thin profit margins. Airline CEOs would love to have the monopoly on the routes that their airlines fly on.
After all, no competition implies high fares, better yields, average customer service, and a spotty on-time record. Passengers are stuck but with one choice: Air Monopoly! Well, the reality in today’s world is that there are not too many routes on which individual airlines do have a monopoly. However, we have seen airlines, especially in the USA addressing this by merging to form not monopolies, but oligopolies and duopolies. That is perhaps the reason why US airlines now enjoy the highest profitability in the world.
As far as Europe is concerned, what is changing is that the government-funded airlines of the past are being increasingly irrelevant and replaced with low-cost airlines. Those LCCs while not government-owned are behaving more and more like monopolies when it comes to their market power.
Developing markets also have their style of monopolies. China still tightly regulates their airlines under different brand names, distributing aircraft, airports, and routes to ensure that there is some balance.
In India, the domestic market is in danger of becoming a monopoly, since Indigo has more than a 40% share of that market.
However, airlines are extremely shrewd marketers, so they try to deflect attention from their side and rather point accusing fingers at airports for being monopolies. Such an accusation is true in many senses and cases.
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A passenger reading flight schedules at an airport. Photo Credit: Photodune
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Managing Editor of Airline Profits, the first aviation magazine devoted to airline effectiveness and profitability, Kofi Sonokpon has nearly 25 years of experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. An aviation expert and thought-leader, Kofi Sonokpon is also a speaker, trainer and the author of an innovative book series intended for the 21st century airline, namely Airlines for Business and Airlines for Technology. An accredited media delegate to the 39th Triennial Assembly of ICAO, Kofi Sonokpon is the host of Airline Profits Executive Interviews where he discusses various issues and solutions with aviation industry leaders and experts.
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Quoting from a 2013 ICAO working paper about global air transport:
“Airports used to be considered as natural monopolies. However, much has changed in the last twenty years, with the progressive liberalization of aviation markets worldwide.
Fierce airline competition for passengers also has implications for airports. Airports must now compete with each other for both passengers and airlines, which have significantly more choice than in the past. Airports have had to become more commercially focused.”
However, the debate between Airports and Airlines on monopolies is as old as the debate on “Whose passenger is it after all?”
Just recently in June, British Airways owner IAG called for breaking up Heathrow’s “monopoly.” IAG told the government to create competition to run terminals when the third runway is built to keep airfares low.
Indeed, flying has gotten way cheaper from its early days, yet remember my previous statement. The monopolies of today are not focused on price; they are rather focused on control. Air travel is changing from being a luxury to an absolute necessity.
While I anticipate the debate to continue, there is an underlying trend that is being effectively used, not just by hi-tech companies, but also very effectively by airlines. Moreover, that is: monopolizing our attention.
Quoting from a 2013 ICAO working paper about global air transport:
“Airports used to be considered as natural monopolies. However, much has changed in the last twenty years, with the progressive liberalization of aviation markets worldwide.
Fierce airline competition for passengers also has implications for airports. Airports must now compete with each other for both passengers and airlines, which have significantly more choice than in the past. Airports have had to become more commercially focused.”
However, the debate between Airports and Airlines on monopolies is as old as the debate on “Whose passenger is it after all?”
Just recently in June, British Airways owner IAG called for breaking up Heathrow’s “monopoly.” IAG told the government to create competition to run terminals when the third runway is built to keep airfares low.
Indeed, flying has gotten way cheaper from its early days, yet remember my previous statement. The monopolies of today are not focused on price; they are rather focused on control. Air travel is changing from being a luxury to an absolute necessity.
While I anticipate the debate to continue, there is an underlying trend that is being effectively used, not just by hi-tech companies, but also very effectively by airlines. Moreover, that is: monopolizing our attention.
Today, the focus is not on creating natural monopolies. Instead, it is about monopolizing our attention. Airline battles of the future will increasingly be fought in airline “data-management” or “mind-management” rooms which will be very different from the revenue management rooms of today.
The battle in the skies will not be on controlling routes, but on monopolizing the passenger’s attention on the ground through increasingly complex and advanced data management systems. That will be complemented by segmenting the onboard product into what I would call the hard product (the seat) and the soft product (IFE, catering, Wi-Fi, privileges) tailored to the individual passenger needs. Consequently, those products will follow passengers via their digital devices from the ground to the air and back on the ground again.
Airlines have a considerable opportunity for monopolizing our attention as soon as we step on board because we are figuratively speaking “prisoners in a seat.” Consequently, they will be able to create ancillary revenue streams that are far more profitable than the revenue from basic ticket sales. Ancillary airline revenues are projected to exceed US$82 billion in 2017.
These extra revenues will continue to grow as airlines figure out how to keep passengers “connected” on the ground and in the air. A recent “Sky High Economics” report published by the London School of Economics and Political Science highlighted that in-flight broadband connectivity would be ubiquitous on commercial aircraft, enabling additional ancillary revenue opportunities of $30 billion or more by 2035.
Today, the focus is not on creating natural monopolies. Instead, it is about monopolizing our attention. Airline battles of the future will increasingly be fought in airline “data-management” or “mind-management” rooms which will be very different from the revenue management rooms of today.
The battle in the skies will not be on controlling routes, but on monopolizing the passenger’s attention on the ground through increasingly complex and advanced data management systems. That will be complemented by segmenting the onboard product into what I would call the hard product (the seat) and the soft product (IFE, catering, Wi-Fi, privileges) tailored to the individual passenger needs. Consequently, those products will follow passengers via their digital devices from the ground to the air and back on the ground again.
Airlines have a considerable opportunity for monopolizing our attention as soon as we step on board because we are figuratively speaking “prisoners in a seat.” Consequently, they will be able to create ancillary revenue streams that are far more profitable than the revenue from basic ticket sales. Ancillary airline revenues are projected to exceed US$82 billion in 2017.
These extra revenues will continue to grow as airlines figure out how to keep passengers “connected” on the ground and in the air. A recent “Sky High Economics” report published by the London School of Economics and Political Science highlighted that in-flight broadband connectivity would be ubiquitous on commercial aircraft, enabling additional ancillary revenue opportunities of $30 billion or more by 2035.
At present, airlines are still laggards when it comes to using the treasure trove of data that they have on their passengers. In-flight Wi-Fi today is as spotty as data usage. There is still too much fragmentation, silos, legacy systems and outdated operational procedures that make this area a virtual mine-field of complexity.
Once airlines get their heads around it, we as passengers may represent even more lucrative sources for additional ancillary revenue opportunities for them. Of course, privacy challenges will remain, but air transport like other industries will find a way to meet them.
A critical advantage that future monopolies will have, as industries and companies start to converge, is that they will be able to share customer data, information, and preferences across platforms, businesses, and geographies. That in turn, will enable the creation and delivery of a personalized AI driven user experience aimed at each specific customer.
At present, airlines are still laggards when it comes to using the treasure trove of data that they have on their passengers. In-flight Wi-Fi today is as spotty as data usage. There is still too much fragmentation, silos, legacy systems and outdated operational procedures that make this area a virtual mine-field of complexity.
Once airlines get their heads around it, we as passengers may represent even more lucrative sources for additional ancillary revenue opportunities for them. Of course, privacy challenges will remain, but air transport like other industries will find a way to meet them.
A critical advantage that future monopolies will have, as industries and companies start to converge, is that they will be able to share customer data, information, and preferences across platforms, businesses, and geographies. That in turn, will enable the creation and delivery of a personalized AI driven user experience aimed at each specific customer.
In an attempt to anticipate what the future holds for the airline industry, the following is my take.
No matter how or what monopolies morph into in the future, the critical question that we all need to be asking is the following: “Can we trust the monopolies of today or the future?” Should we?
In an attempt to anticipate what the future holds for the airline industry, the following is my take.
No matter how or what monopolies morph into in the future, the critical question that we all need to be asking is the following: “Can we trust the monopolies of today or the future?” Should we?