A reset in the airline industry is taking shape, and the ultimate shakeout is sure to result in a shift in the dominant business models between full-service carriers and low-cost carriers.  

[To track and stay up to date on the current recovery of the aviation industry, follow our Kambr Aero80 index]

Even as capacity begins to increase, and hopefully return to near-pre-Covid levels, the skies will look different in what some are dubbing “the new normal.” That begs the question – what airlines will come out on top in this new environment?

Money Talks & Airlines Fly

Let’s get the first variable out of the way, money. Airlines that have cash assets as well as those getting government bailouts will have an advantage over the competition. This is typically good news for flagship carriers.

In a previous Kambr Media post, David Delfini, a Geneva-based airline revenue management consultant with Kambr Advisory Group, wrote, “the current approach is privileging national players and hurting those that are far more pan-European in nature, both in operations as well as in staff composition.”

[Check out further commentary from Kambr Media on government bail outs: Why Airlines Deserve Immediate Rescue]

Delfini cites deals KLM, Air France, Lufthansa and British Airways have been able to secure from their respective governments, positioning them ahead of carriers such as Ryanair, easyJet and Wizz Air.  

Airlines with strong balance sheets and sufficient unencumbered assets, like Delta or United, will almost certainly ride out the financial storm but will emerge much smaller and leaner than they were early this year,” says Judson Rollins, Managing Partner, Propel Aviation Solutions.

Low-Cost Carrier Agility for the Win

With corporate bailouts accounted for, let’s analyze airline business models to see which will likely come out on top. General industry consensus revolves around the belief that low-cost carriers will see the opportunity for growth as the competition is forced to retrench.  

Iztok Franko, founder, Diggintravel is among the LCC believers, citing their digital savviness.  

“There are different reasons why LCC carriers come out on top in our digital maturity assessments. The most important reason in my opinion is because digital (or ecommerce) is the main or even only sales channel for them. For legacy carriers it’s just one of the channels,” said Franko.  

“Second, their IT and distribution architecture are way less complex. For legacy carriers, a lot use vendor booking engines that were built on top of complex passenger service and ticketing, distribution and other systems. Because of that booking platforms were not built for the modern digital world first, rather fit in with the underlying legacy technology.”

Rollins also believes LCCs are best positioned to succeed, but while Franko references distribution and technology, Rollins looked at it through a financial lens.  

The airlines most likely to restore profitability in the current environment are low-cost carriers with strong balance sheets, like Ryanair or Wizz Air. The return of business travel is likely to be slow due to virus concerns, worsening economic conditions globally, and tighter corporate travel spend,” said Rollins.

“Full-service carriers will struggle to generate breakeven demand levels, except where Covid-19 cases have stayed relatively low like most of the South Pacific. Intra-Europe traffic and the US domestic market may also recover sooner than many, but this depends largely on those countries' ability to prevent or mitigate subsequent waves of infection.”

However, LCCs biggest advantage in these uncertain and habitually changing times might be their lightweight organizational structures and agility, which allows them to adapt quickly.

“Last but not least, I see LCC carriers have more flat and agile organization structures that make executing end-to-end digital campaigns easier,” said Franko.  

“For legacy carriers, there are still a lot of very specialized roles (revenue management, pricing, fare filing, various system specialists) that are “systematic” and result in “siloed” tasks and “internal” focus instead of external (customer) focus.”

Geographic Significance, Efficiency & Focus

While low-cost carriers seem to have the upper hand based on their structure and digital practices, there are other variables at play, and it’ll likely be the airlines that can leverage all or most of these characteristics that will come out on top.  

"I believe there are three attributes that determine the likelihood of any airline making it through," said Tarmac Founder Juan Manuel Afeltra.  

"Whether the airline is private or publicly owned and how significant that airline is to the connectivity of its country and/or region; the airline's cost structure and efficiency, possessing the ability to make difficult decisions quickly and knowing where to focus time and energy; the ability to quickly respond to changing market dynamics while maintaining a long-term sight on value."  

Airlines who have these key advantages are the ones best positioned to survive an upcoming storm.  

"The product of these three terms determine how big your lungs are in order to hold your breath underwater when you get hit by a tsunami like Covid," said Afeltra.

Here’s to hoping commercial aviation regains its air supply sooner rather than later.