Shifting airline landscape
The rapid growth of air travel in developing markets, such as Latin America and especially Asia, is shifting the industry’s center of gravity. Middle East–based carriers such as Emirates, Etihad Airways, and Qatar Airways are taking a large slice of the formerly profitable Europe–Asia traffic from those continents’ legacy airlines.
The Middle East carriers are highly dependent on connecting traffic, because their home markets are limited by the smaller population of their region. Yet their unique geographic positioning — most of the world’s population is within eight hours’ flying time — means they are able to capture a disproportionate share of long-haul market growth.
Similarly, LCCs continue to experience above-average growth rates for the industry, particularly in emerging economies with many first-time fliers. Worth noting, however, is that LCCs also increasingly face rising customer expectations, especially in mature markets. These carriers will need to find the right balance between making investments to improve the experience they offer and maintaining their cost advantage.
And consolidation will play a role in the industry as well. To a large degree, the industry’s low margins are driven by its fragmentation, and the resulting overcapacity in many markets. Still, U.S. carriers have been able to improve their financial performance dramatically, primarily through bankruptcy restructuring and a series of major mergers.