Table of Contents
Executive Summary
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- The issues
- Lowest price wins – Passengers making their selection based on cost
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- Figure 1: Factors impacting airline selection, March 2016
- Where’s the loyalty?
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- Figure 2: Attitudes toward loyalty and flying behaviors, March 2016
- The hassles of flying may outweigh the convenience
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- Figure 3: Agreement that “flying is … a hassle,” by flyer segments, March 2016
- Does customer service even matter?
- The opportunities
- Potential to explore new techniques to drive direct bookings
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- Figure 4: Airline travel booking methods, March 2016
- Customer segmentation and understanding the target
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- Figure 5: Flyer segments, March 2016
- Offer add-ons, shopping opportunities to business travelers and most frequent flyers
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- Figure 6: Typically purchases additional items, by reasons for travel and flyer segments, March 2016
- What it means
The Market – What You Need to Know
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- US airline industry consistently strong (for a change), forecast to grow
- Airfares account for vast majority of airline revenues
- Experience-oriented Millennials to drive market
- Current economic environment favorable for future growth
Market Size and Forecast
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- Stable economy, record passengers, low fuel costs drive airline growth
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- Figure 7: US airline operating revenue and fanchart forecast, at current prices, 2011-21
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- Figure 8: US airline operating revenue and forecast, at current prices, 2011-21
Market Breakdown
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- Airfares account for three quarters operating revenue
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- Figure 9: US airline operating revenue, by segment, at current prices, 2014 and 2016
- Airfare growth sets the industry pace, slower increases through 2021
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- Figure 10: US airline airfare revenues and fanchart forecast, at current prices, 2011-21
- Revenues for baggage fees, reservation change fees forecast for take-off
- Bag check fees soar on the wings of grudging acceptance
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- Figure 11: US airline baggage fee revenues and fanchart forecast, at current prices, 2011-21
- Reservation change fees a healthy source of revenue
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- Figure 12: US airline reservation change fee revenues and fanchart forecast, at current prices, 2011-21
- Other revenues’ growth to accelerate 2016-21
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- Figure 13: US airline other revenue and fanchart forecast, at current prices, 2011-21
Market Perspective
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- Millennial wanderlust and “need” to travel boosts airline performance
- Cost-driven travelers give little wiggle room to airlines to increase fares
- Long security wait times, cheap gas may prompt travelers to hit the road
- Slower growth in business travel in 2016
Market Factors
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- Domestic economic factors point to positive airline industry growth
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- Figure 14: GDP change from previous period, Q1 2007-Q1 2016
- Figure 15: Disposable Personal Income change from previous period, January 2007-May 2016
- Figure 16: Unemployment and underemployment, January 2007-May 2016
- Figure 17: Consumer confidence and unemployment, 2000-May 2016
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- Figure 18: US gasoline and diesel average retail prices, January 2007-April 2016
- Record high load factors point to future demand for airline travel
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- Figure 19: Load factor on all US scheduled airlines (domestic & international), December 2010-December 2015
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- Figure 20: Passengers on all scheduled US-based flights (domestic & international), 2003-15
- Average domestic airfares cheapest since 2010
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- figure 21: US average domestic fares, 3rd quarter 1995-2015
Key Players – What You Need to Know
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- Era of consolidation puts pricing power in the hands of few
- But competition is fierce and airlines appear in a “race to the bottom”
- The good news: Carriers are reinvesting record profits in the experience
- The bad news: Record profits from record passengers = longer waits
- What’s coming: More automation, need to optimize mobile
- Airlines sending bulk of email communication on Tuesdays
Airline Overview
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- Top 10 US carriers account for more than 80% of passengers
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- Figure 22: Top 10 US carriers by passenger enplanement, 2103 and 2015
- Legacy airlines post strong performance from 2014-15
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- Figure 23: Net income of top 10 US carriers, 2013-15
- Email marketing strategies
- Major players issue bulk of email on Tuesdays and ignore the weekends
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- Figure 24: Share of projected email volume per day of the week, by airline, January 1, 2016-June 16, 2016
- Top promotional emails focus on savings, limited-time offers
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- Figure 25: Delta Air Lines, emails – “Don’t Miss Out,” 1st half 2016
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- Figure 26: Alaska Airlines email – “Something new is in the air”, 1st half 2016
- Legacy carriers average the highest email read rates, overall
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- Figure 27: Read rates, by airline, January 1, 2016-June 16, 2016
- Southwest, United, and American are top loyalty emailers
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- Figure 28: Loyalty email share of voice, Q1 2014-Q1 2016
What’s Working?
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- Airlines getting the final sale
- Passenger DIY helps to reduce costs, improve satisfaction
- Profits soar on low fuel prices and ancillary services
- Reinvesting in the product (and passenger experience)
- WiFi
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- Figure 29: Introducing Fly-Fi, December 2013
- Entertainment
- In-seat power
- TSA PreCheck: Working for travelers, not so much for the TSA
- Southwest Airlines – It’s been “what’s working” for 40+ years
What’s Struggling?
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- Brand loyalty harder to achieve among price-focused flyers
- #IHateTheWait: long security lines spark frustration
- Mobile used to search … not so much to book
What’s Next?
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- More low-cost competition from abroad on the horizon
- Is the age of mergers over? Is there room for new entries on a smaller scale?
- How long can the industry be profitable?
- Jet fuel prices low now, but appear to be on the rise
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- Figure 30: US Gulf Coast kerosene-type jet fuel spot price FOB, US$ per gallon, May 2006-May 2016
- Back to “basics” or sub-economy
- Cuba opens up – sort of
- “Brexit” to impact US international carriers
The Consumer – What You Need to Know
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- About one quarter of Americans fly each year
- Air tickets are purchased online, usually with the carrier
- Flyers choose carriers for lower price, convenient schedules, ease
- Legacy and low-cost carriers rate highest
- Loyalty programs: does membership really have its privileges?
- Most people (especially Ultra flyers) like flying even though it’s a hassle
Past 12-Month Air Travel
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- Proportion of US flyers stable, most flying for personal reasons
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- Figure 31: Plane travel [domestic] in the last 12 months, by all and domestic travelers, February 2010-March 2016
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- Figure 32: Reasons for past 12-month air travel, March 2016
- About three in 10 are frequent flyers; under 45s, affluent are over represented
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- Figure 33: Flyer segments, by number of flights in the past 12 months, March 2016
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- Figure 34: High-frequency and Ultra flyers, by gender and age and by household income, March 2016
- English-speaking Hispanics among most frequent flyers
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- Figure 35: Frequent flyer segments, by race/Hispanic origin, March 2016
Travel Booking Method
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- Air tickets commonly purchased online, direct through supplier
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- Figure 36: Airline travel booking methods, March 2016
- Online direct with airline most common among frequent flyers
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- Figure 37: Airline ticket travel booking methods – Direct and third party, by flyer segment, March 2016
- Across generations, online booking wins
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- Figure 38: Airline ticket travel booking methods – Nets, by generation, March 2016
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- Figure 39: Airline ticket travel booking methods – Direct and third party, by generation, March 2016
- One third of Ultra flyers are interested in airline subscription services
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- Figure 40: Interested in airline subscription service, by reasons for travel and flyer segments, March 2016
Factors Impacting Airline Selection
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- Price, schedule, baggage fees, ease are top considerations
- Operational factors are key
- Customer service and “soft” amenities can help to differentiate carriers
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- Figure 41: Factors impacting airline selection, March 2016
- TURF analysis – Airlines
- Methodology
- Beyond lower price and schedule, other factors add only incremental reach
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- Figure 42: TURF Analysis – Factors impacting airline selection, March 2016
- Low-frequency flyers look at price; high-frequency consider schedule
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- Figure 43: Top three factors impacting airline selection, by flyer segments, March 2016
- Baby Boomers have great expectations, Millennials – not so much
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- Figure 44: Top three factors impacting airline selection, by generation, March 2016
- Service can make it (or break it) for Ultra flyers
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- Figure 45: Service factors impacting airline selection, by flyer segments, March 2016
- Ultra flyers consider in-flight WiFi and streaming
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- Figure 46: In-flight factors impacting airline selection, by flyer segments, March 2016
Perceptions of US Airlines
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- The “Big 3” legacy carriers and Southwest rate highest
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- Figure 47: US airlines' ratings (1-5 stars), March 2016
- Higher-rated carriers garner greater positive sentiment
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- Figure 48: Perceptions of US airlines, by airline, March 2016
- Southwest leads on all but “modern” and “worth paying more for”
- Attributes that define the industry
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- Figure 49: Perceptions of US airlines, by airline category – Including none, March 2016
- What makes a good airline?
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- Figure 50: Words associated with a “good” US airline, March 2016
- Familiarity does NOT breed contempt
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- Figure 51: US airlines ratings (4-5 star rating), by Light and Ultra flyers, March 2016
- Baby Boomers can’t get no satisfaction
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- Figure 52: US airlines ratings (4-5 star rating), by Millennials and Baby Boomers, March 2016
Passenger Booking and Flying Behaviors
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- Advance booking not seen as a priority for half of flyers
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- Figure 53: Passenger booking and flying behaviors, March 2016
- Generation, income, flying frequency impact booking, flying behaviors
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- Figure 54: Passenger booking behaviors, by key demographics, March 2016
- Loyalty is up for grabs – is there even such a thing?
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- Figure 55: Passenger flying behaviors, by key demographics, March 2016
- Current booking and flying behaviors lend insight to future motivations
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- Figure 56: Passenger booking and flying behaviors, by booking and flying behaviors, March 2016
Passenger Purchasing Interests
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- Relatively low interest in buying while flying
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- Figure 57: Passenger purchasing interests, March 2016
- Business and Ultra flyers more likely to purchase add-ons
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- Figure 58: Typically purchases additional items, by reasons for travel and flyer segments, March 2016
- Parents of multiple children most interested in buying items for kids
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- Figure 59: Interested in purchasing items for kids, by presence, age, and number of children, March 2016
Attitudes toward the Flying Experience
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- Flying becoming more of a hassle, but most people still like it
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- Figure 60: Attitudes toward the flying experience, March 2016
- Frequent flyers have a more positive attitude
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- Figure 61: Attitudes toward the flying experience – Any agree, by flyer segments, March 2016
- Millennials like flying, feel that the experience has improved
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- Figure 62: Attitudes toward the flying experience – Any agree, by generation, March 2016
- Hispanics are ready for take-off
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- Figure 63: Attitudes toward the flying experience – Any agree, by Hispanic origin, March 2016
Attitudes toward Technology
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- Mixed results, overall, for desiring in-flight connectivity
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- Figure 64: Attitudes toward technology, March 2016
- Even the most frequent flyers are ambivalent toward in-flight WiFi
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- Figure 65: Attitudes toward technology – Any agree, by flyer segments, March 2016
- Millennials want in-flight streaming, internet, to avoid airline personnel
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- Figure 66: Attitudes toward technology – Any agree, by generation, March 2016
- Hispanics would like to stream entertainment in-flight
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- Figure 67: Attitudes toward technology – Any agree, by Hispanic origin, March 2016
Attitudes toward Loyalty and Differentiation
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- Majority feel that loyalty programs benefit only the most frequent flyers
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- Figure 68: Attitudes toward loyalty and differentiation, March 2016
- Ultra flyers more skeptical of loyalty program value
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- Figure 69: Attitudes toward loyalty and differentiation, by flyer segments, March 2016
- Millennials experiencing memory loss?
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- Figure 70: Attitudes toward loyalty and differentiation, by generation, March 2016
- Overall enrollment in frequent flyer programs remains steady
- Loyalty members are doubling down
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- Figure 71: Frequent flyer enrollment and airline programs, 2008-16
Appendix – Data Sources and Abbreviations
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- Data sources
- Sales data
- Fan chart forecast
- Consumer survey data
- Consumer qualitative research
- Direct marketing creative and email
- Abbreviations and terms
- Abbreviations
- Terms
Appendix – Market
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- Figure 72: US airline operating revenue and forecast, at inflation-adjusted prices, 2011-21
- Figure 73: US airline operating revenue and forecast, by segment, at current prices, 2011-21
- Figure 74: US airline operating revenue, by segment, at current prices, 2014 and 2016
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- Figure 75: US airline airfare revenues and forecast, at current prices, 2011-21
- Figure 76: US airline airfare revenues and forecast, at inflation-adjusted prices, 2011-21
- Figure 77: US airline baggage fee revenues and forecast, at current prices, 2011-21
- Figure 78: US airline baggage fee revenues and forecast, at inflation-adjusted prices, 2011-21
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- Figure 79: US airline reservation change fee revenues and forecast, at current prices, 2011-21
- Figure 80: US airline reservation change fee revenues and forecast, at inflation-adjusted prices, 2011-21
- Figure 81: US airline other revenue and forecast, at current prices, 2011-21
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- Figure 82: US airline other revenue and forecast, at inflation-adjusted prices, 2011-21
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Appendix – Key Players
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- Figure 83: Net income of top 10 US carriers, 2010-15
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Appendix – Consumer
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- Figure 84: Plane travel [domestic] in the last 12 months, by all and domestic travelers, February 2010-March 2016
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- Figure 85: Table – TURF Analysis – Factors impacting airline selection, March 2016
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