Established airlines will be increasingly jeopardized by newer, low-cost carriers in 2017 and as time goes on, according to Air France Joint Venture Performance Director Omar Jeroudi in a lecture on the afternoon of Dec. 13.
Jeroudi emphasized the challenges that legacy carriers such as Delta, Air France, and United Airlines will and are currently facing from low-cost airlines such as Ryanair and easyJet in terms of profitability and sustainability.
Because the new low-cost airlines are able to provide similar air travel experiences and levels of service as older carriers, they cut into established airlines’ market shares and profit margins.
“This is the tipping point for our industry, the airline industry,” Jeroudi said. “When you look at how things are evolving on transatlantic flow, and this is a flow where Air France-KLM is bargaining with Delta, we are at the stage where all the profits we have made so far are being really jeopardized by the entry and by the growth of these carriers.”
Even when one considers a domestic or purely continental market, these new low-cost carriers are beginning to take up significant portions of the air traffic market. Jeroudi pointed to the dominance of Ryanair over Alitalia in the Italian market for flights to illustrate this trend.
“The growth that these carriers are having in Europe is tremendous and is not allowing these legacy carriers — Lufthansa, British Airways, Air France-KLM — to take back the trump position in the market,” Jeroudi explained.
According to Jeroudi, there are only two foreseeable ways to combat the encroaching presence of these new low-cost carriers. One is for airlines to launch their own low-cost carrier services. The other is to emulate the models of low-cost carriers through movements such as basic economy tickets.
“Basic economy is clearly a new trend that will sustain for the coming years, and again, this is great news for the end customers because you’re going to benefit from pretty good quality of service of a legacy carrier and still at a great rate.” Jeroudi noted.
However, innovation in the flight industry is difficult, Jeroudi said. There are only so many additions a carrier can make to the flight experience, because unlike in other markets, the way consumers experience flights cannot be fundamentally altered.
“You’re going to see some kind of innovation,” Jeroudi said. “But innovation in our business, the airline business, is pretty hard. We cannot reinvent the wheel in our business. We have a seat, of course you can improve your product, put wifi on board, put some power plugs and do stuff like that, but at the end of the day our business is to bring passengers from point A to point B.”
Regarding ways in which consumers can price gouge airline tickets for better deals, Jeroudi offered a range of advice used by frequent and savvy flyers. He discussed tips such as booking early, using automated search tools and price alerts, and avoiding browser cookies when looking at prices. Among the more esoteric strategies, Jeroudi also discussed buying extra connecting flights to reduce the overall ticket price, buying two individual tickets instead of connecting flights, and flying out of non-hub airports.
The talk was well-attended by a packed room of University students and faculty. Entitled “Airline Pricing Talk with Omar Jeroudi,” the lecture was held at 4:30 p.m. in Robertson Hall Room 035. The talk was sponsored by the Princeton Aviation Association.
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