The airline industry remains locked in a state of
crisis: Airlines are scheduling less than half the flights they did a year ago, according to OAG data, and
even on those flights that are operating, average passenger loads are
well down. Recovery is now likely to
take years; more capacity reductions and airline failures are expected.
But retrenchment isn't the only response to a crisis,
and the industry that emerges from this crisis won’t look like the one that
went into the dark tunnel. Yes, many legacy airlines are cutting back to reduce
cash burn, as evidenced in the United States by United
dropping its regional airline partner ExpressJet, in Europe by Lufthansa
parking 300 aircraft out of its fleet into 2021, in the Middle East by Qatar
Airways withdrawing its 10-strong A380 fleet – indeed, wherever one looks,
legacy carriers are cutting back.
But
at the same time, many carriers are also looking ahead and seeking new and more
effective approaches to rebuilding their networks in the future. Low-cost
carriers and airlines with hub-and-spoke networks alike are establishing
tactical partnerships to shore up their connectivity to key destinations and
broaden their reach. And they're
experimenting with ways to create those partnerships outside of the traditional
legacy interlining framework.
Airlines can successfully navigate the
recovery – and achieve their longer-term growth and revenue goals – when they
work closely together. However, the legacy interline system doesn't meet the
needs of today's (or tomorrow's) air travel landscape. Even before
COVID-19, many airlines were already moving away from traditional alliances and
codeshares, while low-cost carriers never joined the legacy interlining and
alliance bandwagon in the first place.
Old-style legacy interlining, which took
shape decades ago in a heavily regulated industry where virtually every airline
was a state-owned “flag carrier,” is no longer fit for purpose to solve the myriad
challenges facing the industry today: it’s too restrictive and too cumbersome. Airlines
need a better approach to collaborative network development that gives them flexibility
and allows them to sustainably rebuild and expand their networks in the
post-COVID recovery phase.
Alternatives
to legacy interlining
Traditional
interlining requires significant integration between partnering airlines' reservations
systems and revenue accounting backends, as well as aligned processes and
agreement on fares. That integration is beneficial, it enables the airlines to
take end-to-end responsibility for the passenger’s journey, and – at least in
theory – lets airlines cross-sell services (such as premium seats or lounge
access) on their partners’ flights. Yet interlining is not always as straightforward
as a shiny alliance-level facade might suggest. And that integration often
comes at the price of complex commercial agreements and inflexible rules for connectivity
to other legacy systems like GDSs: anyone who’s worked through an alliance or
interlining implementation will attest how time- and resource-intensive the
process can be.
Self-connecting
and so-called “virtual interlining” are at the opposite end of the spectrum
from legacy interlining; the onus is now on the connecting passenger to
purchase separate flights from separate carriers for each leg of their trip,
and to deal with problems if things go wrong or schedules change. We might call
this a “second generation” of interline: OTAs or other booking platforms may
facilitate this process, but ultimately there is no integration between the
airlines. No airline has visibility of the passenger’s entire itinerary, so no
airline has responsibility to get the passenger from the start to the end of
their journey. And that means that any customer service when something goes
wrong has to be bolted on as an afterthought.
Air Black Box asked an
entirely different question in developing its Managed Interlining and Enhanced Virtual
Interlining products: how to build an airline-centric interline capability that
fits the modern airline landscape, is easy for both full-service carriers and
low-cost carriers to integrate, and enables a high quality of customer
experience? One might think of this as a “third generation” of interline: a
system that connects multiple airlines' inventories, including ancillary
products and services, but without the complex integrations and headaches of
legacy systems; that provides airlines with visibility of the passenger’s whole
journey; and that allows the airlines to deliver a consistent and uninterrupted
passenger experience. Rather than diverting the passenger to a separate OTA
site, this approach keeps the airlines in the driver’s seat, giving them the flexibility
to pursue route-expanding partnerships more quickly and more effectively than
conventional interline agreements would allow.
Sustainable expansion
As
we noted above, the enormous strain that COVID-19 has placed on global aviation
has left legacy carriers exceptionally exposed and in the process has revealed legacy
interlining's limitations; codeshare and alliance partners have reduced
capacity or restructured, further curtailing network carriers' coverage in critical
markets. While the pandemic has obliterated demand for travel (even where
regulations have not forbidden travel outright), this structural shift has created
network gaps that will have to be filled as the recovery gathers pace.
But
network carriers are having to rethink how best to build back, even if (especially
if!) their would-be partners have also cut back on routes and capacity. They'll
need to consider new partners and find ways to link to those partners’
inventories in more flexible and profitable ways.
Mid- and post-crisis flexibility
Traditional
alliances and legacy codesharing agreements were a good fit for a stable
industry built around network carriers. The emergence and steady growth of low-cost
carriers already pointed up the shortcomings of alliances and legacy
interlining, and COVID-19 demonstrates the need for a more flexible
co-operation model. Third-generation interlining solutions such as managed interlining
or enhanced virtual interlining open the way for point-to-point airlines to easily
complement local demand by serving as feeders for network carriers. By connecting
with other airlines' reservation systems without any complex, resource-intensive,
upfront integration work, LCCs can quickly help larger airlines deliver their
passengers to key destinations and sell more of their seat inventory.
As
the COVID-19 crisis wears on and more airlines' route networks erode due to
capacity cutbacks, the ability to identify and quickly connect with new
partners is a significant advantage. A more modern and flexible approach to
interlining helps airlines pivot to where the seat inventory they need and
maintain their revenue generation potential when they do. Whereas the LCC
business model is built on flexibility and lean operations, the agility
provided by managed and enhanced virtual interlining will be especially useful to
legacy carriers as they rebuild their route networks in an uncertain demand
environment.
It
will be a long road to recovery, but the airline industry is a resilient one. With
a more flexible, tactical approach to network collaboration, airlines can move
past the limitations of traditional cooperation structures such as legacy
interlines and alliances, successfully navigate recovery from the worst airline
crisis to date, and generate more revenue more quickly. These new approaches to
interlining are shaping up to allow airlines to nimbly and strategically add
capacity and expand their route networks, as well as providing a sustainable
path to geographic expansion post-crisis.