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The Air Transport Industry

Global Air Transport Outlook

The airline industry is delivering solid financial and operational performance. With this, passengers are
benefiting from greater value than ever – with competitive airfares and product investments. In 2016, the
International Air Transport Association (IATA) sees an average net profit margin of 5.1% being generated with
total net profits of $36.3 billion. The total passenger number is expected to rise to 3.8 billion travelling over
some 54,000 routes. The experience of good growth in the industry is expected to continue and forecasted to
reach an estimated profit of $832.8 billion in 2020, with a compound annual growth rate (CAGR) of 3.7%.

This strengthening industry performance is being driven by a combination of factors such as lower oil prices,
strong demand for passenger travel, stronger economies in some key economies, and high capacity factors in
airlines.

Trends Influencing the Air Transport Industry

Airfares Get Even Lower – due to increased competition, decreased jet fuel prices, and airlines moving
into branded, unbundled ticketing with lower base fares and optional ancillaries, Hopper (a mobile airline
app) reported a 14.3% drop in airfare. This trend is believed to carry on and consumers will see better
prices, more fare sales, and flexible ticketing options in the future. This is the same here in the Philippines.

As low-cost carriers, like Frontier and Spirit, continue to expand operations, other airlines, like American
Airlines and United Airlines, are supporting the idea and offering new “no-frills” fares in order to compete.
These new “no- frills” fares will likely result in airlines adding on new fees and requiring customers to pay
for extras such as for checked luggage or choosing a seat assignment in advance.

Established Carriers Stay Strong – when revenues soared high in the airline industry, it’s the legacy airlines
that gained much of the profits. This will likely continue since reports indicate that valuable business flyers
still prefer the ‘Big Three’ airlines (American, Delta, and United). Additionally, great amount of praise from
marketing experts is given to the said airlines because of their new, nimble branded-fares, designed to
recapture price-sensitive leisure flyers.

More Americans Will Take to the Skies – with strong US dollar, lower airfares, and better access to budget-
friendly accommodations, travel for the North American market is strong. According to a study by
TripAdvisor, an estimated 69% of US travelers are planning an international trip.

Airlines are also expanding their networks internationally, which will be fundamental to growth for carriers
operating from the US. American Airlines will be expanding into Sydney, Mexico, and the Caribbean from
all over the US, Delta is boosting transatlantic service from the Midwest and New York Airport, and United
Airlines is targeting leisure travelers with new routes to Spain, St. Kitts, and St. Lucia.

Airline Reward Programs Revamped – many airlines used to allow travelers to earn miles or points in
different ways such as distance flown, ticket price, and elite status. These days, most airlines have done
make-overs with their mileage programs to reward more points on a cost-per-fare basis. This means that
a pricey business or first class flyer will earn up to 10 times more miles than an economy flyer going the
same distance.

More Overhead Space, Less Leg Room – with Boeing adding new “Space Bins” on its 737s, overhead bin
is increased by 50%. Airlines including Alaska Airlines, Delta, and United Airlines are already embracing the
new design and integrating it into their newest planes. Definitely, more overhead space is a bonus for
travelers.

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While overhead bins may be expanding, leg room in economy class, however, will continue to decrease.
Airline design firms are filing patents showcasing unique ways of cramming more passengers into a cabin.
The design shows passengers literally sitting on top of each other in a mezzanine-style structure. Emirates
set a new world record for its reconfigured Airbus A380 that boasts a record-breaking 615 passenger seats;
and Southwest planes have already begun installing slimline seats.

Your Miles Will Have More Advantages – all miles or points a traveler has saved up will be usable in more
ways than just on the next airline ticket. United Airlines has already launched a new popup show in Newark
Airport, where Mileage Plus members can spend their hard-earned points at the Miles Shop at select
restaurants and bars in the terminal. The carrier is also looking into new ways to improve their passenger’s
experience, and is testing a new payment portal that allows passengers to use their frequently flyer miles
to pay for in-flight internet access.

Robotics and Artificial Intelligence – a customer-facing robot in airport terminals is not a new trend. In
2013, Geneva Airport launched its first trial of a customer service robot, and in 2015, Haneda Airport and
Auckland Airport introduced robots for jobs such as luggage transportation and cleaning. Though, in late
2015, KLM Royal Dutch Airlines introduced what it hoped to be a game-changer in this aspect. It started
operational trials of the Spencer robot at Amsterdam Airport Schiphol. Spencer is said to go beyond the
skills of the current generation robots and as well as being able to guide groups of passengers directly to
their departure gate. Also, it is hoped that it will be able to recognize emotions, consider group behavior
and respond to unexpected situation, potentially providing a new-generation customer service and
passenger experience tool. Emirates Airlines is among those that stated an intention to explore the
potential of robotics as part of a major technology transformation initiative.

Data Science – the role of data scientists is increasing in importance in the air transport sector. According
to IBM, “What sets the data scientist apart is strong business insight, coupled with the ability to
communicate findings to both business and IT leaders in a way that can influence how an organization
approaches a business challenge. Good data scientists will not just address business problems, they will
pick the right problems that have the most value to the organization”.

This trend is being undertaken by Emirates and Etihad. According to these airlines, the use of data science
will improve efficiency, bring down costs, increase revenue, and drive greater customer satisfaction in
their operations.

Biometric-Enabled Self-Service – self-service check-in and bag drop facilities are now commonplaces in
airports around the world. But as a new generation of products come to market, biometrics technology
seems set to play a crucial role in adding a further layer of security and creating a seamless experience for
passengers. The best example of this trend can be found at Auckland Airport, where Air New Zealand
recently installed the first of 13 biometric-enabled self-service bag drop units, which feature an embedded
camera to capture an image of the passenger’s face at the point of bag drop.

A number of vendors are eyeing up biometrics integration for their next wave of self-service products,
with many seeing it as a crucial element of making the seamless airport vision a more attainable reality.
This goes hand-in-hand with the creation of a single passenger token, which can link a passenger’s
biometric data to his/her boarding pass and passport to remove the need to present documents at
multiple stages of the airport journey. With airports, airlines, and vendors now identifying the benefits of
biometric-enabled self-service solutions, many more implementations are expected.

Smarter Baggage Solutions – biometric-enabled bag drop will not be the only innovation in the baggage
space. With the joint launch by RIMOWA (one [1] of Europe’s leading luggage manufacturers, whether
traditional aluminum cases or light luggage made of high-tech material polycarbonate) and Lufthansa of
the RIMOWA Electronic Tag, and KLM Royal Dutch Airlines (Koninklijke Luchtvaart Maatschappij N.V.

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airline serving the Netherlands and its colonies and has been part of the Air France KLM group since 2004)
adopting a new baggage tracking device for frequent flyers, multiple vendors are refining their permanent
electronic bag tags as they compete for position in a fast-growing marketplace. The foundations have
certainly been laid for a baggage revamp.
The RIMOWA Electronic Tag allows travelers to use their smartphone to check in their smart bag from the
convenience of their own homes, and hand it in within seconds at the airport. It replaces the usual paper
label with a digital data module integrated into the suitcase. It displays digital luggage data in the same
size and with the same appearance as today’s paper label. This is done by using a smart device to transmit
the airline’s digital luggage data to the suitcase fitted with the electronic tag. Just moments later, the
luggage details for the booked flight appear on the data module integrated into the suitcase; and in
seconds, it can be placed in the semi- or fully-automatic luggage check-in stations provided at the airport
(www.rimowa.com/en-us/electronictag).

Passenger Empowerment – binding robotics, data science, biometric-enabled self-service solutions, and
smarter baggage solution together is one (1) primary trend: passenger empowerment. Robotics can offer
a new level of customer service and to remove anxiety in the airport terminal; artificial intelligence and
data science can help airlines and airports understand and derive tangible benefits from the multitude of
data they have access to in order to personalize their offers; biometric-enabled self-service solutions can
present travelers with a more seamless airport experience; and smart baggage solutions can enable
passengers to take control of the baggage process, including tracking their luggage through every stage of
the journey.

The modern day travelers want to feel empowered. They want anxiety to be removed from the travel
process, and want smoother and more personalized travel experiences. Such technologies can help airlines
and airports meet these demands.

The Cruise Industry

An Outlook of the Global Cruise Industry

According to the Cruise Lines International Association (CLIA) [a unified global organization that helps its
members succeed by advocating, educating, and promoting for the common interests of the cruise community]
latest State of the Cruise Industry Outlook report, the global cruise travel is continuously growing and evolving.
The industry shows no sign of slowing down, with 24 million passengers expected to cruise in 2016. Cruise
lines are working on expanding their fleets as reflected by significant investments from their part. As stated in
the report, 66 new ships will debut from 2016 to 2020. This shows not only the continued growth of the
industry but a commitment to further the industry’s growth from the cruise lines.

Unlike most retail businesses, the cruise industry has not been weakened by the rise of consumers shopping
online. CLIA stated that most cruises are sold by travel agents, not through websites. Actually, 70% of cruisers
choose to book their vacations using a travel agent. As such, travel agents are also experiencing a higher
demand for cruise travel. Eight (8) out of 10 CLIA member travel agents stated that they are expecting an
increase in cruise sales compared to the previous years.

Trends Influencing Cruise Travel

Cruisers as Explorers Not Tourists – more cruise travelers seek to learn, do, and feel connected to the
cities they are visiting while in port, rather than just seeking fun-in-the-sun. This trend was introduced a
few years ago by Azamara Cruise Line (a subsidiary of Royal Caribbean Cruises that travels to over 200
ports in 70 countries; caters to guests who want authentic experiences, love to explore, and try something
new) when it added overnight stays to interesting places visited mid-journey that were not pre- and post-
cruise ports. Nowadays, more lines are following this trend, creating their own offerings. For example,

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Royal Caribbean has introduced “Come Seek” program, which highlights local experience in port, and
Seabourn Odyssey that features a handful of mid-cruise journeys off its ships to places that are not easily
accessed by ocean vessels. This trend is seen long into the future as more and more cruisers want to
indulge with various cultures of the exotic places they visit.

New Destination Hot Spots – cruising around Australia and New Zealand has been famous with North
American cruise travelers in 2016. However, the economy is improving, which encourages longer and
bigger splurges among cruisers. The cruise industry is also taking a great interest in growing cruising in the
Asia-South Pacific region, which means newer vessels with modern amenities. Celebrity Solstice (is among
the Solstice Class ships of Celebrity Cruises that provides emphasis on designing stunning ships and inviting
onboard experiences for vacationers), Holland America (a leader in the premium segment of the cruise
industry and annually offers more than 500 cruises to 415 ports of call in 98 countries, territories or
dependencies), and Seabourn Odyssey (the smallest new ship being built by a major cruise line,
accommodating just 450 guests in 225 luxury suites - creating the highest space-per-guest ratio in the
industry) are already offering more itineraries in the said area. Other new hot spots for cruising include
Costa Rica and Cuba, though big ship lines are not still permitted from the Cuban government; small ship
lines are already permitted on a seasonal basis.

Cruise Lines Target Inclusive Pricing Strategies – cruise lines are trying to remove the idea that they are
financially straining cruisers by charging them for many minor services. They are beginning to offer a
discounted rate for extra charges, and special packages that covers several inclusions. For instance,
Norwegian Cruise line is offering a “Freestyle Choice”, which offers not only a Wi-Fi and cocktail package,
but also adds shore excursions and specialty restaurant entry fees.

Small Ship Cruising Starts Gaining Steam – a lot of growth is foreseen in small ship cruising. Small ships
are able to enter undiscovered ports and offer intimate and service-oriented onboard experiences. For
instance, Crystal Cruises (an American luxury cruise line) is introducing Crystal Yacht Cruises, a 62-
passenger ship sailing in Europe’s Adriatic.

Brands at Sea – the past years have been occupied with brand names becoming infused with cruises. This
trend will continue as cruise lines partner with brands or companies that can help influence the
experience, both on-board and in port. This also provides control for cross-promotional opportunities. For
example, Princess Cruises (the third largest cruise line in the world) has partnered with Discovery Channel
and has onboard activities inspired by programs like “Myth Busters’, “Deadliest Catch”, and “Shark Week”.
Holland America is also teaming up with BBC Earth and will feature ramped-up enrichment onboard and
more immersive tours.

Connectivity and Cruising – cruise lines are making major investments in creating new technologies that
make at-sea internet fast and more efficient, since most cruise passengers do not want to be disconnected
completely while on their cruise. Most lines now offer package plans to cruisers. Regent Seven Sea will
offer free, unlimited Wi-Fi to all passengers, and Royal Caribbean’s Majesty of the Seas will be the first
mass-market ship to offer Wi-Fi for free.

Passengers Get to Experience the Latest Technology – robot bartenders are becoming a mainstream on
cruise ships, and technologies available for passengers are advancing. It is predicted that passengers will
be able to use their smartphones to order room service and to open their stateroom doors with the flick
of their wrists. MSC Cruises (the market leading cruise company in the Mediterranean, South Africa, and
Brazil) already has bracelets that allow passengers to purchase goods on board, unlock rooms, and check-
in for activities or entertainment on the ship. This can also be used in providing information to make sure
passengers do not miss shows or special deals at the ship’s facilities. This trend is becoming more and
more popular to all major cruise lines.

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A Love for Luxe – the cruise industry will continue to recognize that travelers’ tastes have become more
sophisticated. Cruise companies are now responding with yachting experiences, concierge services,
exclusive tours, gourmet dining, and personal butler service.

Grand (Parent) Travel Experiences – intergenerational cruising has become a popular selection for family
reunions or the family vacation of a lifetime. With cruise amenities designed to satisfy every age from
toddlers to seniors, cruises provide the intimacy and the independence that makes intergenerational
family travel a success.

The Rise of the River Cruise – river cruises are growing in popularity, introducing the value and unique
travel experience to new cruise travelers. Cruise Lines International Association (CLIA) currently deploys
170 river cruise ships with 18 new river cruise ships on order, an increase of more than 10%.

Ships are the Destination – before, cruise ships were considered a mode of transportation to get to a
desired destination. Today, for many, a cruise ship offers the experience of a destination. Latest ships
nowadays, offer extraordinary onboard experiences and amenities for travelers, from Broadway
productions and designer shops to zip lining and bumper cars.

Cruise Voluntourism – more "voluntourism" cruises are available with several ships including excursions
to help areas of need around the world. These service-oriented cruises offer a great opportunity to make
a meaningful difference in the communities they visit and a rare experience to embrace and impact local
culture.

References:
Airlines Continue to Improve Profitability 5.1% Net Profit Margin for 2016. (December 10, 2015). Retrieved from
http://www.iata.org/pressroom/pr/Pages/2015-12-10-01.aspx on 19 April 2016
Airline Industry Trends for 2016. (January 29, 2016). In frosch.com. Retrieved from http://www.frosch.com/airline-trends-for-2016/ on 15 April 2016
Celebrity Cruises. Company Profile. Retrieved from http://www.celebritycruises.com/about-celebrity/about-celebrity-
overview?cS=Footer&ICID=Cel_11Q4_web_hp_ftr_about#footer_pages_about_celebrity_company_profile_history_tab/about-
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Cruise Industry Trends for 2016. (January 22, 2016). Retrieved from http://www.frosch.com/cruise-trends-for-2016/ on 18 April 2016
Festa, J. (January 3, 2016). 10 radical travel trends to watch for in 2016. In sattravel.wordpress.com. Retrieved from
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2016
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Holland America Line. Company Profile. Retrieved from http://www.hollandamerica.com/about-best-cruise-lines/Main.action# on 16 May 2016
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http://www.travelpulse.com/news/cruise/13-trends-coming-to-cruising-in-2016-and-what-they-mean.html on 18 April 2016
KLM Royal Dutch Airlines. Company Profile. Retrieved from https://www.klm.com/corporate/en/about-klm/profile/index.html on 16 May 2016
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April 2016

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