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Airlines - US - July 2016

Published By :

Mintel

Published Date : Jul 2016

Category :

Airports

No. of Pages : N/A

The US airline industry is enjoying a nearly unprecedented stretch of success, with 2015 profits nearly triple those of 2014. Low fuel prices and relatively strong demand indicate that 2016 will show similar results. The share of Americans taking to the skies has remained unchanged for the past five years, even as passenger counts hit new record highs. This means that a smaller, select group of travelers are flying with greater frequency. Despite industry consolidation, competition for these frequent flyers continues to heat up as major carriers develop new services and restructure loyalty programs to benefit these top-tier flyers.

Table of Content

Overview

What you need to know
Definition

Executive Summary

The issues
Lowest price wins – Passengers making their selection based on cost
Figure 1: Factors impacting airline selection, March 2016
Where’s the loyalty?
Figure 2: Attitudes toward loyalty and flying behaviors, March 2016
The hassles of flying may outweigh the convenience
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
Figure 4: Airline travel booking methods, March 2016
Customer segmentation and understanding the target
Figure 5: Flyer segments, March 2016
Offer add-ons, shopping opportunities to business travelers and most frequent flyers
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

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

Stable economy, record passengers, low fuel costs drive airline growth
Figure 7: US airline operating revenue and fanchart forecast, at current prices, 2011-21
Figure 8: US airline operating revenue and forecast, at current prices, 2011-21

Market Breakdown

Airfares account for three quarters operating revenue
Figure 9: US airline operating revenue, by segment, at current prices, 2014 and 2016
Airfare growth sets the industry pace, slower increases through 2021
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
Figure 11: US airline baggage fee revenues and fanchart forecast, at current prices, 2011-21
Reservation change fees a healthy source of revenue
Figure 12: US airline reservation change fee revenues and fanchart forecast, at current prices, 2011-21
Other revenues’ growth to accelerate 2016-21
Figure 13: US airline other revenue and fanchart forecast, at current prices, 2011-21

Market Perspective

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

Domestic economic factors point to positive airline industry growth
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
Figure 18: US gasoline and diesel average retail prices, January 2007-April 2016
Record high load factors point to future demand for airline travel
Figure 19: Load factor on all US scheduled airlines (domestic & international), December 2010-December 2015
Figure 20: Passengers on all scheduled US-based flights (domestic & international), 2003-15
Average domestic airfares cheapest since 2010
Figure 21: US average domestic fares, 3rd quarter 1995-2015

Key Players – What You Need to Know

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

Top 10 US carriers account for more than 80% of passengers
Figure 22: Top 10 US carriers by passenger enplanement, 2103 and 2015
Legacy airlines post strong performance from 2014-15
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
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
Figure 25: Delta Air Lines, emails – “Don’t Miss Out,” 1st half 2016
Figure 26: Alaska Airlines email – “Something new is in the air”, 1st half 2016
Legacy carriers average the highest email read rates, overall
Figure 27: Read rates, by airline, January 1, 2016-June 16, 2016
Southwest, United, and American are top loyalty emailers
Figure 28: Loyalty email share of voice, Q1 2014-Q1 2016

What’s Working?

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
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?

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?

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
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

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

Proportion of US flyers stable, most flying for personal reasons
Figure 31: Plane travel [domestic] in the last 12 months, by all and domestic travelers, February 2010-March 2016
Figure 32: Reasons for past 12-month air travel, March 2016
About three in 10 are frequent flyers; under 45s, affluent are over represented
Figure 33: Flyer segments, by number of flights in the past 12 months, March 2016
Figure 34: High-frequency and Ultra flyers, by gender and age and by household income, March 2016
English-speaking Hispanics among most frequent flyers
Figure 35: Frequent flyer segments, by race/Hispanic origin, March 2016

Travel Booking Method

Air tickets commonly purchased online, direct through supplier
Figure 36: Airline travel booking methods, March 2016
Online direct with airline most common among frequent flyers
Figure 37: Airline ticket travel booking methods – Direct and third party, by flyer segment, March 2016
Across generations, online booking wins
Figure 38: Airline ticket travel booking methods – Nets, by generation, March 2016
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
Figure 40: Interested in airline subscription service, by reasons for travel and flyer segments, March 2016

Factors Impacting Airline Selection

Price, schedule, baggage fees, ease are top considerations
Operational factors are key
Customer service and “soft” amenities can help to differentiate carriers
Figure 41: Factors impacting airline selection, March 2016
TURF analysis – Airlines
Methodology
Beyond lower price and schedule, other factors add only incremental reach
Figure 42: TURF Analysis – Factors impacting airline selection, March 2016
Low-frequency flyers look at price; high-frequency consider schedule
Figure 43: Top three factors impacting airline selection, by flyer segments, March 2016
Baby Boomers have great expectations, Millennials – not so much
Figure 44: Top three factors impacting airline selection, by generation, March 2016
Service can make it (or break it) for Ultra flyers
Figure 45: Service factors impacting airline selection, by flyer segments, March 2016
Ultra flyers consider in-flight WiFi and streaming
Figure 46: In-flight factors impacting airline selection, by flyer segments, March 2016

Perceptions of US Airlines

The “Big 3” legacy carriers and Southwest rate highest
Figure 47: US airlines' ratings (1-5 stars), March 2016
Higher-rated carriers garner greater positive sentiment
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
Figure 49: Perceptions of US airlines, by airline category – Including none, March 2016
What makes a good airline?
Figure 50: Words associated with a “good” US airline, March 2016
Familiarity does NOT breed contempt
Figure 51: US airlines ratings (4-5 star rating), by Light and Ultra flyers, March 2016
Baby Boomers can’t get no satisfaction
Figure 52: US airlines ratings (4-5 star rating), by Millennials and Baby Boomers, March 2016

Passenger Booking and Flying Behaviors

Advance booking not seen as a priority for half of flyers
Figure 53: Passenger booking and flying behaviors, March 2016
Generation, income, flying frequency impact booking, flying behaviors
Figure 54: Passenger booking behaviors, by key demographics, March 2016
Loyalty is up for grabs – is there even such a thing?
Figure 55: Passenger flying behaviors, by key demographics, March 2016
Current booking and flying behaviors lend insight to future motivations
Figure 56: Passenger booking and flying behaviors, by booking and flying behaviors, March 2016

Passenger Purchasing Interests

Relatively low interest in buying while flying
Figure 57: Passenger purchasing interests, March 2016
Business and Ultra flyers more likely to purchase add-ons
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
Figure 59: Interested in purchasing items for kids, by presence, age, and number of children, March 2016

Attitudes toward the Flying Experience

Flying becoming more of a hassle, but most people still like it
Figure 60: Attitudes toward the flying experience, March 2016
Frequent flyers have a more positive attitude
Figure 61: Attitudes toward the flying experience – Any agree, by flyer segments, March 2016
Millennials like flying, feel that the experience has improved
Figure 62: Attitudes toward the flying experience – Any agree, by generation, March 2016
Hispanics are ready for take-off
Figure 63: Attitudes toward the flying experience – Any agree, by Hispanic origin, March 2016

Attitudes toward Technology

Mixed results, overall, for desiring in-flight connectivity
Figure 64: Attitudes toward technology, March 2016
Even the most frequent flyers are ambivalent toward in-flight WiFi
Figure 65: Attitudes toward technology – Any agree, by flyer segments, March 2016
Millennials want in-flight streaming, internet, to avoid airline personnel
Figure 66: Attitudes toward technology – Any agree, by generation, March 2016
Hispanics would like to stream entertainment in-flight
Figure 67: Attitudes toward technology – Any agree, by Hispanic origin, March 2016

Attitudes toward Loyalty and Differentiation

Majority feel that loyalty programs benefit only the most frequent flyers
Figure 68: Attitudes toward loyalty and differentiation, March 2016
Ultra flyers more skeptical of loyalty program value
Figure 69: Attitudes toward loyalty and differentiation, by flyer segments, March 2016
Millennials experiencing memory loss?
Figure 70: Attitudes toward loyalty and differentiation, by generation, March 2016
Overall enrollment in frequent flyer programs remains steady
Loyalty members are doubling down
Figure 71: Frequent flyer enrollment and airline programs, 2008-16

Appendix – Data Sources and Abbreviations

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

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
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
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
Figure 82: US airline other revenue and forecast, at inflation-adjusted prices, 2011-21

Appendix – Key Players

Figure 83: Net income of top 10 US carriers, 2010-15

Appendix – Consumer

Figure 84: Plane travel [domestic] in the last 12 months, by all and domestic travelers, February 2010-March 2016
Figure 85: Table – TURF Analysis – Factors impacting airline selection, March 2016

List of Table

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