It's results time. The large publicly quoted airlines are reporting their financial performances for the first three months of 2016.
Results are always useful indicators of what's going on with a business and where it might be headed.
The bombings in Brussels in March are having an effect. Lufthansa, Air France KLM and British Airways all cited those attacks as a factor hitting demand. Lufthansa and British Airways both say that they are responding by curtailing their growth plans, in other words not raising capacity as much as originally planned. How capacity will specifically be cut has not been shared but the prospect of less supply should prompt all travel managers to think about how and why they choose air suppliers.
Travel managers work to keep costs down. At the same time, their most significant suppliers — the old European network carriers — are themselves under severe financial pressures.
Lufthansa and Air France KLM both openly attribute a historically higher operating cost base as a major reason for pressure on profitability and one that cannot easily be solved.
The headline news in the mainstream and financial press for Lufthansa, Air France KLM and British Airways' results was much improved earnings, mostly due to the continuing low price of oil. The drop in oil prices is no doubt reducing carriers' costs and increasing their earnings, but it is important to remember that this is an external factor, in other words one over which the carriers themselves have no control and which can be temporary. Lower fuel costs might be allowing wiggle room for lower fares in some strategic cases but it is not an integral and sustainable reason for lower costs and fares. However, at the same time all these carriers are trying — and succeeding in varying degrees — to lower their own operating costs to alleviate the pressure to raise fares or suffer falling profits.
On short-haul routes the traditional carriers face heavy competition from the low-cost carriers. This is why they are moving their product offerings away from business class and economy class and into branded fares. The "Basic" fare which some offer in which everything over and above the seat is surcharged as an ancillary is clearly a response to the no frills carriers' model. On the long-haul routes the competition is from Gulf carriers.
Travel managers must decide between choosing carriers on a route by route fare basis or supporting a single network carrier that can deliver to its needs — and carry its passengers — on both short-haul and long-haul routes. Travellers may prefer the latter option because of loyalty programmes, points, lounge access and passenger recognition but the no frills and Gulf disruptors can potentially offer greater top-line savings.
Carrier strategy is evolving but as travel management moves more towards traveller management and travel supplier decision-making moves away from route deals to the total cost of travel, the criteria for choice of suppliers is changing too.