What The U.S. Airline Industry Could Look Like In 2035
September 22, 2022.
The airline industry is always in a state of change. The proven strategies of 1980s did not work in the 1990s, and what worked then would fail today. Airlines that have survived have done so in part because they have learned to adapt to a changing landscape. Today’s industry is dealing with labour shortages and wage pressure, uncertain business demand, and increasing sustainability requirements from investors.
One thing for sure is that the U.S. airlines a decade from now, or rounded to 2035, will be different than today. Some things are easier to predict than others, but here are five likely changes we will see:
More Consolidation And Smaller Regional Fleets
Scale is rewarded for airlines in several ways. Fixed administrative costs do not grow at the same rate as production, making them an increasingly smaller percentage of costs. Buying airplanes by the hundreds gets a better rate than buying by the dozen, and this purchase efficiency extends through many things the airline buys. On the revenue side, adding scale often increases consumer relevancy, making the airline more attractive to more customers and giving a modicum of pricing control.
This is why consolidation among the U.S. airlines has been an ongoing issue. Today, four airlines — American, Delta, Southwest and United — carry about 80% of all domestic travelers. Competing with these four, for a much smaller airline, is challenging in many ways. That’s why consolidation among the airlines not part of the big four is likely. Also, three of the big four rely on service flown by regional airlines. This allows them to serve smaller and mid-size cities more efficiently, and these flights often feed big hubs that can create worldwide connections.
The regional industry industry is feeling the brunt of the pilot shortage, and this pressure will continue. Raising regional pilot pay is already happening, and this, over time, lessens the efficiency of using regional suppliers. These effects mean consolidation in the regional space is likely, especially since it would give the regionals more leverage with the big airlines buying their services. So, by 2035 it is likely we will see fewer total airlines, especially in the regional space, and fewer regional services as a percentage of all domestic flights.
Further Big City Congestion With eVtols And Drones
The largest cities in the U.S. tend to have the most congested airspace. Flight delays can affect any flight, but disproportionately hit places like New York and Southern California. These busy areas are also the most likely areas for high drone delivery and eVtol vertiports . The busy places will only get busier, making operational challenges increase as the decade changes.
These emerging technologies have many advantages and may ultimately help to make the busiest places more efficient. But by 2035, these technologies will still be in their infancy meaning that things will still be getting worse before they get better. Expect that air congestion will increase as the world works through the introduction of these exciting technologies.
More Efficient Fleets With Hydrogen On Order
Airbus has published a benchmark of how airlines can meet a 2050 net-zero commitment. One important piece of that plan is to bring all current fleets to the most current level of technology. Airplanes like the Airbus A320NEO, the Boeing 737MAX, and the newest wide-body planes are significantly improved machines in terms of production and fuel usage. Over the next dozen years, we will see many of these currently available aircraft replace older, more fuel-inefficient fleets flying all over the world. This will move the industry toward a stronger sustainability position and support reaching the 2050 net-zero goal.
Hydrogen-powered airplanes promise to be even more sustainable while creating the energy needed for flights. There are two pathways to making this happen: creating planes that can use hydrogen as a fuel source safely and reliably, and learning how to create, store and deliver the hydrogen in ways that are safe and reliable. By 2035, it is likely that both initiatives will be advanced significantly from today, meaning that while we won’t yet be flying on hydrogen-powered planes, airlines will have them on order. Today the exciting orders are for small, electric-powered aircraft and new supersonic aircraft. But as these planes are being delivered, the prospect and opportunity of hydrogen-powered planes will become a reality.
Both of these improvements will allow the airline industry to carry passengers while reducing their reliance on fossil fuels.
Technology Replacing Most People In Airports
As airlines need to pay more for pilot, flight attendant, and mechanic services, they will look to automate more and more of the airport experience. Self-checking baggage is an early start on this, as is the ability to do more on smartphones. Biometrics promise to make the security and maybe customer parsing processes easier. But from today to 2035, the changes could even be greater.
“Above wing,” or inside the airport terminal, processes will become increasingly technology driven and require fewer and fewer people. Think how nice it is today to rent a car and see no one until you’re driving out. This is where the airport terminal experience is heading and by 2035 will be much further along. “Below wing,” or ramp area processes, today are very people dependent. These will evolve toward more efficient airports that bring baggage right to the plane, and the use of robots on the ramp. Modern robots can be designed to service airplanes, cater food, load bags, and more. Looking out the window while parked at the gate will increasingly show an automated world.
This is not a doomsday prediction for employment. As has been happening for the last half-century, jobs that can be automated allow workers to be used for higher-value and higher-paying activities. The airlines in 2035 will still employ many people, but as a percentage the people trained for higher-level activities will increase.
Even Lower Fares
Travel is a price-sensitive activity. Yes, there are people who will pay high rates to travel in comfort and stay at the nicest properties. But the highest volume of travellers comes from those who decide to fly, or maybe even where to go, based on getting a what they perceive to be a good deal. This will still be true in 2035, so U.S. airlines will be offering even more low fares and deals to keep volumes high. The increase in fuel efficiency, and increased automation will more than offset the increase in wages needed. Consolidation makes airlines more relevant to more people, and most of those people will be motivated by price. That’s why fares will continue to come down in real terms, even as the industry ends up with fewer players.
There are other changes that will undoubtedly happen to this dynamic industry over the next 13 years. The ideas here are logical projections on current thinking, and from the starting point that is the 2022 U.S. airline industry. What else do you think are the most likely changes that will happen soon?
© Ben Baldanza / Forbes 2022
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Ben Baldanza is the former CEO of Spirit Airlines, where his team transformed the company into the highest margin airline in North America and created a new model for air travel in the US. He now serves on the board of JetBlue Airways, is Chairman of Six Flags Entertainment, is an Adjunct Professor of Economics at George Mason University, and co-hosts the top 1% podcast Airlines Confidential.