Business

Businesses need to adapt, or risk being obsolete

Businesses, like those distributing airline seats, must be quick to improve in the age of disruption

At a recent aviation seminar in Hong Kong, some industry leaders were rather blase about disruption, viewing it as an incremental evolution rather than a big bang transformation.

They were mostly from large companies that manage the distribution of airline seats through travel agents and online sites.

With 66 per cent of global air tickets sold through these indirect channels - the rest are done through the direct channels of airlines' websites and call centres - these companies cover a large swathe of the market. But this is set to change soon.

By 2021, airlines are expected to sell more tickets through direct channels, which will account for 45 per cent of seats sold, up from the 33 per cent now, according to a report by Atmosphere Research Group.

This is driven by airlines adopting new digital technology and the rise of millennial travellers.

The rise of China is another game changer. It will become the world's largest aviation market by 2024, with passenger numbers surging to 927 million, according to a report by the International Air Transport Association.

The Chinese government issued a directive last year pressuring state-owned airlines to sell at least half of their tickets through direct channels by 2018 to avoid the commission charged by online travel agencies.

There is a debate on how this trend will impact the aviation industry.

Some believe it could mean cheaper tickets and more personalised services as airlines connect directly with passengers, while others predicted that online search sites such as Google will play a more critical role in helping travellers compare prices, leading to new travel products.

Whatever the outcome, the world is flying by these distributors of airline seats, whose business model dates back more than 50 years.

If they fail to adapt to the new environment, they will be business dinosaurs that saw the meteorite hurtling towards them, wondering, "What was that bright light?"

Bank of America Merrill Lynch identified three ecosystems of creative disruption: The Internet of Things is expected to be a US$7 trillion (S$9.7 trillion) industry by 2020; the sharing economy has a potential market opportunity of over US$450 billion; and local consumer online services have a potential market opportunity of US$500 billion.

"They allow companies to improve productivity, reach new customers, introduce products and services faster than ever before, and they level the playing field between large, small and new companies, redefining competitive advantage," said the bank in a report.

By now, everyone knows how Uber disrupted the taxi industry.

But not many are as familiar with the Uber of the skies - start-up airlines such as Surf Air, Rise and Airly, which offer passengers unlimited travel for a monthly subscription.

BUSINESS MODEL

Sure, planes still fly and pilots still work for airlines, but the business model for air travel is changing.

These airlines offer fixed routes within the US, Europe and Australia on their jets. They appeal to frequent fliers who want fuss-free air travel, as they can arrive just 15 minutes before departure at a private terminal.

New and nimble, this all-you-can-fly model will challenge traditional carriers for lucrative passengers - business travellers who are looking to save time.

Imagine if there is a similar start-up flying from Singapore to Kuala Lumpur or Jakarta, from tranquil Seletar Airport instead of crowded Changi Airport.

Technology is also set to change the future of flying. Commercial supersonic travel seems likely to make a comeback, at a fraction of the cost of the Concorde that retired in 2003.

Aviation start-up Boom Aerospace received an additional US$33 million funding to develop its "Baby Boom" jet, which it will test next year.

The test flight is expected to be 2.2 times the speed of sound, but at the same cost as today's long-haul airplanes.

Passengers could get from London to New York in three hours, shaving hours from the flight time. In Asia, it would mean flying from Singapore to Beijing in two hours.

Another revolution is the pod plane created by Switzerland's Federal Polytechnic Institute that aims to transform the way people and cargo travel.

Similar to shipping containers, travellers and cargo will be transported through capsules attached to the pod planes, which can carry up to three capsules.

The companies that manage the aeroplane and passenger capsules could be different, with one specialising in flying and another on passenger experience - so travellers can choose from different competitors, all flown by the same airplane.

Disruptions need not always be painful if businesses are well prepared.


The writer is senior vice-president and general manager at Concur across Asia Pacific. This is an abridged version of an article published in The Business Times on Friday, adapted from his presentation at the UATP Airline Distribution 2017 industry conference in Hong Kong in March.

AVIATION INDUSTRYtechnologytravel