The 2020s: The Decade Ahead

In the year 2030, Alitalia will be the greatest airline on earth. 

Just kidding. But would you have laughed any less 15 years ago at the notion that Delta would become the powerhouse it is today? Or that Ireland’s Aer Lingus, once a bloated legacy carrier in Ryanair’s crosshairs, would become a potent engine of profits for a multi-headed airline group led by British Airways? Could anyone, a decade ago, have said with a straight face that twice-bankrupt Hawaiian Airlines would become one of the world’s most profitable airlines during the second half of the 2010s? Who could have predicted the radical turnaround at Japan Airlines, which started last decade no less sickly than Alitalia? 

The point is, one never knows what’s going to happen in the airline industry, one year from now let alone 10. Individual airline fortunes can turn fast, in response to changing economic conditions (i.e. a big recession), radical cost restructuring (like that which Delta undertook), new business tactics (like charging for bags and other ancillaries), government policies (i.e. open skies treaties), mergers (the list here is long), collapsing competitors (also a long list), new technologies (i.e. B787s), and of course the rise and fall of fuel prices.

So it’s no use wasting time trying to guess whether Alitalia will finally disappear this decade, or conversely be saved by another 10 or twenty government bailouts, on its way to mercilessly driving Ryanair and easyJet out of the Italian market (it’s O.K., you can laugh). What is worthwhile, however, is a discussion of the key forces and trends poised to shape the airline industry this decade, some for good, some for ill.

Start with new aircraft technology. The 2010s ended with the introduction of the A220, a plane with potential to disrupt shorthaul markets. David Neeleman’s new startup carrier, for example, will use A220s to breathe new competition into America’s consolidated domestic market, targeting secondary routes where larger B737s and A320s are less effective. A220s might even have some niche transatlantic applications. They might be useful at an airport like London City.

A320s themselves will make their mark as a new derivative of the family — the A321 NEO-XLR — brings narrowbody advantages to long-distance markets. These advantages include low acquisition costs relative to widebodies, quick turnaround times, commonality with other A320s, and the need to fill just 200 or so seats, something achievable on even thinnish intercontinental routes involving secondary cities. There are disadvantages too, including limited space for premium seats, which are often critical to profits on intercontinental routes. But that didn’t stop a large and diverse group of carriers from ordering the XLR, including American, United, Qantas, Aer Lingus, Iberia, Air Arabia, AirAsia X, VietJet, Frontier, and Wizz Air. The planes are expected to debut around 2023.

The current lineup of B737 MAX jets, assuming they’re eventually cleared to fly again, provide some modest new flying capabilities as well, including some limited transatlantic and U.S.-deep South America missions. The XLRs will be more useful, however, in replacing the world’s aging fleet of B757s, which are especially prevalent among the U.S. Big Three. B767s also need replacement. Hence the internal debate at Boeing about whether to build a new mid-sized widebody for the purpose. Its ultimate decision will have profound implications for airlines in the 2020s, if produced with attractive operating economics at reasonable cost. This so-called NMA plane, perhaps destined to become the B797, would likely find uses far beyond mere B757 and B767 replacement, targeting A330s too, and perhaps enticing low-cost carriers.    

Boeing’s NMA decision will come as both big manufacturers contemplate another giant question: When to start building an entirely new generation of B737s and A320s — the MAXs and NEOs are merely re-engined updates to older aircraft. Future-generation narrowbodies aren’t likely to be industry-transforming until the 2030s. But by the mid-to-late 2020s, the manufacturers might be ready to start taking orders. In the meantime, China and Russia will attempt to make market gains with their own competing narrowbody products, the C919 and MC-21. Engine makers will be no less busy, perhaps offering options to re-engine B787s and A350s. Less dramatically, Boeing might decide to boost the range of its B787-10s. It might even re-engine B767s. Airbus could decide to stretch its A350-1000 to better compete with the soon-to-debut B777-X. And speaking of which, Boeing’s new B777 will hope to be as influential in the 2020s as the current lineup of B777s has been for the past two decades. The evolution of world trade, as it impacts demand for air cargo, will have some say on the plane’s fortunes. An altogether separate area of development to watch this decade? The work underway on a new generation of supersonic aircraft. 

Aircraft makers and their suppliers, of course, are striving to build products that reduce carbon emissions. By 2030, shorthaul airlines might have options to buy planes partly propelled by electric power, much like hybrid cars. The search is on for other technological breakthroughs, in the context of growing public pressure on airlines to reduce their emissions. The nightmare scenario for the industry in the 2020s is that airlines become akin to tobacco companies, perceived by many as corporate villains subject to punitive taxation, regulation, and legal action by politicians. Already, there’s a movement among some environmentally conscious citizens to avoid or limit flying. How large will that movement grow in the 2020s, and how much of an impact will it have?

As airlines look to technology for relief from their environmental pressures, they’ll be keeping an eye on technological advances in other areas. By all appearances, artificial intelligence and machine learning will have profound impacts on businesses of all kinds this decade. This could yield profound improvements in pricing and revenue management, for example, and in predicting and influencing customer behavior. So might technologies like the blockchain, with potential to radically simplify transactions airlines conduct with their customers and suppliers. With less dazzle but perhaps more near-term practical effect, IATA’s NDC and One Order initiatives seek to do the same. Ubiquitous 5G connectivity will surely lead to some useful applications for airlines. Pilotless passenger flights might be a distant reality, but robots and other devices could help reduce labor costs on the ground at the airport. Driverless autos, less helpfully, could make car travel a more attractive option on some shorthaul journeys — why not drive from Los Angeles to San Francisco if you can sit in the back seat of the car working the whole trip?    

Space tourism, 3D printing, hyperloop travel, quantum computing… who knows what else will shape the 2020s and beyond. Easier to predict are demographic developments, such as the boom in retirees throughout the developed world. It’s a group that airlines like, even if they’re not buying business-class tickets between New York and London every week. Retirees do, after all, tend to have time and money. Conversely, Africa will be notable for its surge in working-age young people, which entails its own potential for future airline demand.

Always influential are government policies, in areas like taxation, infrastructure development, and regulation. In the U.S., as trust-busting sentiment builds against tech companies like Google, Amazon, and Facebook, scholars often include airlines when citing industries that overly-consolidated, and thus deserving of more antitrust scrutiny. Then again, the U.S. airline sector could see greater fragmentation in the 2020s, as David Neeleman’s new airline and perhaps others enter the scene, and as JetBlue and perhaps other LCCs introduce competition across the Atlantic. Many U.S. airports, meanwhile, are expanding capacity. 

Europe will almost surely see more consolidation, with perhaps even Alitalia eventually going away. As London Heathrow’s prospective third runway increasingly looks like a development shaping the 2030s, the bigger question for European airlines in the 2020s is how they’ll deal with airport capacity shortages. East Asian airlines, for their part, produced a huge amount of new capacity last decade, often in excess of demand growth. It’s a development that prevented carriers like Singapore Airlines from earning strong margins, and one that pushed others likeMalaysia Airlines and Thai Airways to financial panic. Consolidation could thus be a major force throughout greater Asia this decade too, as it already has been in China.

Other things to watch in the next few years? Here are some, for each major geography:

North America (U.S. and Canada):

• How much bang can Delta get from its new alliance with Latam? How about the fusion of its Air France/KLM and Virgin Atlantic JVs? Will regulators approve its WestJet JV? Is Delta totally done thinking about Alitalia?
• Are American’s 2019 troubles temporary or chronic? Is it due for a management change? Can United ever match Delta’s margins?
• Will Southwest ever break its dependence on B737s and order something else? Can it win the Hawaii war?
• Just how much more growth can ultra-LCCs get form markets like Las Vegas and Florida?
• What will David Neeleman call his new airline and where will it fly?
• Will this fall’s U.S. presidential election affect travel demand? Can the U.S. economy remain strong? 
• Will regulators approve Air Canada’s takeover of Transat?
• Can WestJet’s longhaul flights succeed? How about Swoop?

Latin America (including Mexico and the Caribbean):

• Was switching to Delta the right move for Latam? With Delta gone, will Gol turn to American?
• How long can the post-Avianca Brasil domestic profit surge continue for Latam, Gol, and Azul? Will a looming São Paulo capacity spike cause trouble?
• Is the worst over for Avianca, in regard to its financial distress? Will its planned joint venture with United and Copa, and perhaps Azul as well, come to fruition?  
• Are South America’s LCCs, including JetSmart which is buying Norwegian Argentina, here to stay?
• Can Interjet survive in Mexico? Will Mexico City get the new airport capacity it needs?

Europe

• Will regulators approve IAG’s takeover of Air Europa? Will IAG close Level?
• Will Air France/KLM’s latest turnaround plan succeed?
• Can Lufthansa finally get its Eurowings affiliate in order? Will it wind up rescuing Alitalia?
• How serious are Ryanair’s labor troubles? Can it remain the low-cost leader, or will it lose that title to Wizz Air?
• Is easyJet wise for chasing holiday package business? Is its U.K. rival Jet2 poised to become a greater force in Europe’s airline sector?
• Can SAS get unions to agree to another low-cost platform for new narrowbody flying? Can its low-cost rival Norwegian find a path forward (maybe its new partnership with JetBlue will help)?
• Who else will disappear?

Northeast Asia (Greater China, Japan, Korea):

• Can Air China maintain is margin supremacy now that Beijing has another big airport? Can China Eastern and China Southern make money at the new Beijing airport? Can Hainan Airlines survive the debt distress of its parent company?
• How healthy is the Chinese economy?
• Will ANA benefit from new Tokyo Haneda slots or will the dominant impact be overcapacity?
• Will Japan Airlines find success with its new LCC Zipair? Will its joint venture with Malaysia Airlines prove a winner? Can anything be salvaged with Hawaiian Airlines?
• Can Cathay Pacific recover from its current ordeal? Can Hong Kong Airlines survive?
• As Starlux launches, the question looms: Is Taiwan big enough for three major airlines?
• In Korea, can Asiana’s new owner turn things around?
• Can cargo demand rebound from its awful 2019?

ASEAN region

• Can Singapore Airlines find a way to produce more sustainably high profit margins? Can it find a way for Scoot to make more money?
• Are all those businesses AirAsia is launching destined to be a distraction? Can it build a truly neutral online travel site, selling seats on even rival airlines?
• Is there hope for Malaysia Airlines? How about (its problems are not quite as grave) Thai Airways?
• Will Chinese tourism to the region continue to grow? What other sources of demand growth are available?

Middle East/North Africa (including Turkey):

• What will transpire from the coming proliferation of low-cost carriers in the Middle East’s Gulf region, with new ventures by Etihad/Air Arabia, Wizz Air, and SpiceJet?
• Will Qatar Airways be allowed to renter markets like the UAE and Saudia Arabia?
• Can Emirates adjust to a world with fewer growth opportunities? Will it succeed with premium economy?
• Can Israel maintain its high growth in international tourist arrivals and new airline service?
• How much growth opportunity remains for Turkish Airlines? Can it secure more traffic rights and develop international joint ventures? 

Indian subcontinent:

• What’s the fate of Air India, and will rivals like IndiGo and Vistara become intercontinental players? Are IndiGo’s recent cost spikes a sign of trouble?
• Can airlines in India navigate what appears to be a sharply slowing economy?

Russia and former USSR:

• Will Aeroflot partly privatize its LCC Pobeda?
• How much headway can Aeroflot make in sixth-freedom intercontinental markets?
• Will Russian-built aircraft be a major burden for the country’s airlines?

Sub-Saharan Africa:

• Can South African Airways restructure? How about Kenya Airways?
• Will efforts to create a true pan-African open skies area advance?
• Will Ethiopian Airlines form other airline ventures throughout Africa?

Australasia:

• Will Qantas make money flying nonstop to New York and London?
• Can Virgin Australia’s newish CEO turn things around?