Traditional airlines will have increasing challenges in the future as globalization proceeds apace. They will lose market share, not only to low-cost carriers but new network carriers being created around the world. Likewise traditional hubs will lose market share to emerging hubs not only in Asia and the Middle East but in Latin America.

That is the picture painted by Nawal K. Taneja in the fifth of his series of airline management books, Flying Ahead of the Airplane published recently laying out not only a picture of the future but how to compete in it and survive.

It is the emerging carriers – AirAsia, VAustralia, JetStar and Emirates that will change the face of the international airline industry, said Taneja. “There is going to be a shift in market share of the different category of carriers whether they are in the U.S., Europe or Asia,” he told Aviation Today’s Daily Brief. “Southwest, easyJet, Ryan Air and AirAsia are examples of how traditional network carriers will lose market share. The other is the new network carriers such as Emirates that are expanding at a rapid rate with modern aircraft, top notch service and good geographic locations.”

Taneja indicated that airlines are in the middle of a perfect storm that goes far beyond the current financial crisis but includes a confluence of several major trends. “There is not just one force but a combination of forces that are changing the business model,” he said. “They won’t destroy airlines but they will force airlines to be more decisive on what they should look like in the future as all these forces come into play.

“The financial crunch is one force,” he continued, adding fuel was another because the price fluctuations make it difficult for managers to plan their costs and because carriers risk major losses if fuel price declines as we saw last year. “The swings are so large and rapid, making fuel the second force. The regulatory environment is also changing rapidly worldwide. Competition is increasing rapidly from the low-cost, low-fare airlines but it is important not to underestimate the new network carriers. Emirates has ordered some 50 A380s and U.S. carriers have ordered none. Where is that capacity going to go? It means that competition is going to increase. Demographics are also changing rapidly with India and China having more disposable income and this change in consumer demographics will change not only where they are located but how they buy.”

Just as airlines will face airlines so too will hubs just as they did in the United States as new aircraft technology and regulatory liberalization opened up hubs such as Atlanta, Cincinnati, Detroit and Memphis making them international gateways. Taneja points back to Asia and the Middle East but emphasized that a small Latin American airlines – Copa Airlines – is forcing changes by building its hub in Panama.

“New technology aircraft have the capability to bypass traditional hubs,” he said. “If you wanted to go to the Far East, you’d have to go through Tokyo before going on to Kuala Lumpur or Singapore. Today, aircraft not only have the nonstop capability but there is Dubai, Abu Dhabi, Doha which allow you to overfly those traditional hubs. In addition to Copa, Lan Chile is doing it in Santiago. In Turkey, Istanbul is not only a just about perfect location (literally bridging Europe with Asia) but the economy of the country is diversifying and growing rapidly to make Istanbul a major commercial and tourist center. So, existing hubs could be bypassed by new aircraft and the old hub-and-spoke systems will be diminished.

“And the technology doesn’t have to be new,” he continued. “Continental is using 757s from its Newark hub to service multiple destinations in Europe by passing traditional hubs such as Heathrow in London and Schiphol in Amsterdam. A future new technology such as the Bombardier CSeries will be very efficient and able to go long distance so it, too, could bypass traditional hubs. Major hubs will change, they will not be eliminated.”

Taneja pointed to the current evolution in U.S. carriers as yielding only a short-term benefit as they focus more on the international arena. “They did that to avoid the excess competition in the U.S.,” he said. “Right now, the international market is more controlled as to competition. If everyone starts moving to international, the amount of competition is going to increase. In the near term that will work but in the long term they will ultimately face the same situation and be competing against better service. And, as regulatory rules relax there will be even more competition. What the international expansion does now is provide a small break in the short term so airlines can make better money.”

The greatest change will come, however, as low cost, low fare airlines begin to fly in intercontinental markets, said Taneja. “They already fly long haul – six hours or so – and they are already flying internationally. What we are talking about it intercontinental services such as the new low cost, low fare AirAsia service from Kuala Lumpur to London and on into Australia. The issue is not if Ryan Air will cross the Atlantic but when it crosses. That will change the business model completely and it will capture a large percentage of lower fare passengers when they do.”

He also said this time is different than previous Trans-Atlantic ventures in which airlines were either too small or marketed to only a narrow band of travelers such as MaxJet, Eos, SilverJet and Zoom. “Those airlines did not have any feed into their international routes,” he noted. “That is not an issue with Ryan Air. It has enormous connections throughout Europe to feed such a service. Even if they only go to one, two, three or four cities in the U.S. and they have no U.S. feed, the number of U.S.-bound passengers will carry them through.”

Taneja also pointed to JetBlue’s recent incursion into Bogata, Colombia and its recent deal with Lufthansa. “JetBlue already has valuable slots at JFK and are testing the international waters with Bogata,” he said. “They need a powerful airport on the European side and they can get slots at Heathrow because of the relationship with Lufthansa. Remember, Lufthansa owns BMI, which holds about 13 percent of the Heathrow slots so JetBlue could easily start a Trans-Atlantic service.”

He also pointed to the Virgin Group which has created its own brand and feeder operation with Virgin America feeding Virgin Atlantic to Europe and Asia. Virgin Blue in Australia feeds Virgin Australia which flies to the West Coast of the United States where it hooks up with Virgin America. “And they have powerful owners behind them,” he said. Another example of best practice is LAN — an airline with one brand but four production units (Lan Chile, Lan Peru, Lan Argentina, and Lan Ecuador).

Branding is a huge issue with Taneja, saying airlines, with the exception of Virgin, have yet to create a strong brand; one that will resonate with passengers as meaning consistent service that will take care of them when things go wrong. In his book he uses non-airline examples of branding such as Starbucks, Zara Stores and Tesco, all of which tell consumers they will get a consistent product and experience.

Taneja says that branding will be key to future success but the way it is being handled now – through alliances – may not work. First, airlines are not selling the worldwide alliance brand the way Virgin can sell its worldwide operations. Second, the broader the coalition, the higher the likelihood the brand will be diluted as different quality carriers join the network. Indeed, airlines seem to be schizophrenic when it comes to branding, further exacerbating the problem. Taneja noted that alliance members want to keep their own identity further diluting the effectiveness of alliance branding. What are they doing, he asks, selling their own brand or that of the alliance.

“Branding is largely misunderstood,” he said. “Most airlines think it is a paint job, a logo and uniforms. It is much more than that. There has to be a strong link between the business strategy and the brand. For instance, airlines say they are a full service airline and then when you go to buy a ticket they charge for everything from bags to where you sit, to whether you use the call center or the internet or change your reservations. The question one should ask is: if they say they are full service airlines, where is the full service. There’s an inconsistency between what they promise and what they deliver. Everything has got to be consistently organized to deliver the strategy all over the world in terms of what they stand for.”

In addition, he said that airlines have pushed the potential benefits of cost cutting to the max but could do more by changing the organizational structure within the context of alliances. El Al Chair Israel Broovich agrees. “I believe that the structure of the alliances is also due to change,” he wrote in his contribution to the book. “Originally, the alliance objective was to set up a ‘virtual airline’ that provides customers with possible seamless journey worldwide. However, lately the alliances are joined by many airlines where the networks are overlapped by other members of the same alliance. As a result, often, large carriers in the same alliance that overlap the small carriers increase their profitability while small carriers, in many cases, end up with a loss. Therefore, it is clear that the next big change in the aviation industry will be the formation of mega companies, which in many cases will be from different alliances. This process might force the alliances to change their business model.”

Taneja also sees much more airlines can do in making their operations more efficient.

“Leaving aside fuel and labor which are the two largest costs,” he said. “The third largest cost is capacity; the aircraft itself. Airlines need a better harmonization between capacity and demand. Now airlines decide on its network and schedule and begins selling its capacity six months in advance. With new computer programs they will be able to manage that better, scheduling aircraft in almost real time; maybe not five minutes before the flight but a week before, they will know the bookings and schedule the right aircraft. Demand can be shifted to different size aircraft, alliance partners, or through the use of different pricing schemes. If they have 25 people they can use a smaller aircraft or if they’ve schedule a 150 seater and they have 180 passengers, they can change the aircraft. These new technological planning systems will give them a better idea of the aircraft size they need and that not only affects the cost side but the revenue side since they may not have to give so many seats away at a low fare. That will change the economics tremendously. And the new pricing systems will also help match capacity to demand so they save money and can pass that along to the consumer. The equation between revenue and costs will change completely and dynamically with these new planning systems.”

He says management remains unprepared for the new world airline order. For instance, they have vast data collection systems, said Taneja who called it ironic that, “while they are inundated with data, they appear to be flying blind.” These data systems must all be harnessed to convert data into insights and insights into strategy.

“What is missing is the ability to exploit the information for competitive advantage,” he wrote in Flying Ahead of the Airplane. “The traditional areas of competitive advantage are eroding rapidly. Products and services are similar. Innovation is becoming increasingly difficult and expensive and non-sustainable for long. Now with the relaxation of regulatory control another area of competitive advantage is evaporating. This situation is leading to a conclusion that it is not just information, but information-driven and analytically based strategies that will differentiate the winners from the losers.”

Flying Ahead of the Airplane is not only impressive in the blueprint it lays out for airline management but the fact that 13 top airline leaders from every continent contributed their vision of where the industry is going. From AeroMexico to Vietnam Airlines, Qantas to Virgin Atlantic and Ethiopian to El Al and JetBlue, airline executives adopted his term globability to describe the future rather than globalization. In addition, all cited flexibility as a key factor in facing both long-term fixed costs and the volatility of fuel.

“Creating and maintaining flexibility is tough when two of your three major cost elements (labor and aircraft) are fixed over the short term and the third (fuel) is largely beyond your control,” said Hawaiian Airlines’ President Mark Dunkerly. “These realities of our business mean that the way managers manage the areas they do control makes all the difference between those airlines that succeed and those that fail…information technology has become the deciding factor in this competition and the continuous pursuit of emerging solutions a requirement for survival.”

Fernando Pinto, TAP’s CEO, likened the management skills needed to navigate the airline of the future to a pilot skill and reaction levels while Girma Wake, CEO of Ethiopian recounts the various ills now facing the industry and what to do about them.

“What can we expect in the near future and how will it shape the industry,” said Dr. Andres Conesa, AeroMexico’s chair and CEO. “Obviously we don’t have a full certainty. However, Nawal K. Taneja’s book provides us with an extraordinary monolith on which we can stand to reach a better view of the horizon as an initial step for insightful thinking.” And Turkish Airlines CEO Dr. Temil Kotil said that Flying Ahead of the Airplane could enable an airline’s management to convert a challenge into an opportunity.”