According to IATA, global air passenger traffic is expected to reach 3.6 billion in 2016. This represents just under half of the total predicted world population for the same year. In other words, in just three years, one in two people world-wide will travel by air.
This growth in passenger traffic represents the culmination of changes in the air travel industry since the early days of commercial air travel. The emergence of “low cost carriers” in the early 1970’s, together with the proliferation of the internet and resulting “price transparency” in the industry, have contributed to making air travel accessible to the mass market. Air travel has become a commodity, much like sugar, gold and coffee beans.
By definition, commodities are indistinguishable from each other. As commodities are transformed into goods, services and experiences, the added differentiation results in a corresponding price increase. For example, the coffee bean (“commodity”) becomes more expensive as it gets roasted and packaged (“good”), served at a diner (“service”), or possibly integrated into a silver service meal (“experience”). The price of the coffee follows the pattern of economic value progression (Figure 1a).
In aviation, however, the pattern is reversed: what started out as “experience” in the truest form (offered at a comparably high price point), has been transformed into a commodity with little differentiation and a low price point (Figure 1b). It can be inferred therefore that, in order to increase profitability in aviation, one should look towards creating “experience” offerings.
Thus, in a market of largely undifferentiated products (i.e. air travel) the opportunities for increased revenue are tied to the provision of “experiences” in the airport environment.
Coffee bean example sourced from The Experience Economy.