MKTG 6650 – Individual Assignment

Shehriyar Ahmed
219273168
Industry: Other Transportation (Air Transportation)

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 EXECUTIVE SUMMARY
Air Transportation contributed around CAD 16.1 billion to Canadian economy in year, 2021.
The industry saw a huge slump during COVID-19 with travel restrictions, however the industry is
expected to bounce back and gain growth of 90% in year 2022 to reach pre-pandemic levels. This
report will solely be focused on key trends and challenges posed to airline industry overall and will
deep dive further to identify opportunity to introduce tech-solutions with air transportation.
Domestic Transportation is the sub-sector, where majority of the stake is between ‘Air
Canada’ and ‘West Jet’ with over 80% share and there is news around for their merger to par-take
sooner than expected. With the key local route domination and high barriers to entry, these two
players will look forward to dominate the market for near future.
During COVID-19, we saw an emerging trend of how airlines went out of business for not
keeping their operational costs low and this trend has been one of the reasons for airlines to go out
of business in the past. Within airline industry, operational efficiencies are usually digitalized to keep
the costs low and in the past we have seen solution focusing on Cyber Threat, Cloud Management,
and E-commerce initiatives.
Consumer Journey is another front where airlines like to keep innovating, and within the
focus of the report emerging trends are linked with new trend of ideas as of how new tech can give
airlines an edge to innovate while keeping their costs low and making their consumers happy. AI/VR
app to navigate through terminals coupled with Bio-metric panels to assist quick check-ins will be
the focused tech within the report.
The idea will further be assessed how Tech Company can form innovative tech with suppliers
such as IBM, and Rossul and create meaningful partnership to convert the idea into success. Further,
the go-to market for this idea is based in Ontario as it is one of the hubs for busy Airports. ‘Air
Canada’ and ‘West Jet’ are identified key targets as clients however Tech Company can focus on
smaller airlines first and keep innovating tech to keep the risk low.
The idea would require dedicated sales/marketing effort for which the breakdown of
activities and ideas are given and can be implemented close to including trade shows and exhibitions
to showcase the tech. The project will overall cost around CAD 18 million for the initial phase and
will be ready for pilot launch by Sep, 2023.
Further, risks are listed in detail of this reports with early stage mitigation and contingencies
to avoid any mishaps. The company can patent the solution and form meaningful partnership with
sharing stakes to keep risk low. Given the opportunity in the market, this will be the right time to
invest in airline industry as two majors players are looking to combine forces and market is expected
to expand until 2024.

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Target Industry
For the purpose of this report, air tranpost will be discussed in detail to assess potential
investments, and the upside and downside of investing in this industry. Air Tranport by numbers
contributed CAD 16.1 billion to economy in 2021. The industry is sub-categorised in various modes
of transport which are as per below with percentage contributing towards total revenue.

The industry is further sub-divided into five main categories whereby international travel
takes majority share if we combine US and Non US travel, however domestic travel is the bigger
segment overall given the bifurcation as of now at 34.7%.
“The industry has slowly liberalized in recent years as the Canadian government has eased
aviation regulation, enabling the emergence of low-cost carriers and altering the competitive
environment; however, the industry is still dominated by large established network carriers.” (IBIS)
Ontario is the hub of all activities where Quebec is on the second number in terms of overall air
transport activity. Current number of US carriers operating in Canada are in majority with 584 in
number, whereas Canadian carriers are 554 and 284 are others. Over the decade, US carriers have
gotten majority as depicted in the chart below.

US vs Non US Satellite Airline Carriers Demographic Density of Airline Carriers

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Key Drivers in Air Transportation Industry
The industry’s demand is regulated by some of the key driving factor which affects its
performance and usage requirement over the year. These drivers included but not limited to as per
below;
World Price of Crude Oil
The overall per barrel price dictates cost of operations which in return determines the prices
to be offered by Canadian Airlines. Thus, any effect lowering the world crude oil prices may result in
lowering the fares for consumers to board on flights.
Corporate Profits
Another set of expectancy arise when corporates profits show solid performance whereby
available income increases to spend on employees to pay for their flight hours. This happens when
economy is in good state and business is booming.
Per Capita Disposable Income
With regards to economic factors, disposable income is one of the key drivers which
determines income available to consumers to spend on travel or luxury. With COVID in effect, the
average spending was highly affected as most consumers were spending more on commodities and
as border regulations are being relaxed more and more consumers want to travel and see the world.
Miles Travelled International Travelers versus Canadian
Certain traits of the market affect international travelers to visit Canada for tourism this includes
dollar exchange rate, inflation and travelling destination. Canada, over the years, has become one of

the rising tourism spot for international travelers including migrants and their peers. Further,
performance in Canadian Market overall may result in Canadians travelling outside the country due
to harsh weather and low cost attractive South American countries close to the region.

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Competition and Market (Scheduled Domestic Travel, Sub Sector)
As per the percentages above, air transport
contributes more than 80% towards total revenue compared
to cargo transportation. Air transportation further includes
domestic and non-domestic travel (US vs Non US) where
multiple players are operating in Canada while the major pie
of market share is between Air Canada and West Jet.
In overall segments, both these airlines have close to
80% market share with Air Canada significantly has higher
market share of 61.8% whereas West Jet has 18.8% of the
market share.
Diving deep further into
local domestic travel, there are
many small players such as Swoop,
Canadian North, Harbour Air, and
more which make the total go up
by 18 players in domestic
transport.
Within domestic transit
options, Air Canada and West Jet
have again majority market of over
75% while rest of the players only
share a meagre size of 25% market to play with.

Key Trends and Challenges in Sub-Sector

Air Transportation Industry was one of the industries recently affected by COVID-19 where
the major players were left for their survival due to non-operating hours and border restrictions.
However, with the ease of COVID-19 regulations and things starting to get back to normal the world
can now anticipate the rise in travelling which can further be demonstrated by the trends of growth
over the next few years.
“The Scheduled Air Transportation industry in Canada is expected to resume its growth over
the five years to 2026 as the economy recovers from the COVID-19 (coronavirus) pandemic and
airlines open up new routes.” (IBIS World) The industry overall is expecting an increase of usage over
the next five years which shows promising growth in industry overall.

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 The industry saw a slump in figures for overall air miles travelled during FY20-21 (exhibit
below by Statista). Further, the industry is expected to grow 90% to achieve former miles hour pre-
covid and expected to increase over next three years until 2024.

Size of the scheduled air transportation market in Canada from 2018 to 2021 (in
billion U.S. dollars)
Canadian scheduled air transportation market size 2018-2021

30
27
26.34

25
Market size in billion U.S. dollars

20

16.08
15

10
8.13

0
2018 2019 2020 2021*

3 Description: The coronavirus pandemic impacted the Canadian scheduled air transportation market. In 2020, the Canadian scheduled air transportation market dropped to 8.13 billion U.S. dollars but is estimated to reach 16 billion U.S. dollars in 2021. Read more
Note(s): Canada; 2018 to 2021; * Estimate Read more
Source(s): IBISWorld

Some of the key challenges uprising around the industry includes the partake merger of Air
Canada and WestJet. This situation will create challenges for the competition to settle into the
industry which includes list of potential threats as per below:
• Barriers to Entry: Combining two forces with biggest market share is going to create a major
barrier to entry for any new players
• Major Route Competition: Majority of the major route are covered by West Jet and Air
Canada, the combination of these two entities will restrict entry of new players to enter to
the high volume routes. Air Canada and WestJet both have ambitious expansion plans for
their new and existing low-cost subsidiaries, including Swoop, WestJet Link and Air Canada
Rouge. (IBIS)
• Disposable Income to Increase: The average is supposed to increase by 0.8% for per capita
income which will help in aggravated spending by consumers in air transportation.
• Oil Prices will get stable: Post pandemic, the overall oil prices are getting stable over the
time as things are approaching to become normal.
“As a result of falling oil prices, the average industry profit margin has widened over much of the
past five years, though the pandemic severely reduced profit in 2020, a trend that will likely continue
in 2021.” (IBIS) The recent war of Russia and Ukraine disrupted the supply chain process all over the
world and required major countries to rethink how to source oil from different areas of the world.
Canada, as a producer of oil, has large resources but comes with a very hefty cost of processing the
oil and getting it from scarce locations within the country.

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Trends in Digitalization of Air Transport
In terms of existing trends, Air transportation has been subject of digitalization over the
years which is considered a luxury mode of transport and seemingly a time saver. The industry is
proactive when it comes to solutions as ecommerce, cyber security, cloud services and other areas.
• From the start of 2000s, airlines have invested more in ecommerce to develop their UI and
enhance customers experience to gain more customers by tracking them online through
cookies while making a purchase
• Airlines have been subject to cyber security threats, whereby the data and controls of
avionics are lost posed by external threat to these systems
• Cloud Services include access to data to flights about weather and expected conditions to
avoid any crashes or weather threats, such services are provided by IBM and other tech
companies to help airlines navigate smoothly
• IoT/Sensor Use comes with the usage of avionics whereby airline is recommended to use
similar avionics across the board to avoid any mishaps in communication if there is any
danger to flight before take-off or during flight hours
Coming to the emerging trends, Airlines are significantly divesting their resources in making
overall operations smoother, and thereby enhancing the customer experience. These areas include
some of the key customer journey aspects which can still be revolutionized including:
• Navigation through terminals: Travel can become exhausting for some while navigating the
airport with bags and counters nowhere to be found, AI and AR have advanced whereby
enabling customers to navigate airports through their phones. An example of that
“The Gatwick airport uses AR to help passengers navigate the complex layout of the airport,
and London City Airport has installed AR tech to help air traffic controllers with the vital job
of keeping planes safe.” (Robosoft)
• Check-in process: Carrying bags and proving your identity around the airport can be one of
the tiresome processes which requires availability of human resources at all levels, this can
be further modernized by allowing biometric check-ins at the counter. Similar example could
be “Air New Zealand has launched a biometric-enabled bag drop to speed-up the check-in
process.” (Robosoft)

Challenges other than Supply Chain

Managing an airline can be tedious process as it ranges from maintaining the fleet, dealing
with regulations and to deal with high maintenance operational cost for running such a big business.
This requires airline to deal with numerous suppliers in the market to keep their fleet operations as

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smooth as possible. Canada has vast number of air-craft manufacturers present in Ontario and
providing services related to all level of fleet business and maintenance requirements.
Profitability is another key issue which is affected by the operational cost of running such a
huge business. During COVID-19, many of the airlines faced similar issues where they were looking
for options to cut costs for their survival as operations became stagnant due to travel restrictions.
BCG in the past have issued similar report indicating how operational activities affect the
profitability overall. Key findings indicate that human activities take more time while boarding hence
require airlines to come up with innovative solutions to optimize their flight hours and take-offs.

Threat to company for not responding to operational profits:

Operational Profits is one of the major causes where small carriers have to cease their
business after running into losses. At the start of 2020, we saw an emergence of travel restrictions
causing airlines to bear losses for their survival with hefty operational costs to bear. PWC issued a
recent list of Airlines which went out of operation during pandemic. This list includes Ernest, Air
Italy, Trans State Airlines, Flybe, German Wings, SA Express, Tem, Mekan Kai, Level, and NokScoot.
(PWC)
Majority of the 11 carriers that were discontinued in the US were due to slow down activity
of travel demands. Not the entirety of list was hit due to the pandemic, but major closures happened
in the first two months of pandemic. Rest of the closures were due to mounting losses over their
years and their inability to innovate in operations to come towards profitability.
Constant innovation to keep the cost low is a necessary requirement for airlines in moving
forward, this requires constant improvements in operations to reduce cost and make the offering
worthy for the clients.

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 Digitalization and the chosen solution to implement
The current situation in air transport industry requires innovation on operating front to
reduce cost, as airlines are forced to stay operationally profitable, airlines will definitely respond to
solutions which may affect their overall cost structure and lean their operations.
The chosen solution for the tech company to implement is to develop ‘AI/VR navigation
app’ which will help consumers navigate through terminals easily and locate the counters of airlines
for the check-in. Further, ‘Bio-Metric Check-In Platforms’ will be the actual product which airlines
will be interested as this solution will provide ease to consumers to do quick check-ins without
human assistance and would lower the cost for the airlines to maintain human resources.
Such solutions have already been initiated in other parts of the world. For Canada, ‘Air Canada’ and
‘West Jet’ could be potential buyers as both companies are looking forward to a merger and hold the
80% market share with maximum routes in Canadian Market at their disposal.

AI/VR App to Navigate Terminals Bio-Metric Check-In Machines

The rationale for choosing these opportunities is solely based on the need of airlines to
improve their operational feasibility. Further, there could be other areas where solutions can be
implemented but might require a lot of resources to which successful companies like IBM and others
are working towards. This would be providing the tech-innovation required to sell their ideas to
airlines. Further, the opportunities in other areas are assessed and measured as per below.
Area of Improvement Tech to Develop Cost Time Achievability Success Score
IoT/Sensor AI/VR App and High High Medium High
Biometric
Cloud Service Airline Cloud Software High Very High Low Medium
Cyber Threat ICT tools High High Low Medium

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Tech and Partnership (Suppliers)
To develop the tech and integration of both solutions would require high level of partnership
and might require stake sharing at some level. For the ‘AI/VR Navigation App’, the tech company
has to develop UI/UX in collaboration with Rossul, Idea Theorem while the app can be developed in-
house by hiring new people.

For the ‘Biometric Check-In Portals’, IBM could be one of the

resourceful options as the company have huge tendencies in
building machines for industrial use and is already present in
air-transportation solutions with its ‘Weather Prediction’
Technology for airlines to avoid any mishaps.

Chosen Suppliers to Build Tech

Go-To Market Strategy

For the Go-to Market Strategy, the Tech company would require which market to enter first.
As most airlines have their hubs located in Ontario, which is also one of the very frequent
destinations for airline travelling. It would be feasible to start operations targeting specific locations
in Ontario and this include high propensity airports such as;
• Toronto-Pearson international Airport
• Halifax Stanfield International Airport
• London International Airport
The major airlines that would be interested in buying out these solutions would be ‘Air Canada’
and ‘West Jet’ however smaller carriers could be targeted initially as they would be the ones
struggling on operational profits to stay in competition. This would allow the tech company to buy-
out time to make any corrections over time before implementing it for big players like Air Canada
and West Jet.

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 Marketing/Sales Effort
To launch AI/VR App integrated with ‘Biometric Portal for Check-in’, the tech company
would require building relations more on B2B level first to attract customers first along with
secondary awareness to masses for the usage of tech based on the partnership with potential
clients.
Sales/Marketing could go hand-in hand and may require tech company to use multiple
platforms for the initial awareness of product and its exhibitions to its B2B clients which includes
• Road Shows: Attending tech conferences as well as airline specific conferences to showcase
the product and raise its awareness would be the ideal first choice as most members from
airline industry would already be present there
• Conference/Exhibition: To launch the product on high note, the company can send out
invites to executives in various airlines to showcase the products and its usability within
launch of the product
• Cold Calls/Customer Development: The company will certainly require dedicated sales force
of small size to meetup with clients and present them with the idea of tech solution and
answer one on one queries they might have.
• SEO Optimization/Email: To reach potentially international clients interested in getting our
tech solution, high SEO bidding coupled with email newsletter marketing would be required
to keep the brand top-of the mind for executive in high decision making position of airline
industry.

Timeline
The timeline to make the idea come into action would require multiple steps before roll-out
and launch of the product, this would require bringing the idea to the market before expected
growth in 2023 dies out and ideally close the merger of ‘Air Canada’ and ‘West Jet’ to utilize the
combine force of these two giants in building a new legacy. The plan of action would be as per
following tasks and timelines.

Bio-Metric Panels with AI/VR App launch

Task Time Required Completion Time Budget
App Creation/Interface 6 months End of 2022 $4M
Bio-Metric Panels 1 year Mid of 2023 $12M
Marketing Launch 3 months September, 2023 $4M

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 Risk Assessment
Based on the research of this report, there are certain scenarios which may impact the
success of this solution once it’s in the market and this can hurt overall efforts being taken for this
project. Some of the scenarios include the following situations
• ‘Air Canada’ and ‘West Jet’ not interested in proposed solution
• New Competition working on proposed solution and develops a better tech (Low Barriers to
Entry)
• Tech Issues which may result in product failure
Strategy Risk Likelihood Impact Mitigation Contingency
Air Canada and West Jet Low Sales Medium Business may not Consult with Air Sell the tech to

show no interest recover initial Canada and West Jet struggling airlines to
investment if they be interested cut their costs
in such solution
New Competition with Survival Medium Customer may Patent the idea of Take the first mover

similar tech Threat prefer tech of tech with innovation advantage to gain
competition clients

Tech Issues (Product Loss to High Cost might go up to Phase-wise launch of Co-creation with

Failure) company revise tech product partner company to

reduce risk and
effort
RISK ASSESSMENT AND EVALUATION OF SCENARIOS
The above mentioned scenarios may affect ability of tech company; however, the mitigation
strategies and contingencies are provided whether such scenario occurs in the future. In order to
avoid such situations, the company should focus on mitigations first and implement them within
launching the product and later if such scenario leads to any risk contingencies can be considered to
avoid failure in future.

Recommendations
To successfully implement the solution, the tech company would have to devise and follow
the go-to market strategy with a trial phase launch in certain locations of Ontario and with the client
focus on small players first to refine tech while patenting the tech overall
In the second phase, the company can increase their marketing efforts once the tech is
ready and target big players like ‘West Jet’ and ‘Air Canada’. Once the company is able to acquire
big players as clients their position will become stable in the market and the product can become
cash cow for the company.

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 While managing launch and efforts, it is important to keep good relationships with tech-
suppliers such as IBM, and Rossul and make them part of overall process to keep refining the tech
and strengthen it over time.
Lastly, it is important to keep mitigating the risks while undertaking this project to avoid any
uncertainties in future and if possible, to work out on contingencies in advance as this might affect
financial capability of tech company and success of the project.

Closing Remarks
Airline Transportation Industry will seemingly be growing post-pandemic with over 90%
overall growth expected in current year and will continue to grow until 2024 to reach growth over
pre-pandemic levels. The opportunity to invest in airline industry right now will be a good time
especially if the idea is innovative and unique and solves the operational efficiency issues of airline
industry.
The success of project can be ranked as ‘medium’ as of now given the potential of idea and
opportunity in the market, however, with the right tech partner and right execution this project has
potential to become next game changer for airline industry.

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