Why the future of aviation depends on retail reinvention

It sounds exaggerated, but the warning is real. With net profit margins in the global airline industry still hovering at a modest 3.7% in 2025, barely improved from 3.4% the year before, the business of flying people from A to B is simply not enough to guarantee survival.

 

Airlines that focus solely on ticket sales risk being overtaken by more agile, data-driven competitors both within and beyond the aviation sector.

 

The next frontier in aviation is no longer just about transportation. It is retail.

 

Competition, cost, and complexity

 

Airlines today face a triple squeeze. Fuel prices - which account for roughly 30% of all costs - remain volatile. Traveller expectations continue to evolve in the post-pandemic landscape.

 

Global geopolitical and economic turbulence has made forecasting and profit planning increasingly unpredictable. Despite signs of recovery, with many regions performing well in 2023 and 2024, the industry overall still struggles to consistently earn its cost of capital.

 

According to a report from McKinsey, airlines that had reported detailed financial results as of May 2025, recorded, as a whole, an economic loss of $5 billion (or –0.6 percent of industry revenue), despite nearly half of them showing signs of financial health.

 

At the same time, low-cost carriers are redefining the rules. They have mastered the art of unlocking value from every aspect of the journey. Instead of relying solely on fares, they generate high-margin revenue through baggage fees, seat upgrades, in-flight purchases, and commissions.

 

Ancillary revenue now contributes approximately 15% of total airline income, a significant increase from just 5% in 2010. These revenues often offer better margins and greater pricing flexibility than base fares.

 

Legacy carriers need to catch up. But this isn’t just about adding more products. It requires a strategic pivot in mindset to understand what the customer wants. Airlines must transition from being transportation providers to becoming curators of travel experiences.

 

What do passengers really want?

 

Travellers are not necessarily asking for more options. They are asking for better ones. Today’s booking experience is often fragmented. Flights are booked on one platform, hotels on another, and rental cars or insurance somewhere else.

 

This complexity isn’t a consumer choice. It is a market failure. Airlines have yet to seize the opportunity to own the full journey.

 

Consumer research shows that passengers are seeking simplicity and relevance. Many travellers would prefer thoughtfully designed bundles that combine flights with hotels, insurance, or even airport transfers.

 

Younger travellers in particular are driving this trend, with 70% of those aged 18 to 24 using travel bundles often or always. Most passengers are also willing to pay for additional features like seat selection, flexibility, and faster boarding - provided these are presented clearly and at the right moment within the buying cycle.

 

However, most airlines still rely on static fare bundles that fail to reflect actual customer preferences. The result is a missed revenue opportunity and a sub-par experience for the traveller.

 

The missing link

 

One of the primary reasons airlines are unable to personalise effectively is their limited access to customer data. Over half of flights are booked through Online Travel Agencies. This gives OTAs control over the customer relationship, the data, and increasingly, the loyalty.

 

Without direct access to this information, airlines cannot tailor offerings, optimise pricing, or create meaningful, relevant interactions with passengers.

 

This lack of data ownership means airlines are operating with limited visibility into who their customers are and what they value. Without this foundation, true personalisation remains out of reach.

 

The breakthrough

 

The breakthrough lies in dynamic, data-driven retailing. It is not just about collecting more information. It is about activating that data to create real-time, contextual offers that add value to the customer journey.

 

Modern retailing platforms powered by artificial intelligence and machine learning can enable airlines to deliver personalised offers - such as a flight, hotel, and airport transfer bundle - customised for each individual passenger. These offers are based on browsing behaviour, booking history, and stated preferences. This is the next evolution in travel retail, and it represents a significant opportunity for airlines.

 

Importantly, this shift is no longer just a passenger’s or consultant’s recommendation - it is now a strategic priority within the industry itself. In a recent IATA-BCG survey, 8 out of 10 airline professionals said they believe the modern retailing transformation is strategic and has high potential for value creation. This marks a major shift in mindset from just a few years ago.

 

In the 2022 version of the same survey, nearly half of airline employees reported that they did not have a clear view of the benefits of modern retailing.

 

Additionally, McKinsey estimates a potential revenue opportunity of over 45 billion dollars across the airline value chain simply by tailoring offerings more precisely. Importantly, passengers do not want personalisation for its own sake.

 

They want utility. Real-time travel assistance, such as gate alerts and disruption updates, is ranked by travellers as more valuable than many loyalty perks or flashy digital promotions.

 

The result

 

Airlines that get retailing right are already seeing significant benefits. They are increasing margins through more effective ancillary sales. They are building loyalty by offering more relevant and timely services. They are delivering better experiences that make travellers want to return.

 

Personalised merchandising, driven by behavioural science and immersive content, can significantly improve conversion rates and increase revenue per passenger. The most successful airline retailers are already investing heavily in data analytics, design, and personalisation capabilities. These airlines are not just focused on transactional revenue.

 

They are optimising for customer lifetime value, allocating more resources and talent to build long-term relationships with travellers.

 

While Online Travel Agencies still dominate in terms of volume, passengers are open to booking directly. In fact, 57% of travellers say they would book direct if airlines provided better service, more transparent pricing, and personalised offers.

 

The future of aviation lies in retail

 

The airline industry has weathered decades of disruption. It has survived recessions, terrorism, pandemics, and geopolitical volatility. But the next big challenge is internal. The retail experience offered by most airlines today has not evolved to meet the expectations of modern consumers.

 

To thrive, airlines must stop thinking like ticket sellers and start acting like retailers. They must invest in technology, data, and design that allow them to own the customer relationship from inspiration to booking to return. They must offer seamless, valuable, and personalised journeys.

 

In the aviation industry of the future, it will not be the airline with the most destinations that wins. It will be the one that knows its customers best, understands what they value most, and delivers it - simply, seamlessly, and profitably.