As a frequent traveler who spends a lot of time in airports, I’ve had plenty of opportunities to observe how airlines operate. Recently, I have seen the “frenemy” phenomenon in full effect. And I have realized there are some powerful—and disruptive—similarities for those in the utilities industry. What do I mean by the “frenemy” phenomenon? It is no secret that the airline industry has faced its share of growth and profitability challenges in recent years. Much like utility power producers, airlines are inherently dependent on large, expensive infrastructure and heavily reliant on logistics/engineering expertise. With rising costs and razor-thin margins, airlines were forced to tackle an important question: How to drive growth and profitability in an increasingly competitive marketplace? Some airlines answered that question by going horizontal—developing B2B capabilities and then selling those capabilities to their competitors—fellow airlines.
In some airports, I have encountered the same front-desk personnel working at various airlines’ counters. With multiple brands and partnership arrangements, front-desk staff have multiple uniforms and routinely service multiple airlines’ passengers. This same approach holds true for catering, logistics, maintenance, baggage handling and many other services required to operate any airline.
Airlines have essentially become frenemies—supplying services to each other while competing for passengers. In fact, many industry leading airlines have pioneered new business models that leverage vertical unbundling of their supply chain. This has allowed them to focus on what they do best and grow revenues through both customer-facing and B2B offerings. Each airline has adopted different models; some focus on customer experience while others have aggressively expanded their back-office B2B capabilities.
What does this all have to do with utilities? I think airlines and utilities face some similar challenges and opportunities. Like airlines, utilities face stagnating revenue and increased competition from traditional and non-traditional players—what we call asymmetric competition—that is driving a need to find new areas for growth. For utilities, exploring B2B strategies may offer an enticing option. In fact, this approach is already taking shape in some geographies. Several utilities are taking their expertise in selling energy, managing infrastructure, improving plant productivity or building power plants and offering these skills to other organizations. As an example one energy retailer in the hyper-competitive Texas market is partnering to bring its expertise to a company entering the recently deregulated Japan electricity market. Similarly when it comes to building or refurbishing plants, RWE, one of Europe’s leading electricity and gas companies, offers a range of engineering services to other utilities.
With global growth slowing and energy efficiency rising, utilities face challenging decisions in the search for new opportunities and sustainable growth. To fuel long-term success, they should consider the airline industry example and look horizontally to apply core capabilities in new ways. For many, the ticket to a higher top and bottom line will be finding the appropriate niche and delivering B2B services to others in the energy ecosystem.