Airlines are making targeted investments in startups, with a particular emphasis on artificial intelligence and sustainability, according to a recent report from the Lufthansa Innovation Hub (LIH). Only a small portion of airlines have invested in startups, despite the aviation industry’s increasing demand for innovation.

Airline Startup Investment Is Limited

Just 7% of the 340 commercially significant airlines that are members of the International Air Transport Association (IATA) have made startup investments, according to LIH’s research. This cautious strategy implies that although airlines appreciate innovation, they are nonetheless careful about how they spend their money.

Prominent airlines including United Airlines, JetBlue, and KLM have indicated that they prefer startups that are creating AI-driven solutions and sustainable technologies.

Airline Startup Investments Are Driven by Sustainability

According to the analysis, 55% of airline-backed startup acquisitions in 2024 would be focused on climate-friendly aviation technologies, making sustainability the main area of investment concentration. This carries on a 2023 trend in which 50% of airline investments went to firms with a sustainability focus.

LIH stresses that this is a long-term approach rather than a temporary change. In order to meet consumer demand for cleaner air travel and regulatory restrictions, airlines are investing in climate-tech businesses.

Growing Interest in Machine Learning and AI

Additionally, AI and machine learning have become important investment sectors; in 2024, they will account for 22% of startup capital sponsored by airlines. This is an 18% rise over 2023, demonstrating the growing significance of AI in streamlining airline operations, cutting expenses, and boosting productivity.

Given the speed at which generative AI is developing and its potential to completely transform a number of sectors, including aviation, LIH says the spike in AI investment is to be expected.

Keeping Long-Term and Short-Term Gains in Balance

According to the survey, AI-related investments typically produce faster benefits than sustainability investments, which frequently have a longer time horizon for returns. Notably, AI, sustainability, or a mix of the two were the main topics of the top ten airline startup investments in 2024.

Examining the Future: Investments in Airline Startups

LIH’s analysis looks at which airlines are making investments, how investment patterns have changed, and what these developments signal for the industry’s future as it navigates the post-pandemic recovery. Additionally, it offers strategic advice on striking a balance between innovation and financial prudence to airlines thinking about making startup investments.

Airlines that invest in sustainability and artificial intelligence (AI) could have a significant competitive advantage in the years to come.