How can the Airline industry transform itself to recover from the ongoing crisis?
Even though most of the airlines have either stopped flying or are operating with limited capacity, there is optimism that the industry will fight the crisis and emerge into the ‘new normal’.
It’s been more than two months since my last flight, and I have no idea when my next one will be. For someone who loves travelling, I can’t wait to pack my bags and start hitting the road and the skies again – as of now it doesn’t matter whether it’s for business or for leisure. Even though most of the airlines have either stopped flying or are operating with limited capacity, there is optimism that the industry will fight the crisis and emerge into the ‘new normal’.
Airlines are not flying; what are they doing today? Airlines today are currently trying to preserve their cash as much as they can. They are slashing costs, working closely with the governments, managing customer refunds and credits, raising new funds, and chasing whatever revenue they can (via charters & cargo operations). More significantly, they are putting the necessary plans in place, to ensure that their crew and aircrafts are ready to go, when demand picks up.
By when would the air travel demand recover? For the airline schedules and passenger numbers to return back to normal, to where it was in 2019, it may take many years. If we must look at a historic data point, post the 2011 New York WTC terror attacks, it took almost 6 months for the recovery to begin and almost 3 years, to fully go back to the way things were. People would need to feel safe, and the flight prices would need to be reasonable enough, for the demand to go back up. Economists and analysts worldwide predict that demand recovery will not likely be in the form of a V-shape, but rather in a U or W-shape, indicating either a gradual and slow recovery, or recovery that is spread across two waves. Having said all of this, no one really knows how and when demand will soar, but one thing we know for sure, is that the airline industry will be quite different moving forward, and eventually people will fly again!
How is the airline industry expected to be different in the future? The demand for travel is currently facing a downturn but it isn’t destroyed, it is simply delayed. To bounce back, there is no one formula that fits all strategies – each airline will have to review and assess their position as per their region, demand, fleet, fixed and variable costs, along with governing policies.
What are airlines doing, or can do, to gain some altitude? Airlines would need to invest in new technologies & tools. They would also need to repurpose their existing fleet and reevaluate their routes for lowering costs. This is also an opportunity for travel technology start-ups and incumbent players to get creative and step-up, to innovate to help their airline partners.
* Business as Un-Usual: For the next few years as part of the ‘new normal’, airlines can no longer rely on historical forecasts and revenue management models. They would need to come up with new benchmarks and baselines and quickly adapt, as well as react, to changes and needs of the market. There would be more focus on short-term vs. long-term planning. Let’s not forget that airlines will also need to do more with less. The immediate focus for airlines will be to better forecast and predict minimization of losses vs. revenue generation.
* Focus on Health & Wellness We should expect to see a lot of partnerships and consolidation (via micro-services), and travel companies (airlines, hotels, railways, cruises, and cabs, etc.) working together via APIs, trying to provide a seamless experience for the traveler, keeping hygiene at the center of their services (more oriented towards the business travel though). Personal information and privacy continue to be a major concern while the industry comes up with newer ways to gain the confidence of the traveler. Following are a few ways they could do this:
* Contact Tracing: Several governments and agencies are investing in location-based GPS & Bluetooth technologies, to create apps to let people discover if they've crossed paths with someone who has been infected with a virus. Such digital apps can let authorities automatically find out where a disease originated, where it's heading next, and other useful epidemiological information. Apple & Google have recently announced a partnership to lead the effort in this space.
* ‘Fit to Fly’ Certification: Once flying resumes, mandatory and automated sickness checks could be the new norm. One such example could be self-service health-check apps where travelers fill out a quick health survey, and the software will issue them with a health color code – green, yellow, or red, which indicates whether they are ‘fit to fly’ and where all they can travel. China seems to have already started working on this. Some new tools could also be used to track past travel history without revealing the passengers’ personal details. Etihad Airways has recently come up with new self-service kiosks that checks the temperature, heart rate, and respiratory rate of passengers. Emirates just launched a rapid-test for passengers just before they board planes. The industry will need to come up with such automated and innovative measures to ensure travelers are screened for illness, without causing trouble and harassment. For the foreseeable future, we may even see airlines starting to block the middle seats or upsell those, to maintain social distancing.
* Deep and Frequent Sanitization of Aircrafts & Airports: For airlines to attract more passengers on board, they would need to assure their travelers that they are doing enough to deep-clean their aircrafts more frequently, while maintaining efficient and quick turnaround times, so that the airlines are able to generate profits in the already low-margin industry. A few organizations and providers have already started investing in antimicrobial and ultraviolet technology to sanitize aircrafts during turnarounds or when they are parked overnight.
* Leverage Lower Fuel and Resource Costs: Owing to the poor demand and excessive supply, jet fuel prices are extremely low right now and are expected to remain low for the next few months. Airlines will have to evaluate future needs and try to make the best use of such low prices today. Aircraft and labor prices are expected to be low as well due to their low demand. Demand might not bounce back right away, but neither will capacity. Airlines can also try to restructure legacy costs and renegotiate old leases to further reduce costs.
* Use of Data & Intelligence: Airlines and their solution providers would need to work together to analyze data and prepare forecasts & reports, for better revenue management decisions for the future. Airlines would also need to quickly understand the most searched and in-demand sectors, for them to convert this into meaningful insights and scenarios, and make informed business decisions for when they decide to resume flying. Airlines would start tracking more close-to-real-time data rather than wait and rely on stale data to make decisions.
* Reconsider Fleet and Routes: Certain analysts believe that the global aircraft fleet could be almost 10 percent smaller than it was in January 2020. Older and bigger airplanes that have higher operating costs could be on their way to early retirement. Many countries have also closed their borders and restricted domestic travel to prevent the spread of the disease, which reduces the number of operatable routes. Environmental pressure will continue to push airlines to go for newer and efficient aircrafts such as A321XLRs, 787s, A350s etc. and fly selective routes. Most of the airlines will initially start to look inward and open domestic routes first.
* Flexible Cancellation & Re-accommodation: Given the ongoing focus on personal health, and the fear of getting stranded, amongst travelers, airlines would need to invest in flexible payment policies at least in the short-term for a win-win model, to get more travelers onboard and for the industry to get back on its feet. The challenge would be to get travelers to move way from this model in the long-term, as it may not be sustainable for airlines.
* Temporary Shift to Cargo Operations?: With passenger traffic down to almost zero, several passenger-only airlines have started to use their aircrafts to fly just freight. Air cargo is crucial for keeping supply chains open, particularly for food, pharmaceuticals and other essential sectors. Additional cargo revenue certainly helps these airlines but may not be enough to cover their losses. Once the demand for passenger traffic picks up, it will be interesting to see whether some of these airlines would continue with cargo operations or not, in addition to their passenger traffic.
Is virtual business travel the new standard? CFOs across the world have started evaluating new strategies for business travel once it restarts. Businesses are expected to cut back on face-to-face meetings, although not entirely. Where something requires five meetings, organizations may skip one or two such meetings, but they will still need people to get together in-person, the rest of the time, rather than rely completely on virtual meetings. Leisure travel may snapback more slowly as consumers take time to gain confidence in flying again. Business travel is bound to come down, however is not expected to completely go away.
This is an industry meant to move forward. However, some airlines may find it extremely difficult to get back to full capacity. Certain IATA & CAPA studies reveal that most airlines have enough liquidity only to last 2 to 3 months from now, and this might even accelerate consolidation & mergers. Governments may have to further ease restrictions, both on borders and travel, and airlines will have to start ramping up services accordingly.
Bottomline, air travel is essential to global trade and global development cannot sustain without it, and that’s why we must find ways to continue travel in the safest possible way. As the overall airline industry returns to the ‘new normal’, the ongoing crisis will stress-test the entire civil aviation industry for the next few months, and when this is over, travelers will return to an industry that has been completely transformed.
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