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Airline Planning in an Era of Extreme Uncertainty – II

One year ago, we published an article with the same title. It was our view on emerging trends in aviation post-Covid. As consultants, we have a duty to look back at our past guidance to see what we got right and where we missed the mark. Our clients expect no less.

Prediction: Profound change

Our overarching theme a year ago was for airlines to proceed on the assumption that the airline industry will be profoundly changed in ways that are not yet clear. At the time our views differed from those of many airlines and governments. Most of them were hoping for and behaving as if a quick fix was coming and travel would quickly revert to normalcy.

Prediction: Fear of Flying

We talked about Covid creating a deep fear of flying. Experience has shown that it may have been more accurate to say that Covid has created a fear of travelling. Ex -Sprit CEO and industry insider Ben Baldanza, writing in Forbes, suggests that indeed leisure travellers are more afraid of infections happening at hotels and restaurants than in an airplane.

Prediction: Long term impact to business travel

We forecasted that business travel would be very slow to recover, if ever. Video conferencing was common before the pandemic, but Covid had caused an exponential increase in its usage. Many users found that it could be an adequate substitute for face to face contact. A recent global survey by insurance giant Chubb found that fewer than half of business travelers are planning to fly domestically and even fewer internationally. We believed last year that the business travel segment will take many years to recover to pre-Covid levels, and we continue to be accurate one year later.

A decline in revenue from this lucrative segment will have profound impact on network planning and fleet choices. High yield business travellers are the financial backbone for many flights. Absent this profit driver, fewer flights and fewer large aircraft could be the result, leaving the airline with a smaller network. As individual airlines will want to continue offering their customers a broad portfolio of destinations, more codeshares and stronger alliances are likely. This an area where UNEX has an excellent track record.

Prediction: Leisure travel, too, slow to come back

We suggested that leisure travel would be slow to recover as well. In hindsight, we are more optimistic about this segment, but only for short-haul. Domestic travellers in large countries like the US and China have already returned in large numbers. Long-haul travel choices, however, have diminished as OAG reports that 80% of the world’s largest travel markets remain at less that 10% of normal capacity. Travel industry experts report anecdotally that those who can afford to travel are buying premium economy and business class ticket, perhaps to have more personal space.

Prediction: Guerilla network planning

We suggested that leisure travellers would prefer to fly non-stop to minimize aircraft and airport interaction. It seems that airlines have noticed and have responded. OAG recently reported that “new airline routes in Europe are hitting and all-time high. OAG notes that airlines are using this year as a period of experimentation with their networks. In our own article last year, we called it “guerilla network planning.”

Prediction: Lower prices

We said that lower prices would be a driver for both leisure and business travellers. It is unclear how cash strapped, debt ridden airlines will lower prices and cover their costs, let alone invest in automation and other efficiency improvements. Those airlines that received more government aid than others, could have a competitive advantage. We talk about this in a separate article.

The low cost business model is well suited to the post-covid airline market. These carriers have major advantages over full service network carriers. They do not have wide bodied aircraft to pay for or expensive hub infrastructure, they are nimble and can change their networks quickly, and they usually do not depend on business travellers. These carriers can make money where long haul carriers cannot. Many are already cash positive.

UNEX has lots of experience helping established carriers refine their business models to achieve the efficiencies of LCCs.

Prediction: All cargo freighter expansion

Finally, last year we noted an opportunity for all cargo operators since passenger belly hold cargo capacity had disappeared. If freighter capacity expands to fill this void, as we said it could, the result could be negative for passenger airlines’ belly freight business as cargo yields will be weak because of over capacity. Passenger airlines could be faced by a double whammy: Declines in both cargo and business travel revenue would make it difficult for airlines to regrow their networks, now needing to rely on the lower yielding leisure segment. A clear LCC advantage.

Perhaps this is why Director General IATA Willie Walsh expects the industry to emerge from the coronavirus more cautiously: “It will be a smaller industry. We are not going to recover all the capacity.”

While we tend to agree, we would suggest that some airlines will emerge from Covid stronger than others. And even if the industry is smaller, it will be the airlines with the best strategic thinkers and innovators to grow larger and stronger than their peers. UNEX can help airlines come out on top.


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