The aviation industry is in survival mode. COVID-19 is disrupting an entire industry and the strategy of companies active in aviation will have to reinvent their business. What will be the impact of COVID-19 on the leisure industry, business travel and cargo activities of airlines and airports and how should the industry respond.
According to CCSA, the Committee for the Coordination of Statistical Activities, the aviation industry is facing its deepest crisis ever in history. The industry bears the weight of the consequences of the COVID-19 outbreak heavier than other industries as its “raison d’être” is the transport of people and goods all across the globe for travel, tourism, business and trade. When looking at the numbers, I can only agree with CCSA. To put those numbers in perspective, aviation will lose 2.605.000.000 passengers in 2020 compared to the expected number in the beginning of the year. This will result in an overall passenger revenue loss of 352 billion USD. To understand the numbers, the loss is comparable with the total turnover of Apple & BMW combined.
The importance of physically traveling to a specific location can be condensed in a feeling we probably all know: taking a picture and realizing that the view is way prettier in real life. These moments feed the soul, and simply cannot be replaced by looking at a picture on the internet. Therefore, tourists use airplanes to discover unique places across the globe.
But then, COVID-19 came into the picture. It spread across the world faster than ever expected and my dream was soon put on hold. It started with “Should I leave my home country?” but it evolved quickly into “There are no planes flying any longer, so I’m not able to reach my destination”. From that moment, it became clear that moving freely across the globe would not be possible anymore until everyone is vaccinated against COVID-19. It is way more important to save our economy and the health of our people, then to do a voyage of discovery in a far country with other cultures and legislation.
This led to the search for alternatives. Staying at home for one year is not an option for me but luckily it became clear that traveling in the European Union would be possible for the summer. Therefore, people started planning their next holiday in Europe and started booking flight tickets. The aviation industry became a little bit more optimistic about the future with an increase in passengers in July. The government gave back some of our freedom, but unfortunately, this also initiated the second wave. People thought COVID-19 was defeated, but sadly it didn’t. More and more travel restrictions in the European Union were put into place by the government resulting in uncertainty. Flight tickets are expensive, and nobody wants to book a flight to get a voucher instead. Therefore, people started looking for alternatives.
When you travel by car, you are way more flexible. Many hotels changed their annulation policy to convince people to book without any risk. This will result in a switch in transportation mode from planes to cars, which will even decrease passenger numbers more in the future.
Conclusion: Despite the fact that the need for vacation has not diminished, the growing uncertainty in aviation due to COVID-19 is forcing passengers to look for alternatives. This uncertainty will remain until the world has been vaccinated on a massive scale. In the meantime, we will fill the need to travel with other transportation options, like a car.
Aviation is not the only industry affected by COVID-19. If you look at the stock market, almost every industry lost lots of value due to the virus. This results in cost savings in the short-term and one of them is to limit business travel. Furthermore, COVID-19 changed the work environment. Home office became the standard for already 6 months in Belgium resulting in huge investments in the IT infrastructure of companies and the usage of video software. Businesses are also using those tools to communicate with partners all across the world since traveling is not possible due to the travel bans, limited aircrafts and cost savings.
Conclusion: despite COVID-19 is really questioning the need for business travel, I don’t believe it will cease to exist. A study from forecasting firm Oxford Economics proved that 1 dollar spent on business travel, resulted in $12.50 in incremental revenue. The added value of business travel will remain, since humanity prefers to real-life contact. Everyone who is stuck at home at the moment due to COVID-19 will acknowledge that they long to see their colleagues in real life and to shake their hand instead of the umpteenth call. The same goes for business deals. To close a deal, real-life contact will still be important in the future.
Business travel is going to go through an evolution here and it is being reshaped, I think for the betterDave Hilfman, executive director of GBTA
Dave Hilfman, executive director of the Global Business Travel Association (GBTA) said: “Business travel is going to go through an evolution here and it is being reshaped, I think for the better”. I can only agree. The online tools will enable companies to lower the amount of travel. Companies were obliged to do the negotiations in 2020 virtually and this change included some benefits. High management was able to spend their time more efficiently, without wasting time in aircrafts, on yet lags or even spending time in hotels all by themselves. Instead, they were able to spend more time with their family and friends. On the other hand, they also experienced that face-2-face contact is crucial to do business, especially in some cultures. That is why business travel will at least partially recover from this crisis.
Airlines could also discover new opportunities due to COVID-19. A new business segment could arise, where companies are willing to pay a premium price, to improve the safety of their employees. They could ask a premium price to operate smaller aircrafts or to create personal bubbles inside an aircraft.
Conclusion: It will take some time for business travel to recover. Today, the benefits of online tools defeat the uncertainty of travel and health risks. But from the moment the economy recovers from the pandemic and it is safe to travel, businessmen and women will be on the first row to meet their clients in real life to strengthen their relationship.
According to IATA, the International Air Transport Association, the air cargo industry is the driver over global trade. Airlines transport over 52 million metric tons of goods a year, representing more than 35% of global trade by value but less than 1% of world trade by volume. To make this possible, 100.000 planes take off each day to deliver 657 million packages worth $17,8 billion across the globe.
The manufacturers of aircrafts designed 2 types of aircrafts to make this feat possible. Firstly, they challenged their engineers to design an aircraft that is fully optimized for cargo. The full freighter aircraft can go up to the size of a football field and the maximum payload can reach up to 250 tones. This means that Apple is able to fly 1 million iPhone in 10 hours from China to America by using only one aircraft. This gives you an idea of how important and efficient aviation is to our economy.
Of course, it is not profitable to fly a full freighter from location A to B all the time. Therefore, aircraft manufactures modified the unused belly space in passengers’ aircrafts in cargo space. The belly-cargo industry is an importation activity for passenger airlines, since they are already flying from location A to B and they are able to supply smaller airports with cargo. Furthermore, it is not profitable to fly every day with a full freighter between 2 small cities, but Ryanair and KLM fly this route daily and are able to transport all the demand in the belly of their passengers’ aircrafts.
During the COVID-19 crisis, air cargo has been able to demonstrate its vital necessity. In no time, medical equipment was transferred all around the world. Airlines optimized their flight paths of full freighters to serve more airports and even used their empty passengers’ aircrafts to transport belly-cargo combined with freight on every passengers’ seat.
Conclusion: For the coming months, I expect that the volumes transported by air cargo will increase. Health care companies need to use air cargo to transport their pharmaceuticals as quickly as possible to their clients. The demand will even increase when some companies are able to develop a vaccine and need to distribute the medication all across the globe.
How should airlines and airports react to overcome the COVID-19 crisis?
Aviation is curbed by governments. Every country has put restrictions in place to prevent the spread of the virus on their territory. It is conceivable that those restrictions will stay until the world is vaccinated and this will take time. Time that aviation has not. Many key players in the aviation industry already applied for governmental aid to prevent bankruptcy and still need to survive for some years before traffic will get back to normal.
To minimize their losses and to become profitable again, the aviation industry will need to invest in different parties. Firstly, they need to invest in the passengers to reassure them that it is safe to travel to reclaim passengers. Secondly, they need to work closely with the government to prevent the spread of the virus. And lastly, they need to invest in themselves to optimize their own operations.
Invest in your passengers
All the restrictions are accompanied by uncertainty. Humanity is risk averse and when it is uncertain, we will be able to leave the country, we try to postpone every financial obligation until we are reassured that our investment will pay off.
Therefore, it is important that airlines and airports work together to provide all the necessary information to the customer and spread a unified message. In the past, a passenger was the client of the airport until he boarded the plane. Measures should be taken from the moment a passenger enters the airport until the passenger leaves the airport at their desired destination. In between, the airline and airport should reassure that there is no chance to transmit the virus. This goes from maintaining the 1,5m rule from the moment a passenger enters the airport to organizing its own contact tracing. The safety and the feeling of the customer should be the top priority of the airlines and airports and cooperation is needed maximize customer satisfaction.
To increase the satisfaction of the customer even more, it is important that airlines are flexible with their annulation policy. They need to regain the customers confidence after the disappointment at the beginning of the crisis with the voucher repayments. Airlines should reassure passengers that they will be able to retrieve their money when the government bans their holiday location. This will reduce uncertainty and increase the number of tickets sold.
Invest in your relationship with the government
Every country tries to defend its own citizens and economy by limiting the incoming and outgoing traffic from their country. One of the logical entry points for the virus is an airport as they connect a country to the world. Therefore, as a protective measure, governments impose severe restrictions on the movement of people. From the moment a region has a high incidence, governments prohibit their inhabitants to travel to that location, even when some areas are safe to travel. We see this currently in Belgium. Many countries prohibit all Belgians to travel to their country, while only the city of Antwerp and Brussels have a high incidence.
Countries prefer to take overprotective measures to keep their population safe. While it is impossible to verify and test every car that enters the country (you never know where that car is coming from), airports have lots of information about their visitors. They perfectly know where their customers come from to verify if that region has a high incidence rate. The airport is perfectly capable to collaborate with the government to impose a quarantine from the moment a passenger comes from region that is prohibited. Therefore, airports need to cooperate with their local government to make travel safer and more controllable.
Airports are opening their own COVID-19 test centers at the airport. This can be an incentive to governments to limit travel restrictions when their inhabitants travel by air.
- -79% Seat availability in Q2 2020
- 45% Of air cargo is belly-cargo
- 3 hours To know your test results at Frankfurt airport (€ 139)
Invest in yourself
The needs of the aviation customers are changing due to COVID-19. People want more information and security, but on the other hand the demand in cargo activities is increasing. Therefore, airlines and airports cannot slow down their investments.
Airlines can reallocate the profits of their cargo activities into an increase in safety measures for passengers or to make their cargo activities more efficient.
Due to the increase in cargo activities, airports need to invest in their cargo infrastructure if they aren’t able to keep up with current demand. By doing this, airports will remain competitive and attract more aircrafts (both passengers’ aircrafts as full freighters).
Furthermore, airports need to invest in their customer journeys as well. They need to reassure the passenger that flying doesn’t imply health issues. They can do this by providing as much information as needed by their customer and plan the entire customer journey and resolve the touchpoints where there is a health risk.
Moreover, airports can partner with innovation companies to leverage the newest technology. By doing this, they will be able to increase the safety measures at their airports and increase the customer satisfaction. It can go from a simple tool to see where it is busy on the airport to an integrated system that proposes an arrival time at the airport and really guides you minute by minute to be as safe as possible.
Lastly, airports can try to diversify their business scope. Due to globalization, COVID-19 was able to spread across the globe in months. It is not unlikely that a new pandemic will arise in the future. By diversification, airports are able to address other revenue streams when an activity gets in trouble. They need to become small cities and generate income out of retail, real estate, car parks and cargo besides their current target audience: travelers.
Redefining the Path back to Travel
This article is part of Redefining the Path back to Travel. In this series of articles, we present different views on the future of travel and hospitality. We argue the necessity of travel, changing passenger preferences, and discuss some visions for traveling in 2025 and 2040. We are carefully looking to restart the travel industry.
If you want to know more about The Future of Aviation, please contact Stijn Verleye, Management Consultant at Hedera, A Cognizant Company.