few months back, we discussed how it could be a good time for airlines to start preparing for future demand.
With the news of a possible vaccine on the way, we very well may be inching closer to that long-awaited time. Fortunately for airlines, there is still ample time to prepare, but steps must be taken now.
As represented by the graph above, U.S. air travel spending fell out of its normal channel/range, far more than it did compared to 9/11. In some past demand shocks, airline revenues have shown a plunge followed by a sharp rebound.
Additionally, data from the U.S. Bureau of Economics shows that U.S. consumer savings rates are going through the roof, meaning funds are accumulating, giving consumers spending power.
The dam has been filling up and is going to burst in a way we’ve never witnessed in the history of aviation and the airlines with the biggest and best positioned buckets are going to reap humungous benefits.
How Can Airlines Be Prepared for Future Demand?
So, the question becomes, how do airlines prepare themselves? This process can be broken down into five core areas.
One of the silver linings during this demand shock has been the opportunity to step back and reassess workflows and processes.
As Neil Geurin, Managing Director, Sales and Distribution Strategy at American Airlines put it during a session at T2RL’s PSS 2020 event, "We're in a safe place to try new things."
Catherine Luelo, SVP and CIO, Air Canada, refers to now as a time of “process transformation.”
More specifically, airlines have been working on and implementing new ways to obtain efficiency and performance gains by adopting agile and collaborative processes around their entire commercial structure from revenue management and marketing all the way down to network planning and data science.
Data Insights & Activation
One of the first orders of business will be knowing exactly when, to what extent and where demand will return.
To be able to do that, airlines must have data insights – including new, alternative sources that provide clearer guidance – flowing through their organization and easily accessible to act upon.
Historical forecast models have been rendered useless, so airlines must shift their focus towards forward-focusing insights.
Resources & Expertise
Chances are your airline has had to make significant structural changes to adapt to the demand shock. And before the demand pendulum shifts again, now is the time to ensure you have all the resources ready, rather than scrambling after demand is already rising.
In addition to having your internal teams ready, it could be beneficial to bring on third-party expertise to help you prepare for a new frontier of aviation.
Airlines have been working on and implementing new ways to obtain efficiency and performance gains by adopting agile and collaborative processes around their entire commercial structure from revenue management and marketing all the way down to network planning and data science.
Of course, what good is demand if you cannot service it. Network planning and scheduling has essentially been torn apart and reconstructed from the ground up and will have to be continually re-worked and re-tooled to adapt to the changing demand.
Not to mention aircraft storage and slot allotment could potentially add to the complications.
Tools & Software
Airlines have long lamented over their legacy systems leaving them handcuffed and forced to construct workarounds.
Just as airlines should be focused on restructuring their processes, they should be doing the same with their systems, focusing on tools that will improve their efficiency and overall output. In essence, doing more with less.
"We are absolutely looking at other systems within our environment that we either need to fortify or we're good with running for a period of time. The [systems] investments are going to be very focused on things that are going to get people traveling and how we begin to get revenue back in the door," said Luelo.
"With low loads and low customer levels it gives you some ability for your internal teams to learn a system without the demand of full travel load."
What are the Benefits of Being First to Capture Air Travel Demand?
For the airlines who get their house in order there are numerous long-term benefits, in addition to the short-term gains that will be achieved. First off, there is the immediate — and for most airlines, badly needed — cashflow injection.
Beyond the initial cash injection, there are a number of other rewards airlines can benefit from by capturing the surge in demand.
Being First to Enter Back into Market
You could almost consider this as a new service or destination launch, where you want to be the first to penetrate the market and build/re-establish a base of customers, which can set the foundation for your entire commercial approach.
Securing Customer Loyalty
After you’ve captured demand, provided you’ve delivered a positive customer experience, travelers will be more likely to continue flying with you, providing opportunities for future bookings and growing customer lifetime value.
What makes this especially important is the steep decline in corporate accounts and business travel. Unlike past demand shocks, it’s expected that business travel demand will return slowly or be structurally changed altogether.
For legacy carriers in particular whom generate a large amount of revenue from this segment, it’s especially important to capture the demand that will be present.
Unlike past demand shocks, it’s expected that business travel demand will return slowly or be structurally changed altogether.
Once you have the customers secured, there are boundless opportunities to sell ancillaries both on new and existing itineraries.
The low-cost model is becoming increasingly more lucrative, especially with what is predicted to be a slow return to long-haul traffic.
Customers are becoming accustomed to the flexibility of low-cost fares; paying less upfront but being able to purchase upgrades and add-ons later as they desire.
Ability to Scale Up Quickly
By injecting new cashflow and recapturing your customer base, this gives you the foundation to scale up more quickly than your competition, embedding a competitive advantage.
Why play catchup later when you can prepare now?