s airline traffic recovers at varying rates by geography and customer mix, adding new capacity comes at significant financial risk. How can airlines test the demand waters before committing to flights that may not sell at sufficient volume or yield to break even?

Full transparency and cooperation between an airline’s own departments is of paramount importance, especially revenue management, network, marketing, and digital. These teams must be prepared to share data and market intelligence and coordinate promotional campaigns.  

Network planning and revenue management teams should be equally involved in decisions to restore capacity, whether due to commercial viability or strategic necessity.

Revenue management can provide intelligence on potential yields, while network planning is probably best placed to compare potential profitability and strategic importance of competing opportunities.

Know Your O&D Mix

Although historical demand volumes and yields are of limited use, it’s vital that a network carrier know its historical origin-and-destination (O&D) mix and have data on what carriers in nearby geographies flew before the pandemic.

"Point-to-point carriers can benefit from pre-COVID competitor capacity data."

This provides a list of countries to monitor for border control changes, as sometimes a country will partly reopen to specific classes of people (e.g., work visa holders) without much fanfare.

The resulting new traffic demand can give an airline the confidence it needs to restore service or add capacity on a route. Point-to-point carriers can also benefit from pre-COVID competitor capacity data, as this may highlight opportunities likely to be seized by competitors.

Pay Attention to Internal, External Search Data

Web search data from an airline’s own website can provide early clues of what customers want to buy.

While look-to-book ratios may not be relevant until customers can actually book a destination, the fact that they’re even searching for availability is a good sign of latent demand.  

Similarly, airlines should negotiate data sharing agreements with global distribution system (GDS) providers, online travel agencies, and large brick-and-mortar agency chains in their key markets.

Although cooperation between these has been historically difficult, it can lead to a virtuous circle in a post-COVID recovery as increasing sales volume requires available destinations and seats – and adding new capacity in turn requires confidence in market demand.

Engage Outside Stakeholders for Intelligence, Especially on Business Travel

It may also be helpful to engage loyalty partners, especially travel-related ones like accommodation providers, for transaction data.

As potential passengers plot their post-lockdown leisure travel, they may be searching for hotels or tours separately from airfare.

It’s in the best interest of these partners to cooperate as they’re likely to get some early volume from frequent flyers looking to redeem their miles on non-air purchases.

Corporate sales teams should check frequently with their key accounts about travel policy changes. Details matter: different companies may re-authorize travel to specific regions only, or they may have imposed new limitations about seating in premium cabins.  

"One study in late 2020 estimated that up to 36% of business travel may be at risk of permanent impairment."

It’s also important to understand a key account’s travel mix by purpose, such as sales calls versus internal meetings.

One study in late 2020 estimated that up to 36% of business travel may be at risk of permanent impairment, with the greatest losses falling on intra-company meetings, commuting employees, and professional services travel.

Even airlines that were largely dependent on business traffic before the pandemic will have to focus on the motivations of leisure travelers much more throughout a demand recovery.

Pricing Review, Experimentation are Vital

As demand returns, it’s likely that yields will be significantly lower than pre-COVID norms. An airline’s revenue management team must intensively review fare levels and conditions, taking nothing for granted from previous years.  

"In contested markets, it’s important to understand how competitors have changed both their capacity and pricing in the past year."

Although markets where service never halted will have more up-to-date demand data, there is still an opportunity for airlines to take a “clean slate” approach to pricing. Reduced competition may provide a window for airlines that historically haven’t been dominant to lead pricing changes.

In contested markets, it’s important to understand how competitors have changed both their capacity and pricing in the past year. Where market capacity has changed materially, it’s likely that old price points and conditions are no longer optimal.

As new or restored routes and O&Ds go live, demand or market analysts must work closely with their counterparts to understand whether the booking mix is materializing as expected.

Regular demand reviews, pricing changes, and coordinated capacity adjustments will be critical, especially as subsequent virus outbreaks or modified border restrictions change demand levels.

Forecasting Approach Must Change Dramatically

Obviously, any airline’s pre-COVID demand data is meaningless now. Even a year-over-two-year comparison won’t result in a usable forecast, as demand and competitive landscapes will have shifted dramatically since the pandemic began.

Recent weeks’ data will be far more actionable. Seasonality patterns, although less pronounced than in previous years, are still likely to be relevant in a recovery environment.

In the early days after a route is restored, fare availability strategies may be driven more by an airline’s strategic goals (e.g., market share defense) than forecasted demand – an approach that may seem counterintuitive to most analysts.

However, once demand begins to stabilize, revenue management will return to its usual focus: predicting demand by fare value and setting availability based on expected revenue.  

New Questions, Approaches Should be Considered

Airlines will have to ask questions whose answers were previously taken for granted.

Will demand on a given route ever return to pre-pandemic levels? Will passengers be loyal to the same airlines? How much will key corporate accounts shift their business? Will demand return to similar destinations with similar timing?

Although lower fares are the easiest way for an airline to recover revenue, other approaches should be considered as well. New fare products, especially ones with enhanced booking flexibility, should prove popular with leisure travelers.

'Although lower fares are the easiest way for an airline to recover revenue, other approaches should be considered as well."

An increased focus on ancillary revenue will help tease additional revenue out of customers with greater willingness to pay for travel.

Finally, targeted marketing campaigns and joint promotions with accommodation providers – who will be similarly hungry for new business – will be vital to restoring demand as soon as local regulations permit travel.

Airlines are facing a long road to recovery, but their commercial teams can rise to the occasion with a mix of new relationships, creative data gathering, and a fresh approach to pricing and revenue management.