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“A la carte sales will drop. Lower load factors on aircraft will encourage travelers to rely on carry-on bags more, and seat assignment will be less of an issue if the aircraft is 1/3 full. I think consumers will more eagerly consider options for increased personal space. I think savvy airlines will fill this need with a product – perhaps temporarily – that provides an empty middle seat,” says IdeaWorksCompany President Jay Sorensen.
The big questions facing the airline industry in the age of coronavirus: what will it take to get people booking flights again? and what will the experience of flying look like?
We checked in with veteran aviation industry analyst Jay Sorensen, president of IdeaWorksCompany.
“IATA estimates global passenger traffic will drop nearly 40 percent for 2020 based upon a spread of COVID-19 beyond earlier predictions,” writes Sorensen in a new report sponsored by CarTrawler, Flight Plan 2020: 8 Ways Travel Will Be Different A Few Months From Now. “Who knows, subsequent estimates could place the reduction at 50 percent of 2019 traffic. IATA believes revenue will decrease by more than $250 billion for the year. Last year’s revenue estimate was approximately $900 billion, so this represents a nearly 30% loss. As bad as this appears, IATA’s projections might actually be overly optimistic. As goes the airline industry, so go vast swaths of the travel business. This includes hotels, vacation rentals, car hire, and sightseeing. Each of these categories will have business failures. Economic reality says many companies will cease to exist or will stumble along and eventually fail.”
In this conversation, Sorensen offers a glimpse of the challenges and opportunities carriers face.
Kambr Media: What’s your sense of people’s willingness to travel once some form of regular service begins to return when the COVID-19 pandemic starts to ebb in the U.S.?
Jay Sorensen: People can't wait to leave the house. For some, there’s no other reason than just a quick walk around the block or to nervously get some produce.
But when I look at the issues airlines are facing, there are several right now that I’ve been thinking about.
Airlines have been resisting refunding consumers for their canceled flights. Instead they’re offering vouchers for future travel. With the government aid such a hot topic, politicians are not going to put up with this.
So there's going to be pushback. There will be repercussions for the travel industry on this if it doesn't whip itself into shape real fast.
The next thing could be the government saying, "You know what? Change fees, we think those should go away." So if the industry wants to continue to go down the slippery slope of begging for handouts, and not expect that there's going to be some repercussion, that's foolhardy. There will be. I love the airline industry. The problem is, it often shoots itself in the foot when it comes to these kinds of matters.
What else are you thinking about when it comes to consumers being willing to fly again?
Obviously, consumers are going to be very fragile financially when the pandemic ends. There are two things that are going to be happening here. One is, they will be actually fragile in terms of ability to have discretionary income. This business of leisure travel absolutely depends upon discretionary income. In order for traffic to occur, it's going to have to be at low yield.
There's another component to this as well. Over the course of decades, the consumer has been taught to anticipate deals after an event like this.
It’s not only that their wallet has been emptied as a result of being out of work for months. They will be anticipating deals. Flying is going to be below cost for all airlines for the first six months out of this crisis. Let's assume that the first month of a return to normalcy is August, I'm estimating it's going to take six months for activity, the traffic and yields to increase to a point where it's on a breakeven operating cost basis.
And it’s important to note I’m talking about domestic travel’s recovery. I haven't even talked about international yet.
Before we drill down to international travel, do you think business, as opposed to leisure, will be the initial driver of fliers’ willingness to return to the skies?
I think that same six month scenario applies for business travel. Except that I'll add another layer: And that is, 10 to 15 percent of business travel will forever be gone.
Forever?
That 10 to 15 percent of travel will be – is already being – replaced by technology like video conferencing and working remotely.
Business travel is not going to totally disappear. But I think it's very reasonable to expect that 10 to 15 percent if it will not come back.
That sounds very pessimistic.
Overall, I think the world will return to travel, we'll rebound. However, it is going to be almost completely focused domestically, or within a region such as intra-Europe.
What are the challenges that you think will linger when it comes to international flights?
One of the primary reasons is hygiene security and that is the ability for you to actually believe that you can return from your trip. If you're flying domestically while the pandemic is still ongoing, you will be extremely confident that you can come back from your trip. However, that same level of certainty has been removed for international travel. Given the times and given the proclivity of this President to make off-the-cuff decisions, your ability to be certain that you can come back to the United States after you've traveled overseas no longer exists. That concern is going to take time for it to mend.
Also, there are going to be a tremendous amounts of people who are going to travel by car. I think there's going to be a tremendous amount of pressure on the national parks, because that is where I think we're going to start prowling first as we're going to look for outdoor activities. I also think that urban areas such as Boston, Washington, New York are going to do very poorly. Because, people are not going to want to be in a crowded situation, especially on the subway.
On one end of the spectrum, is a dense urban tourism experience. On the other end of the spectrum, is hiking on a trail in Yosemite. The latter is the market travelers will flock to.
You’ve done a lot of deep analysis of the way ancillaries and a la carte pricing has grown in the last few years. What do you expect to change in terms of what airlines can charge for and what consumers will be willing to pay extra for? Do ancillaries go away for that initial six-month period post COVID-19?
A la carte sales will drop. Lower load factors on aircraft will encourage travelers to rely on carry-on bags more, and seat assignment will be less of an issue if the aircraft is 1/3 full. I think consumers will more eagerly consider options for increased personal space. I think savvy airlines will fill this need with a product – perhaps temporarily – that provides an empty middle seat.
Overall, it's really difficult to judge human behavior, because the entire experience is brand new. A la carte wasn't a factor for 9/11 or the 2008 SARS epidemic so we have no history here.
Is there anything airlines can do now to inspire a willingness to book a flight?
Of course. They should talk about on-aircraft sanitation. The close confines of the aircraft cabin has become the weak link in the travel chain.
The best way to encourage booking behavior is to mitigate risk. In other words, the financial cost of cancelling a flight in the event of a virus flare up, or if someone in your family becomes ill. Even a person with regular old sniffles or seasonal allergies would find it awkward to fly now. I see many references to extensive cleaning regimens being deployed by all sorts of travel companies.
I plead with the industry to only promote these if you are truly serious about enforcement. It's like a local grocery store that says, "We are wiping down all shopping cart handles" and you see an incomplete effort by staff. That removes the credibility of a potentially lifesaving promise. I hope Delta, with its Delta Clean product is sincere with enforcing the policy.
Aside from addressing the significant lack of discretionary income among would-be leisure travelers and reluctant corporate business travelers, what sort of actions should airlines take to ease the hesitancy to book?
This answer continues from the above. The relaxation or removal of cancellation and change provisions will be crucial. The consumer will have this unspoken promise with the airlines. I will take the risk of booking a trip, if you don't punish me if things outside-of-my-control become a factor.
