Already one of the most challenging commercial environments, airline revenue management has been turned upside down during the pandemic.
Airlines in the past year have had to manage, new procedures regarding testing & quarantine, pandemic politics, multiple virus waves peaking during different times across countries and a varied range of passenger expectations and behavior.
With practically no global SOPs (standard operating procedures) to manage flow of passenger traffic, irregular patterns of demand, traditional forecasting methods rendered useless and the overall pressure of operating during the longest crisis the industry has seen so far, analysts have been forced to innovate and hustle, as they try to capture a larger share from a smaller market.
Currently, we live in a partially open world where demand for air travel is being mainly determined by government issued advisories and NOTAMs (notices to airmen [more on this in part 2]).
On top of this RM analysts are confronted with varied sentiments, as some passengers are afraid of traveling while others can’t wait for that next getaway.
At the start of the pandemic, we lived in a world smaller than ever before, air travel was at its peak with a record 4.5 billion passenger trips in 2019.
In January 2020 when governments first started seeing the need to stop travel, airlines were not prepared for a complete grounding of air travel.
Between January 2020-March 2020, all major countries had stopped movement of people across borders and some domestically. Passenger numbers for international trips fell by 98%, at its worst.
The interconnected nature of global business and culture, along with the interdependence of countries on each other for essential resources and labor meant that not everyone could stop traveling, however.
The rapid closure of travel corridors also created the issue of people being “stranded” at their destinations.
This resulted in revenue management teams having to deal with entirely new passenger segments with unique booking behaviors, which I'll outline below.
1. Repatriation Demand
The entire first half of the pandemic was dominated by airlines trying to manage repatriation. Repatriation is the movement of passengers back to their country of residence/origin/nationality.
As restrictions were announced and news of the pandemic spread, passengers were stranded in different parts of the world. This resulted in a demand surge both from passengers and governments.
"RM teams had to move focus to external sources of information like social media, studying demographic data, keeping up to date with latest NOTAMs and news articles to predict demand."
This new passenger segment put into focus the charter business model. Government charter deals with national carriers, embassy charter deals with airlines, company charters to bring back project workers, and private charters for the most inelastic of this segment.
RM teams had to move focus to external sources of information like social media, studying demographic data, keeping up to date with latest NOTAMs and news articles to predict demand.
Repatriation demand has an inelastic nature caused by an urgency to travel and fear, this along with the need for airlines ops to stay commercially viable with 40% SFs (seat factors) meant high fares. The OW (One-Way) demand also created an imbalance of SFs, resulting in more pressure on the fares.
2. Essential Travel
As discussed before interdependence of countries for resources meant that essential services relating to government diplomatic movement, medical aid workers, key industry labor movements (Oil & Gas, Merchant Navy) had to continue, however, within the confines of the new norms.
Marine and labor movement serve as cash cows during a time where airlines are struggling to get in traditional VFR (visiting friends and relatives) and tourist revenues.
While most of the corporate world moved to zoom calls, business travel did not entirely disappear, countries understood the need for this, and more and more excluded business travelers from quarantine requirements and introduced business-track visas.
"Marine and labor movement serve as cash cows during a time where airlines are struggling to get in traditional VFR and tourist revenues."
Corporate demand is traditionally high yielding for airlines; however, the pandemic has made this segment more inelastic than before as a result of limited options.
3. Long Stay-Work from Abroad
A segment created purely as a result of the pandemic, work from home has turned into work from abroad for many globetrotters.
As millions of people started working from home for the first time, countries located in remote regions and with high reliance on tourism saw it as an opportunity to provide people an ideal combination of working and holidaying at the same time.
"From an RM perspective long stay-work from abroad is unconventional demand and means OW trips, or RT (round trip) trips with longer stays, are often out of horizon for most traditional analysis."
With major global companies like Google, Apple, Spotify & Twitter announcing work from home extensions, countries like Barbados, Costa Rica, Czech Republic, Croatia, Cayman Islands, Bermuda, UAE (Dubai), Estonia and Georgia among others have offered travelers long-stay visas to work from abroad.
From an RM perspective this is rather unconventional demand and means OW trips, or RT (round trip) trips with longer stays, are often out of horizon for most traditional analysis.
Having good market intel and keeping up with external sources of information like news here is key to capture this demand.
(More on this in part 4- tips for Analysts).
4. New Normal and Vaccinated Travelers
As the world gets vaccinated, and testing & quarantine get normalized, airlines are now seeing signs of traditional demand.
VFR & Tourism demand surges are being seen, however these traditional segments come with significantly changed booking behaviors.
The flow of pent-up demand is dominated by destinations open for tourists, along with the origin allowing for return without strict quarantine measures.
Changing regulations and multiple waves also mean last-minute planning (compact booking curves), passengers preferring shorter layovers and stops, and safety being a top priority while choosing between airlines and airports.
Another new smaller segment is “vaccications” (Traveling to get vaccinated), however currently as major economies focus on nationalized vaccination drives, the demand for this is still to be seen based on commercialization of vaccines.
"Changing regulations and multiple waves also mean last-minute planning (compact booking curves), passengers preferring shorter layovers and stops, and safety being a top priority while choosing between airlines and airports."
These new passenger segments also meant new booking behaviors and unconventional trip types.
The pandemic has resulted in booking patterns changing drastically with all segments booking and cancelling closer to departure, making forecasting harder. Imbalanced OW itineraries for repatriation segments, make it harder to achieve route profitability. Flexible booking behaviors, and travelers shopping closer to departure is here to stay.
While the initial months of the pandemic saw inelasticity in demand, price wars for the coming summer have already begun. Traditional VFR & Tourist segments have additional costs like PCR tests attached to their travel plans.
While there are still limited destination options, intense competition and government NOTAMs will be the driving decision making factors for RM teams.