We all know how badly the COVID-19 pandemic took the world in its grasp. And one of the industries that got the worst impacted is the airline industry. The industry is, however, now on its path to recovery and reformation, and as such, a lot of new changes are being speculated to find their place in the airline industry of the post-pandemic world.
30-second summary:
- Leisure trips will recover faster than corporate travels in the post-pandemic world.
- Airlines will revisit flight economies for long-haul flights by eliminating point-to-point nonstop and connect pricing.
- Cargo became the lifeline for the aviation industry because of the pandemic.
- Carriers would look into short to medium term opportunities to increase their cargo services in an agile way.
- Airlines to invest more in digitalization and IT in order to streamline and automate their operations.
For an industry that grew at a compound annual growth rate of 12.91 percent between financial years 2016 and 2020, the pandemic came as a completely unexpected shock. However, the airline industry has always been a resilient one in terms of responding to and making a comeback from a crisis. Thus, the industry is already on its way to plan its path to recovery in the face of the new normal.
Now, when we speak of the long-term effects of the pandemic, some of these are obvious, and others are more profound. For instance, the fact that safety and hygiene standards will be more stringent is obvious, but the changes in consumer behavior are going to be pretty profound.
So, with all that in mind, we, at Avlon Shiksha Niketan, positioned among the best aviation colleges in Kolkata, have brought for you today a closer look at the new realities the airline industry is being expected to work within the post-pandemic times.
More leisure trips than business trips during the recovery
Business travel will take some time to recover, and even then, estimates suggest that it will only recover to around 80 percent of pre-pandemic levels by 2024. Remote work arrangements will continue in some form, making people take fewer business trips. Just as all previous crises, such as the global financial crisis and 9/11, have shown us, leisure trips always outpace the recovery of corporate travels. This is noteworthy because most of the profits earned on long-distance flights are usually generated by the group of high-yielding passengers who travel for business.
Furthermore, we can expect to see airlines revisiting flight economies for long-haul flights. The difference between point-to-point nonstop flight pricing and connect pricing might be narrowed during this time.
An increase in air freight supply due to the pandemic
Cargo became the lifeline for the aviation industry because of the pandemic. Before COVID-19 hit us, cargos made up around 12 percent of the total revenue of the sector, and that tripled last year.
Moreover, the airlines that achieved good profits in the third quarter of 2020 unequivocally claimed that cargo revenue accounted for 49 percent of their total revenues on average. The main reason behind this is the fact that e-commerce sales soared due to the pandemic.
Now, cargo supply will increase for at least a couple of years, though not to pre COVID-19 levels. This means that the airlines will focus on responding to the low supply and high demand for air freight in the years to come. Carriers would look into short to medium term opportunities to increase their cargo services. Also, airlines will have to grow cargo in an agile way that allows for quick adjustments as per demands.
Aircraft markets might be oversupplied for some time
Aircrafts happen to be a major expense for an airline, which makes up about ten to fifteen percent of the cost base of a carrier.
In the years before the pandemic, aircraft OEMs (Original Equipment Manufacturers) had ramped up production in the hope of continued growth. And this has turned out to be an issue in the face of the pandemic and will continue to be something to consider in the path to recovery.
If finances allow, carriers can start acting counter-cyclically. They would be trying to lock in orders for new aircraft or confirm operating leases at present when demand is low. With lease rates and OEM prices fluctuating with demand and supply levels, inking deals during this time would let carriers get a major cost advantage in the years to come.
Disparity of performance for the lack of innovation
Some airlines are likely to respond to the pandemic by restructuring for greater efficiency, while others might not be able to showcase such agility. Airlines that do not proactively transform under risk failing will look forward to setting up the business for long-term structural value creation.
Before the pandemic, several airlines boasted an ROIC (Return on Invested Capital) well over the industry average. For such airlines, the stronger pre-COVID position has helped to navigate the crisis better, without resorting to loans and subsidies. It also helped them in restructuring to come up with a greater competitive cost base. But the other group of carriers renegotiated midlife leases, shed extra debt, and emerged leaner in the face of the pandemic. And it is these carriers that are more likely to come up as fierce competitors in the near future.
Regardless of the route chosen by the airlines, becoming better after the pandemic will need investment. The industry experts recommend airlines to invest more in digitalization and IT in order to streamline and automate their operations. Carriers also need to invest in customer experience to ensure absolute efficiency at each stage, from support services to check-in and boarding.
Needless to say, the airline industry on its path to recovery will have to look for fresh new talents that come with the technical know-how, practical knowledge, and the skills to contribute to the company’s progress. And this is exactly what we, at Avlon Shiksha Niketan, a well-known aviation college in Kolkata, are here to prepare you for!
At Avlon, we make sure that the young professionals we groom and train for the airline sector possess all the qualities and more that the airline industry seeks for. Under the dedicated supervision of our experienced mentors and our advanced curriculum, you will be nothing short of an asset to the industry. So, if you are waiting to make your career dreams soar high and above, join Avlon Shiksha Niketan, the Best Aviation College in Kolkata, and attain the wings to rise and shine.