The past may be a prologue in many ways. But, during the Covid-19 pandemic, the past has become a mere reminiscence, little more than a referential footnote for airlines. Today, air travel demand differs significantly from the “normal” operating conditions airlines last enjoyed in 2019. While the availability of vaccines and the development of health passports offer a pathway back to healthy travel, the irregular adoption of these solutions worldwide, coupled with changing government policies, only serves to dampen demand. Planning a commercial strategy for this new, harsh marketplace will require resilience, resourcefulness, and flexible thinking.
Prickly Figures
As IATA wrote in its most recent market update, “comparisons between 2021 and 2020 monthly results are distorted.” While 2019 remains a point of reference for recovery, at this point, those numbers are more of an ambition than a fixed target.
IATA’s reporting of total demand for air travel in February 2021 (in RPKs) was down 74.7% compared to February 2019. “That was worse than the 72.2% decline recorded in January 2021 versus two years ago,” IATA states.
- In February, international passenger demand was 88.7% below February 2019, a further drop from the 85.7% year-to-year decline recorded in January and the worst growth outcome since July 2020.
- Performance in all regions worsened compared to January 2021.
- Total domestic demand was down 51.0% versus pre-crisis (February 2019) levels.
- In January, domestic demand was down 47.8% on the 2019 period
- Weakness in China travel, driven by government requests that citizens stay at home during the Lunar New Year travel period, contributed to the decline in domestic demand.
“February showed no indication of a recovery in demand for international air travel,” said Willie Walsh, IATA’s Director-General. “Most indicators went in the wrong direction as travel restrictions tightened in the face of continuing concerns over new coronavirus variants. An important exception was the Australian domestic market. A relaxation of restrictions on domestic flying resulted in significantly more travel. This tells us that people have not lost their desire to travel. They will fly, provided they can do so without facing quarantine measures.”
A Push of Confidence
Despite what the historical numbers show, airlines are eager to capitalize on opportunities to fly. According to OAG (April 6), airlines have now added capacity to their systems for eight straight weeks, reaching 63.2 million seats on sale a week, the highest point for over a year, though still 40% below pre-Covid levels.
Adding capacity does not guarantee sales, however. The key for airline survival is to get passengers to sit on those theoretical seats.
- Despite week-on-week capacity growth of 1.1 million seats (+1.8%), airlines removed 18.5 million seats from the systems for the second quarter of the year (over the last week).
- Confidence returns for August with 14 million seats added back, suggesting optimism for the summer holidays.
Airlines expect better times ahead, but factors outside their control keep getting in the way, pushing the dates out further for recovery.
“In late December, everyone hoped that the second quarter of the year would be the turning point in terms of a recovery in demand, in early January for most markets that hope disappeared. The second quarter of 2021 looks like it may well be, at least, for the next six weeks, pretty flat with many countries still impacted by travel lockdowns and quarantine requirements, airlines seem to be increasingly hoping for a very strong late summer surge through August and perhaps September. For that hope to be realized, there is a need for rapid clarity around when travel restrictions will be lifted…”
Thriving in the Deep
The commercial teams at airlines face a tricky business addressing this volatility to reduce losses through these demand ebbs and flows while working around artificially imposed dams.
Some of it will require reaching the right passengers to fill gaps with last-minute travel deals, and part of it will be enhancing the fares mix so that lower load factors can result in a break-even.
Unlike other times that the industry has faced unstable or reduced demand (though, admittedly, there is no real precedent for the current crisis), airlines now have new, advanced digital tools to work with, which might help them recover market share and boost yields.
As PhocusWire’s Linda Fox reports, “The old reliance on historical booking behavior will not be enough as airlines look to plan routes and forecast demand as they recover from the pandemic.”
Instead, airlines will need to dive headfirst into data if they hope to swim through these murky seas. New tools, enhanced by artificial intelligence, can offer commercial teams visibility on consumer intent in real-time, identifying opportunities for last-minute bookings.
- The Cirium Airline Insights Review 2020 shows that 40% of bookings in the fourth quarter of 2020 were last minute.
There will also be opportunities in re-examining distribution strategies, as well as merchandising strategies.
During the CCO Panel on Thursday, April 22 at 2:00 pm (UK), PhocusWire Editor-In-Chief Kevin May will host a panel of experts who discuss the challenges ahead for commercial teams if the promise of pent-up demand is delivered this summer. How can airlines optimize their commercial operations for a sharper recovery?
Joining Kevin May will be Pieter Bootsma, Chief Revenue Officer, Air France-KLM; Karl Saundlund, EVP Commercial, SAS Scandinavian Airlines; Sophie Dekkers, CCO, easyJet; David Gunnarson, CEO, Dohop; Silvia Mosquera, CCO, Avianca; and Jonathan Savitch, CCO, ATPCO.
The panel will discuss how commercial teams within airlines have adapted over the last year. Did the crisis help break down silos within commercial operations? Do airlines now have the agility required to deal with rapid shifts in customer demand?
These experts will also discuss the role personalization will play in airline commercial strategies. How will digital tools and automation help aid commercial teams as we rescale our industry?
As airlines work on a return to commercial stability, the panel will discuss changes to pricing and revenue strategies for the summer of 2021 and whether airlines will prioritize higher yields going forward to help make up for losses.
Finally, they will delve into what airlines can do to embrace new and different leading indicators to spot demand and match supply.
Airline Darwinism
It is a prickly time. A bit of airline Darwinism is to be expected. Even with government support providing lift under some wings, only those who can effectively adapt to these changeable conditions will thrive. When it comes to flexible adaptation to harsh market conditions, few airlines can boast Ryanair’s cool and calculating strategy for survival.
How will the cláirseach harp play in this new marketplace?
On Thursday, April 22, at 11:00 (UK), Ryanair CEO Eddie Wilson joins Bloomberg’s Anna Edwards on Zoom to discuss passenger confidence and booking patterns leading up to summer 2021. They will also dive into Ryanair’s market share ambitions over the next 12 months, how much influence governments will have over the airline industry’s recovery, compared to vaccines and people’s behaviors, and the role of the new 737 Max in Ryanair’s recovery.
