Have consumers now fully regained confidence in air travel?
Have consumers now fully regained confidence in air travel?
What difference did one year make?
One year ago, I wrote an article with a similar headline about travel demand and confidence. The answer was “no”. We were two years into the pandemic. The COVID cases were at an all-time high with 3 million new cases per day. The borders were closed in Asian countries like China, Japan or Australia. But today the world map of COVID-related travel restrictions is mostly green for international travel, and the answer is probably “yes”.
Map from United website powered by Smartvel
In one year, the airline industry is heading back towards profits. Load factors and fares are high. All this despite other global issues, from alarming IPCC reports about global warming to on-going war in Ukraine to post-pandemic inflation causing a major bank run in the US and a major bank collapse in Switzerland.
In one year, the restrictions of movement have accelerated digital transformation and remote work. While employees became familiar with video conferencing tools and companies have implemented more tolerant working policies for work-from-home, the trend seems to be coming back to office work.
It is early to draw conclusion on the pandemic’s impact and legacy. While we start seeing the consequences of the pandemic on global finances, we have yet to see the consequences on mental health, related to stressful situations, to long COVID and to isolation. We may be out of the “pandemic phase” and entering the “consequences phase”.
What did scenarios predict back in 2021?
When you see a “prediction” or a “likely scenario” you may be tempted to check back after the facts. For example, McKinsey (source: Webinar 27 May 2021) had the more likely scenario of 2021 called “virus recurrence, with muted recovery”. It showed a big drop – RPK[1] going from 2.9 trillion in 2020 (-67% vs 2019) – with a slow recovery – RPK to 3.7 in 2021 (-57%) – then sharper recovery – RPK to 7.5 in 2022 (-12%) – and almost back to now this year – RPT at 8.4 (-3%).
A CAPA survey of April 2021 showed that respondents expected a full recovery (vs 2019) in 2023 (for 35%), or already in 2022 (for 33%), or only in 2024 (for 24%) or even in 2025 and beyond for the most pessimistic (8%). The crowd was about right.
According to IATA figures[2], in February 2023 RPK levels were still 15% below 2019, with domestic travel almost recovered at 3% below 2019 and international travel still 22% below 2019, mainly impacted by the Asia Pacific market. This year, 2023, should be the year of travel recovery from the COVID-19 pandemic.
The main drivers of delay and difference in recovery have been the national policies in terms of vaccines, PCR tests and quarantines. The Western vaccine arguably had the biggest impact on protecting populations at risk, while many people handled immunity without vaccine. The virus mutations had minor effects on the vaccine performance and on the population.
What lessons have we learnt?
While the health side of the pandemic is under control, the disorganized or heterogeneous health policies remain a concern. WHO has the authority to define the pandemic, to publish recommendation and to monitor progress, but has limited or no impact on harmonizing travel restrictions. IATA has been very active on his front with equally limited success. Although the health situation is a scientific matter, the policies to deal with the crisis remain political decisions, more or less influenced by science.
What has changed in air travel after three years of pandemic?
At travel booking stage, all airlines now provide comprehensive health-related information. Before COVID, some countries already imposed travel requirements such as visas and vaccines (e.g. yellow fever), and airlines informed passengers accordingly. After COVID, the section on travel restrictions has augmented to include a COVID status. Over time, the health and immigration information will be automated in real-time and tracked for each trip and traveler.
There has been a huge debate about the cleanliness of the cabin air at the beginning of the pandemic. We’ve not been wearing a mask for a few months on airplanes and the debate on virus spread through the air of the cabin seems to be over. Yet we’ve missed the opportunity to turn the airplane into a virus detection lab, using for example waste waters analysis to detect virus spread across geographies.
The massive cancellations, followed by the massive issuance of vouchers and the late refunds, have focused the attention on the complexity of the airline ticketing change processes. Despite marginal improvements, the simplification is still work in progress. The vision of having one order per traveler or group of travelers, that can be automatically refunded and changed in full self-service mode, with funds credited instantly into a wallet, remains mostly at design stage.
What is the new normal in air travel post-pandemic?
I must admit that I saw an opportunity in 2020 for a “new normal” in travel, which did not really happen. To summarize the new normal in 2023:
- Large online workshops have replaced business trips in many cases
- Large events like conferences are still well attended, as people still value face-to-face unscheduled or random interactions
- Corporates have introduced CO2 budgets to reduce the number of trips and raise awareness on the carbon footprint of their businesses
- Flights using SAF are still a very small fraction of the business but growing
- Airlines provide detailed information on travel restrictions and make more flights refundable and modifiable
- The overall change and refund process remains complex, and the voucher management pretty cumbersome
What else do we need to watch?
The IATA vision paper of 2035[3], published in 2018, outlined the key risks facing the air travel industry, including… the pandemic. Interestingly a major broke out the following year. I’m not aware of an updated version of this paper but in the meantime, I can share my personal view on the latest risks impacting travel:
- Pandemic: COVID may not be around, but new viruses may develop every day.
- Health: consequences on mental health caused by the stress and isolation, will impact airline staff and travelers
- War: the civil war in Syria has been going for 12 years, the invasion of Ukraine is still live, China runs military exercises around Taiwan, and more, will impact destinations and routes
- Unrest: in many countries and at various levels, from Iran to France, will impact destinations and routes
- Finance: Major banks – Silicon Valley Bank and Credit Suisse – collapses and financial uncertainty, despite the post Global Financial Crisis series of measures, will impact airline finances and travel budgets
- Environment: Global warming is now on top of the agenda of most airlines, the pressure has shifted from demonstrations and medias to corporates introducing CO2 budgets for travel, will impact airline operations and costs.
- Cybersecurity: Still a high risk on the digital agenda, will impact airline data
- Safety: MH370 is still on everyone’s mind, almost 10 years later, there is still no global tracking system, despite numerous ADS-B ground solutions.
In conclusion, while travel demand shows that consumers have regained confidence in travel, the “new normal” post-COVID is not there yet, and we still need to de-risk many topics if we want a more sustainable travel industry.
[1] RPK = Revenue passenger kilometer
[2] IATA Economics: https://www.iata.org/en/publications/economics/
[3] IATA vision paper : https://www.iata.org/contentassets/086e8361b2f4423e88166845afdd2f03/iata-future-airline-industry.pdf