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Originally Posted by aschwab
When things do open back up, how do people think our route map will change? International connections?
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It will most definitely see some changes...
There are a myriad of (fluid) variables in trying to figure out what post COVID-19 air travel will look like. Nobody knows for sure. So, we look back at past crises to help us create hypotheses as to what the outcome may be. The following are bullet points from a long white paper composed by ASM Global Route Development - released a few weeks ago – which may shed more light on where we are and what needs to be done.
General Observations & Hypotheses based on Past Crises:
-Expect major and ULCC airline bankruptcies and or ceasing of operations.
-Financial losses incurred during the crisis may drive significant airline consolidation.
-Previous crises drove some airlines out of the market, and others to consolidate and to rationalize their focus city/hubs and networks. It is likely there will be more casualties this time. While governments are offering financial aid, there won’t be enough money to save everyone. Preference will likely be given to large airlines with broad networks.
-Because the crisis will leave airlines in a much weaker financial position, they will be forced to re-assess their entire business and look for ways to operate more cost-effectively.
-Airlines may again work to diversify their revenue sources, with a stronger focus on ancillary revenues and alternate revenue sources such as credit card deals.
-An industry-wide focus on cost reduction will place. Aircraft seat density may increase, onboard products may either be removed or go from free to pay-per-use, distribution costs may be reduced by shifting sales to their own websites, and airlines may increase the pressure on airports to reduce their fees and charges.
-Corporate stability and internal budget restrictions within companies will play a key tactical role. While overall corporate health will vary significantly across industries, countries, and regions, discretionary travel budgets in general will be impacted. Furthermore, business behavioral modification during the recent stay-at-home period – “hey, this video call thing works pretty well” – may further incentivize corporate travel decision makers to focus on non-essential travel as an expense reduction target.
-From a personal travel perspective, discretionary spending reductions from the evolving world economic downturn will impact millions of individual travel decisions.
-Airlines around the world are constructed upon an economic model dependent on nearly full airplanes and in, most cases, relatively limited seat pitch. In the United States, domestic load factor has hovered between 84-85% over a period of several years (a figure which includes only paying passengers). When will customers again be comfortable in the middle of a row of five? It will happen at some point. But in the interim, concepts such as blocking off seats may have a destabilizing effect on the economics of an industry which will likely already be struggling to stimulate demand.
-It appears a near certainty that non-stop itineraries worldwide will be reduced through the upcoming recovery period.
Airline Fleet Plans and Development Strategies:
-Airlines’ fleets are likely to change as we enter the COVID-19 recovery phase. We saw after past crises that airlines got leaner and more efficient, retiring older aircraft whose operating costs were too high or that were too large for their markets. Given the severe impact that COVID-19 is having on the marketplace, we can expect to see airlines adjust their fleet compositions in response.
-Airlines will be under increasing pressure to streamline capacity and improve cost efficiency.
-Airline failures will take capacity out of the market; in many cases airlines will view this as a market correction and leave the capacity unreplaced.
-Aircraft downgauges and cancellation of marginal performing flights are likely. With airlines in survival mode, they will likely play airports off against each other.
-Airlines will be focused on increasing network efficiency. Previous crises resulted in mergers and focus city/hub closures, so it’s unrealistic to think that this time airlines will put everything back the way it was before. Every route and destination will likely be scrutinized, with marginal performers being reduced or cancelled. Retirement of older aircraft will likely be expedited, as well as large widebodies such as the A380 because of their high operating cost. Other (long haul) retirement candidates might be the B757, B767, B747, A310 and A340.
-Newer widebodies (B787 & A350), with their smaller seating capacity and improved cost efficiencies may now be viewed by carriers as opportunities to “right-size” capacity rather than for expanding onto new routes.
-Airline’s narrowbody fleets are also undergoing significant changes. The Boeing 737Max aircraft are expected to start flying again as we enter the COVID-19 recovery phase. These aircraft, along with the A320neo family, have the range to fly longer-haul missions such as USA to Europe. The A220 offers the ability to fly small aircraft on longer intra-regional routes, such as Montreal-Seattle on Air Canada which was announced last year and is scheduled to start in May.
-Similar to the new widebodies, these new narrowbody aircraft offer improved range and the ability to serve thinner markets profitably. However, as we move into the post-COVID-19 recovery phase airlines may view these aircraft as candidates to downgauge existing routes to reduce costs.
-This does not mean that new route opportunities will not exist. After previous crises, even as airlines were retiring aircraft, reducing capacity and cutting routes, we saw many new routes being launched. With over 10,000 of these new narrowbodies yet to be delivered, and airlines expected to restructure their networks, new route opportunities will inevitably emerge as some carriers adopt a clear “Anti-Hub” strategy.
-Airlines will be more flexible with network and operational planning, including demand-driven dispatch, schedule optimization tools, more seasonal and day-of-week flexibility, a wider array of distribution options, etc. This should result in more efficient management of capacity vs. demand.
-One theory is that the low-cost airlines may emerge stronger post-COVID-19. In this scenario, we would expect to see a greater increase in point-to-point flying and smaller indirect flows, similar to what’s been experienced on intra-Europe travel over the past several years.
What does this mean for Airports:
-The consensus view is that traffic for many airports will not get back to the levels achieved in 2019 until the end of 2022 or early 2023. One or two in the industry predict an earlier return, others don’t expect to get back to 2019 levels until 2024.
-Route development will be more important than ever – attracting and keeping air routes will be the major priority for airport businesses.
-Given the urgency to reduce costs, expect airlines to significantly increase the pressure on airports. Airport costs will likely be a more important factor than ever before, and airlines will be looking for more creative types of route support and incentives.
-Deep and long-lasting route support will be a necessity – airlines’ need to mitigate risk will demand more of airports and their city/destination stakeholders.
-Airports’ strategy and positioning will need refinement
-Airline engagement will be more important than ever.
-Delivering the market to sustain air routes will be critical.
-While retrenchment into strong proven markets and networks may dominate the early period of recovery, new route development and carriers entering new territories will follow, filling gaps newly vacated, and capitalizing on the new market serving capabilities of fleet.
-Airlines will be looking to reduce costs and improve efficiency, at least in the short to medium term. Aircraft downgauges and cancellation of marginal performing flights are likely. With airlines in survival mode, they will likely play airports off against each other.
-Depending on which airlines emerge strongest, and what fleets they have, there could still be opportunities for new routes amongst the rebuild. Secondary markets with less competition may be attractive targets for airlines, especially where significant airport cost advantages exist.
-There will emerge a new post COVID-19 business case where demonstrating destination and market trust will be more important than traditional route forecasts and market numbers. Cities and places will need to coherently articulate their re-emergence plans to `show their attractiveness and health and wellbeing strength.
-Consumer confidence regarding international travel, destination management hub and congested airports may be low as passenger anxiety and nervousness around COVID-19 will persist for some time to come. Trust in places and the travel journey will be paramount.
-Airports should undertake a major rethink of their operational and facilitation plans to help overcome the low level of consumer confidence. It would require as a minimum, airports to implement safeguarding operational measures to reassure and protect passengers.
-Airports should start looking to radically re design their future facilities and terminals to accommodate future long-term requirements as a result of COVID-19 and other such like potential global crisis.
-Airports should market and communicate these safeguarding measures to potential visitors and consumers alike as well as to their airlines and other B2B partners.
-Airports should use this pause effectively to revisit and refine where appropriate their route development and marketing strategies, including identifying potential new route targets and new opportunities that may present themselves in the new world post recovery. This may for example involve a switch to pursue volume markets with LCC’s as opposed to a strategy that may have been focused on the more traditional hub and spoke.
Basic Conclusions:
-This crisis will force major changes to the norms the industry has established. The requirements for starting air service, whether resuming or new, are now different. A recovery is about the magnitude and pace of traffic restoration. In that regard, the data we have all relied on so heavily will for now just be a depiction of the past with trends that are no longer relevant.
-So many societal elements are being affected by the crisis, ensuring that historical expectations of demand and the travel patterns cannot be counted on any longer.
-Throughout the recovery period, however long that lasts, we believe airlines will continue to demand increased levels of incentives to resume, start and maintain air services. Airlines are aware of the economic driver that their air services are for communities that will be striving to rebuild their connectivity as early as they can. They will undoubtedly seek greater sharing of risks. Airports, for all intents and purposes, are closed during this time; and for cities, communities and destinations whose incomes and finances are being severely tested, the demands of airlines may well fall on deaf ears compared to other economy and society rebuild measures they need to focus on. Those that do not remain competitive in the support arena are likely to be left behind.
-Two themes will need to be established in the minds of the airlines - the strength of the market we had, and the strength of the recovery we are having.
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