Page 68 - World Airnews Magazine December 2020

NEWS DIGITAL

WHAT'S NEXT FOR AVIATION?

FOUR TRENDS TO WATCH

By Mark Perez

can be made that Zoom and The strength of leisure travel positioned to be victors of
other video conferencing rebound will depend, in part, the consolidation game - a
It’s hard to believe now, but technologies will do the same on how effectively airlines much-needed strategy to
now. There is pent-up demand
the aviation sector was riding for business travel, and we can use pricing to stimulate weather a multi-year recovery
a wave at the start of the should expect a slow but steady demand. of passenger demand. Other
year. Capital was plentiful and return. All US airlines are offering winners include airlines that
expectations were high that Leisure travel will return domestic fares at discounts have co-ordinated government
support.
global demand for travel would as well. One universal lesson from fares offered this time
last year, in some cases over 40
The airline industry is no
keep growing. we have recently learned is percent. With these discounts, stranger to bankruptcies and
Now the industry is operating that people need to connect airlines are banking on driving consolidations (remember
in a parallel universe. Global in person - to see family and people back into seats. TWA, Northwest, Mexicana
air passenger traffic this year friends, create memories in If passengers have positive and Pan Am), so we should
is predicted to drop as much new places and simply get experiences, the airline would expect orderly restructurings
as 70 percent from last year, out. Ultimately, travel is a have effectively “broken the and mergers in the months (and
and business travel isn’t global phenomenon that is seal” on their reluctance to years) ahead.
expected to return until at least not going away. It’s a badge travel, giving way to more But consolidation creates
2024. The market value of big of a middle-class lifestyle and frequent excursions and a window for new entrants
airplane manufacturers and an experience that millennials positive word of mouth who are able to start-up at the
airlines has sagged. value more highly than goods. stemming from their positive bottom of the cycle leveraging
But while we’re likely years (and safe) experiences. available surplus skilled labor
away from a full recovery, the PROPER GOVERNMENT However, to sustainably and assets (aircraft) at their
passage of time has allowed ACTION IS CRUCIAL provide lower airfares, airlines disposal.
the industry to recalibrate and As of the end of August, 81 will need to right size cost
reevaluate business models, separate countries and EU-level structures. Reducing fleets The most popular routes will
market assumptions and entities had committed up to to maximize utilization, continue to fly - though they
day-to-day operations. The (US) $158 billion in support for deferring or cancelling new may be with different airlines or
following four trends will be the airline industry, according aircraft orders and monetizing aircraft.
important to watch. And with the market
to industry reports. Overall aircraft they own through “sale participants shifting around,
worldwide spending on air leaseback” transactions with airfare trends and passenger
BUSINESS AND LEISURE transport was estimated at third-party aircraft lessors are experiences will also change.
TRAVEL DEMAND WILL $873 billion in 2019. all prime examples of actions Passengers shouldn’t expect
RETURN Yet governments - including airlines such as Delta, JetBlue, low fares forever, but we may
Airlines have historically relied Canada and countries in the Cathay Pacific and easyJet are see a few new airlines “make
on a steady flow of business European Economic Area and taking now. a run for it” to capture market
travel for their higher profit Southeast Asia - have also Plus, the crisis will push share through differentiated
margins. It’s clear the Zoom taken steps to restrict, and in airlines to onboard nascent service offerings.
effect has aided in business some cases prevent, air travel technologies to help them cut These four trends illustrate
productivity during a time in and out of their respective marginal operating costs such the tensions the airline industry
when business travel itself has countries. Partly health and as more efficient flight planning face now and the moves that
been curtailed (either mandat- safety-related, partly political, (less downtime with existing are being made in response.
ed or by preference). these government border aircraft), less time on ground in The airline industry will survive
But there is still no real controls have stifled what between flights, optimising fuel and thrive once again, but how
substitute for in-person limited air travel demand still management, etc. it changes, who the key players
meetings, especially when exists. Look for creative ways airlines will be, what the passenger
it comes to establishing the There is no consensus on the are shifting operations and cost experience will be and how all
rapport and trust necessary to proper path nations should management which will allow stakeholders work to operate
win new business. take, but it’s safe to say the for demand-stimulating pricing in the black will be a fascinating
After all, it was widely viability of the airline industry and business model innovation. case study in organisational
predicted at the time of the worldwide hinges in large part More airline bankruptcies and management, competitive
telegraph, telephone, the fax from a balanced border control consolidations, but also new positioning, and operational
machine and email that these strategy that accounts for both entrants efficiency. And with all of that
new technologies would slash needs of safety and openness. Here’s a near certainty: Only change, there is opportunity.
the need for travel. the stronger airlines will survive Mark Perez is a founding
The opposite occurred. AIRLINES WILL EXPERI- coming out of COVID-19. Those partner of Virgo Investment
Each one enabled even more MENT WITH PRICING AND that were well capitalised Group and board member for
business travel. An argument COST STRUCTURE and well-operated are best Zephyrus Aviation Capital.

World Airnews | December Extra 2020
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