Changes We See in the Airline Industry After CoviD-19

It was never in our wildest imagination that this Coronavirus outbreak would bring the global airline industry would into a grinding halt. Almost all global airlines have cut their capacity by at least 90% and some airlines suspended operations due to the huge plummet in air travel demand as more countries imposed travel bans and restrictions to stop the spread of CoviD-19.

Photo credits: Charleston Felimon

The International Air Transport Association estimates that the whole industry will lose around $252 billion in revenue in which it describes as the deepest crisis the whole aviation industry ever faced. And it all happened in a time when the industry was seen to even enjoy a higher demand growth.

The whole crisis is also costing airlines billions in costs wherein the IATA thinks that almost half the world's airlines can go bankrupt in a few weeks time if governments do not do anything to provide assistance. It is the first time that the whole airline industry was brought to its knees.

We are however positive that this CoviD-19 crisis will come to an end and everything will be back to normal again. However, expect huge changes in the airline industry which may range from business model change to fleet demand, to airline operations.

In a time when travel bans and restrictions have become a solution to avert a crisis, airlines will now be working on ways and means to cushion the blow in the event of another similar incident in the future. Here are some changes in the airline industry that we foresee:

  1. Increase and improvement in cargo operations. While most airlines really concentrate on passenger movement, cargo and goods movement are as important. As the CoviD-19 drags on, most airlines are now using their passenger aircraft for "cargo-only" flights as most countries have imposed travel bans on passengers while cargo services remain unrestricted. In a time of crisis, cargo movement is very important especially for medical supplies and other supplies that may help avert a situation.
  2. The increase in demand for narrowbody cargo-dedicated aircraft. Right now, only Boeing produces a narrowbody freighter, the Boeing 737-800BCF which is based on the current 737-800 passenger version. For Airbus, they do not manufacture narrowbody freighters from the ground up, instead, they are converting used A321-200 passenger aircraft into full freighters. This is done by ST Engineering and Airbus with their joint venture, Elbe Flugzeugwerke (EFW). The A321-200P2F prototype is currently on testing stages. Most frieghters in the market are widebody aircraft. Boeing presently offers the most options namely the 747-8F, 777F, 767F, and the 767BCF. Airbus on the other hand offers three options, the A330-200F and the Beluga but it seems like the latter is only used by Airbus itself to deliver aircraft parts. 
  3. The demand for international air travel will not dramatically increase as economies will still recover from the devastation brought by the CoviD-19 crisis. We however see a growth in domestic travel for many countries.
  4. Airlines shift to more cloud-based and digital applications in order to streamline operations.
  5. Many airlines will be outsourcing non-core assets and personnel.
  6. For Philippine carriers, the development of a stronger domestic network which entail interconnections from island to island or the development of more focus bases around the Philippines.
  7. Expect congested airports, delayed flights, and a lot of adjustments. Patience is required. Most airlines will be mounting recovery flights for passengers who have made rebookings and changes to their original plan. This may take more than a month or until all airlines are able to return to normal operations.
  8. Air fares will go down to entice more people to fly. We are not only talking about low-cost airlines but even full-service airlines will be lowering their prices. Expect a price war after this. At the end, it will be the passengers who will benefit from this. More low fares equates to more flyers equates to a rise in the travel industry. 
  9. Low cost airlines will drive up the demand for travel. In relation to number 8, it will be a price war between airlines in order for them to attract more people to travel again. Low-cost airlines will be on top of this "price-war" which will attract more people to travel again, resulting to the travel industry picking up once again.
  10. Drop in aircraft orders as airlines have to deal with the loses incurred during the crisis. Expect order cancellations or the downgrade of widebody aircraft orders to narrowbody. 
  11. Deferment of aircraft deliveries. While demand will not go up instantaneously, airlines will be on "recovery mode" recovering all costs incurred. A way of "cushioning the blow" is to defer aircraft orders and to request financial institutions for a more flexible or longer payment schemes.
  12. Expect the ATR 72-600, Airbus A321XLR, A350-900; and the Boeing 787-9 to be the best sellers for the period. 
We also see the slow demise of "First Class" cabin and the emergence of "Premium Economy" class. Many airlines presently serving the Asian market are now adding Premium Economy into their product offering.

Airlines will now basically come up with plans, measures, and changes to make themselves "bulletproof" in the event of a similar crisis like this CoviD-19 in the future. When we say "bulletproof" it means that the blow or loses on airlines will not be as big as this present one.

We however expect that airlines will be more profitable after all these due to streamlining of operations, stronger marketing, and new business strategies in managing costs. The name of the game may now move from "service" to "cost and revenue".

Again these are just our predictions. We are not confirming nor denying any of these.

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