Ready for recovery: analysing the industry’s global state of play

Domestic vs International

In terms of markets that dealt better with COVID-19 than others, Schonland points to a split between domestic and international travel, with particular market characteristics based on geographies.

Domestically, “for larger travel economies, like the China, EU and USA, we can see in the numbers of travellers there has been a recovery… but, other than China, at load factors way below break-even. China has good load factors but fares remain too low for the airlines to break even.”

“Then,” he notes, “you have India which is also making a sharp traffic comeback, but at very low fares. But India’s fares have always been too low because of government interference,” so he cautions against drawing too many conclusions.

Internationally, however, the dynamics are different, combining the vaccination rate at origin and destination countries, the spread of the newer variants of SARS-CoV-2, and the closed or semi-closed borders across the world.

Fundamentally, Schonland says, “airlines are subject to the whims of nations – only those markets that have large domestic systems are going to be able to breathe for a while. There may be hope for some markets that develop bubbles (Australia-New Zealand) to help grow their small domestic markets. The problem is these bubbles get popped overnight if there’s a spike in Covid infections.”

Indeed, this has happened several times now, both in the Australia-New Zealand example and with the abortive Singapore-Hong Kong travel bubble.

Assessing the operating risks

The problem is, of course, that “airlines cannot operate in this kind of environment. It takes a lot of people, equipment and cash to set up flights. Cancelling them means passengers get refunds but airlines get hit with costs they cannot recover. This is too much risk, which is why airlines have parked their long-haul aircraft all around the world. The cost of a full A380 cancellation is terrifying since it probably has been sold in both directions,” Schonland concludes.

So why are some airlines continuing to fly? One example has been Qatar Airways, which has been highlighting its ongoing flight operations across its network, including repatriating people and enabling business and leisure travel.

“Qatar is the poster child for foreign policy by aircraft tail,” Schonland says. “None of the ME3 were known before their airlines started making huge aircraft orders and flying the world. I would say a lot of their flying is diplomacy, most especially Qatar.”

Yet this is an exception. Of airlines continuing international flights, a substantial proportion are either focussed on cargo with mostly or entirely empty cabins, or are explicit ‘preighter’ flights where cargo is carried in passenger cabins, with or without seats still installed. A very few repatriation flights also continue to operate.

The mirage of near-term recovery

So what are the prospects for the near-term? “Recovery is a mirage, unfortunately,” Schonland says. “Even within the EU, which should be a closed but big market, air travel is throttled back. How can one plan for a recovery? There needs to be some sort of horizon that is clear enough to bring back people planes and equipment. The horizon remains very foggy because public policy is changed on any pretext by politicians desperate to appear strong and informed. But of course, they are no more informed than anyone else. Air travel will remain at the current state of near extinction until vaccination levels are over 60% in big markets and people feel safe to travel, despite political hot air.”

Indeed, in some early recovery markets like Australia, major players such as Qantas are working on the assumption that vaccination will be required for travel.

In the meantime, data analysis can be used to determine the crucial triggers for various parts of the restart, with updated digitalised operations, and with vital online elements of customer reassurance and informational marketing.

“There is a plethora of data to model. The problem is the data is not providing the signals airlines need to restart or even plan a restart,” Schonland explains. The key, he says, is answering the question: “how can an airline let people know it is the best option for a customer, and how can that airline get people to know its products or service? “

Schonland cites Delta Air Lines as an example. “I have been getting emails from Delta every week highlighting their efforts to keep middle seats open, they have appointed a chief medical officer, they are looking at the vaccine visa and so on. This is the kind of communication that helps me only consider Delta for travel, if and when I need to and can travel. “

Indeed, your author is subscribed as a previous Delta customer to these and other marketing emails, and the tone the airline is taking is impressive: balanced, reassuring, expert, professional, and calm, presenting itself as ready when the passenger is to help customers travel safely.

This takes some doing, as Schonland acknowledges: “given the overflow of information, mostly negative and therefore easy to ignore or avoid, airlines need to carefully balance their information frequency and upbeat message.“

Better prospects for medium to long-term recovery

Despite short-term gloom, though, Schonland is confident in the medium- to long-term travel demand. “All travellers I know are desperate to go flying again – meeting customers and colleagues. Service industry people are exquisitely aware of the absence of the human touch. The importance of that meal or drink with a customer is now clearly apparent. Zoom and technology can only do so much. Besides, with so many layoffs and furloughs, the need to actually form a bond with your ‘new’ customer contact is critical – more so than ever. The winner is the first one to get to see that person and form a bond.”

For airlines, their suppliers, manufacturers and service providers, Schonland notes that there are few easy answers at this stage to how to navigate the way out of the pandemic.

The solution will be “a cocktail of ideas between airlines and their best customers, figuring out how to manage around the numerous public policy landmines and vaccine availability,” he suggests. “So, for example, airlines should allow customers to add their vaccination status — once vaccinated — to their profiles. Then the airline can review that customer’s past travel patterns and advise them where they can go to rekindle business. This is likely to be an iterative process. But it has to start somewhere, and ideally, ASAP.”

From boardroom down, Schonland concludes, airlines need to “start talking to top customers. Understand what they need to start flying. Leisure is coming back, but doesn’t make enough money. Business travellers are critical to win back.”

Join the conversation

We’re talking about this subject in our industry challenges area – How can an airline let people know it is the best option for a customer, and how can that airline get people to know its products or service? This will be critical to recovery for business and for leisure travellers – who is doing this well and who needs to step up?