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supply and demand travel

Industry outlook

Has the impact of COVID-19 changed travel demand forever?

June 12, 2020

With airline supply and demand rocked by the COVID-19 pandemic, the travel industry is under pressure to reinvent itself and […]

With airline supply and demand rocked by the COVID-19 pandemic, the travel industry is under pressure to reinvent itself and rebuild consumer confidence so that the world can get moving again.

So, how exactly can the travel sector do this?  This was the burning question we tackled for our latest World Aviation Festival webinar: Supply & Demand, How is travel forever changed?

We were delighted to host Mikko Turtiainen, VP Market Management, Finnair, as our guest expert to discuss the key challenges and innovations pivotal to successful airline recovery post COVID-19, with Robyn Grassanovits, VP Travel Products & Emerging Business at Cirium.

Grassanovits and Turtiainen presented factors impacting airline supply and demand, and, how companies connected to the airline business must explore new ways to innovate and adapt in a highly insightful debate moderated by Paul Charles (CEO of travel consultancy, The PC Agency).

2020 Q1 Travel Demand curve based on Cirium Core schedules, status and DDS data, Cirium and IATA

Here are the key takeaways you need to know now…

How optimistic are you about the state of the airline industry?

RG: While demand for air travel remains uncertain and dependent on how travel restrictions are eased around the world, I’m positive that we’ll see airline recovery. Recovery will likely happen at different speeds for different geographic regions and what recovery looks like could vary from market to market.

The one thing that I don’t think anyone can argue about is how resilient this industry is. When I think about the future, I’m optimistic but I do think it will look very different to how it looks today. It’s not a matter of will we emerge but when we emerge.

How does the coronavirus pandemic compare to other crises that hit the travel industry, such as 9/11?

RG: 9/11 was a one-day event that grounded aircraft for around a week. But the rebound and recovery from it lasted for years. We had a new way of traveling come out of 9/11 and I expect the same will hold true for COVID-19.

From a leadership point of view, what’s it been like for a global airline navigating the crisis?

MT: This is naturally the biggest challenge we have ever faced and keeping the team together, keeping them focused and up to date with the situation around the world, as well as the belief that we will make it through, has been the toughest challenge as a leader. However, I’m confident about the outlook moving forwards, as our airline brings back 30% of its global capacity from July.

Does COVID-19 represent an opportunity to reset the travel industry?

MT: We definitely need to prepare for different scenarios. We have put a lot of work into our strategy in recent years and I think this time gives us the opportunity to accelerate that strategy. Distribution and digital capabilities will remain key, so overall it’s about accelerating not redefining.

Is now the ideal time for travel providers to embrace new technologies?

RG: The travel and aviation industry has gone through many transformations in the last two decades and COVID-19 will act as an accelerator. COVID-19 means transformation will take place more rapidly, so businesses can’t sit around and wait. Now is the time to experiment with new technologies and innovations because, with fewer people traveling, the cost of being wrong is lower.

There’s also a more pressing need for industry collaboration to drive airline recovery and adapt to changes in air travel supply and demand, as companies look to leverage their technology to help themselves – and one another. 

Do you see airlines now pursuing digital-first strategies and will partnerships be a part of that?

MT: With the faster adoption of digital technologies in the travel industry, we now need to harness this technology to understand consumer behavior during a time of uncertainty. What we don’t yet know is how consumer behavior will change. This is where digital touchpoints and understanding what the consumer truly wants will be at the soul of developments going forwards. I think at this time B2B partners, TMCs and travel agents are going to continue to be important but I would be surprised if we don’t see any change.

Agility will be the key to successful airline recovery. Those airlines and companies that can adjust relatively quickly are the ones that will succeed. If you are slow and rigid in your moves, this is the time when the companies and the structures are tested.

Are travel businesses essentially becoming start-ups again?

RG: As coronavirus resets the travel industry, impacting every segment of the market, the challenge is starting from scratch in the ‘new normal’. A crisis like this makes you hone in on the problems that matter. Where this crisis is different in the psychology of the traveler is that when they travel, it’s not just a risk to themselves but also to their loved ones. The travel industry has a responsibility to alleviate some of these fears in order to drive consumer confidence. 

Can you give us some examples about what sort of partnerships could play out in the future?

RG: In the post COVID-19 world, partnerships will be more important than ever and non-traditional collaborations could emerge. When we think about travel, it’s not just about me stepping onto a plane, I’m also walking into a hotel, sitting in a car and walking through the airport. There are so many touchpoints. So, the partnership that immediately comes to mind is not just airline to airline but maybe airline to hotel or airline to ground transportation – where there’s an end-to-end agreement on safety or cleaning standards.

MT: For airlines, working with airport partners will be key in the short term as new health and safety protocols are introduced. At Finnair, the majority of our traffic is for transit travel so, during this time, where there are more screening measures at airports, we have to ensure that we can make that process as smooth as possible with the airport – that’s one partnership.

We’ll also see the rise of multi-modal networks as travelers seek greener methods of travel. I think intermodality is something that has been touched on with sustainability in the past, but COVID-19 will also see intermodal networks emerge. At the very minimum, we should align timetables in a better way so multi-modal travel works more smoothly.

Has COVID-19 caused airlines to be more flexible and make decisions more quickly?

MT: Given the rapid changes airlines have had to respond to in recent months, adopting more sophisticated data-driven decision-making processes must be a key focus. Some airlines are slower, some are faster. This is the time that will test airline capabilities in regard to data. The data is what will give you the insights into which markets are opening up and the demand impulses in certain markets.

Do you think there will be new entrants in the market? Will non-traditional players emerge?

RG: I think it’s unlikely that non-traditional players will fill the gaps left behind by carriers that don’t survive the crisis. Airline start-ups have three major costs – fleet, fuel and people. You can get all of these pretty inexpensively right now. But even entering the market with an entirely new business model that addresses social distancing, it would still take a lot of money in the long run.

MT: I’m also skeptical of new competition emerging in the short term. From my experience, I understand that there are some positives to starting an airline now but it’s still a lot of investment, and the margins are relatively small. I don’t really see new entrants coming in very aggressively.

Could you see e-commerce firms such as Amazon or tech giants like Google starting their own airlines?

RG: Absolutely, it’s not so far-fetched to believe that Amazon could take that next step. But any new entrant that wants to get into this space really needs to think long and hard. Success is not going to happen overnight. If you do enter the space, my advice is to enter with a different story and approach. Business as usual isn’t going to cut it.

MT: For them to succeed, they do have to bring a different angle, a different approach. What that approach is? That’s the big question. Naturally, Google and Amazon have certain strengths already, so how can they bring those to the travel industry? I think time will tell.

Are we likely to see more consolidation in the airline industry because of COVID-19?

MT: In the present situation, where airlines are grounding aircraft and downsizing, I find it hard to see airlines finding that sort of cash to put two airlines together. I think there will be opportunities for those airlines that succeed and get out of this crisis the quickest. But, right now, it is hitting everyone so hard.

RG: It’s not inconceivable, we could see some of that consolidation. But we must keep in mind that it costs a lot of money for two airlines to become one. I think the dust has to settle before companies can make a decision as to whether that’s a wise decision or not.How Cirium can help you

You don’t have to go it alone to deliver what the market wants right now. It is much easier to pivot and adapt to changing airline supply and demand when you’re sharing resources and combining strengths, for mutual benefit.

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