Aviation, the end of an era – what’s next?

International Air Transport Association forecasts global passenger traffic fall by an unprecedented 66% in 2020 and to put this in context, even in 2001 after the 9/11 terrorist attacks, global passenger numbers only fell 2% whilst in 2008 after the Global Financial Crisis, they were flat according to International Civil Aviation Organisation. Forecasting the timing of the recovery is much more difficult than usual given that there are other variables such as travel restrictions affecting demand, not just GDP. However, one thing is clear: the pandemic will permanently change the future of aviation.

Here are our four key structural changes that we predict could be coming in the European aviation industry:

1. A focus on profitability rather than growth

Airline executives have in recent months focussed on reducing the cash burn, but when the recovery commences their priority will be on rebuilding the balance sheet by focusing on yield rather than growth as happened post 9/11. Smaller gauge aircraft will be favoured over larger gauge to restart services with reduced risk. Forward thinking airlines will take the opportunity to reset their cost base to compete in the future with key focus areas being a reduction in operational and fleet complexity, greater use of automation and renegotiation of airport charges, taking advantage of the sudden change in bargaining power between airports and airlines.

2. Airline consolidation will accelerate

Every aviation downturn brings a wave of consolidation and this one will be much more pronounced. Weaker players will exit, merge or create joint ventures with stronger airline groups. In the long-run, consolidation will be helpful to creating a more profitable and resilient industry. The challenge for the new entities will be providing a joined-up consumer experience, which has proved difficult in the past but is becoming more feasible given recent advances in technology.

3. Disruption to the classic hub-and-spoke airline model

New generation narrow body aircraft, such as the Airbus A321 XLR, have the range to fly between Europe and eastern USA, making many more point-to-point routes viable without connecting through a hub. At the same time, legacy network airlines are realising that operating a vast short-haul operation with uncompetitive costs is not an efficient way of feeding their long-haul. This may well lead them to consider using a lower cost provider, either their own or an outsourced solution. Previously it was difficult for legacy airlines to connect passengers on to low cost airlines because the former used the Global Distribution System (GDS) and the latter used APIs for distribution, but this is no longer such a hurdle with the New Distribution Capability (NDC) standard.

4. Changes in consumer expectations

The pandemic may have permanently dented demand for business travel, although client facing meetings may prove more resilient. We are more optimistic for a leisure travel recovery given consumers’ continued desire for experiences once restrictions are eased. Airports and airlines will have to cater for travellers who may have been very understanding of a deterioration in customer service at the start of the pandemic, but who will be increasingly  less tolerant going forward and  expect companies to have adapted to the new normal. The explosion of digital servicing will continue to transform customer experience and give industry players a chance to improve but also reduce the cost of delivery. Augmented Commerce often referred to as A-commerce will continue to grow driven by the demand for seamless, personalised and contact-free experiences, and the rise in robotics.

This is the end of an era but the start of a new one. Airlines will have to reinvent themselves and create an agile operating model that can react quickly to an unpredictable environment.

Authors

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Geoff van Klaveren

Geoff is a Vice-President within Capgemini Invent’s Travel & Transport team and has over 20 years of experience in the aviation industry

Marco Hilgers

Marco is a Director within Capgemini Invent’s Travel and Transport team, specialising in Digital and Agile Transformation