• Wed. Jun 22nd, 2022

Eighteen months after the start of the Covid-19 pandemic, US aviation has finally started to rebound – but the industry that has emerged is different from the industry that has been essentially put into a coma in the early years. pandemic month. A year after their first State of Aviation interview, Harvard Business Review sat down to discuss the challenges (and opportunities) the industry faces with Jon Ostrower, Editor-in-Chief of The Air Current, Courtney Miller, managing director of analysis for The Air Current, and Dan McKone and Alan Lewis, two managing directors of Boston-based LEK Consulting who have experience in advising large airlines.

In May 2020, you all agreed that the Covid pandemic was the biggest crisis aviation has ever faced. Did things go as you hoped?

McKone: Business travel is still on the decline, and we expected it. But leisure travel has rebounded faster than even our bullish forecast.

Personally, I am shocked that so many people are ready to get on a plane during a pandemic.

Ostrower: Everyone has rightly focused on whether air travel affects the spread of Covid. We did an analysis that asked another question: is the spread of Covid affecting air transport? And the answer is “not really”. Demand is not driven by the number of Covid cases. If people are allowed to steal, they will.

Miller: And there is some evidence to suggest that this is also true in other countries. Passenger numbers in Canada have remained at about 10% of pre-pandemic levels. Then the government eased travel restrictions and the number of passengers practically climbed to 40% in a matter of days. Of course, almost all of them are leisure travelers.

Will business trips come back?

Lewis: Some will. But the longer the pandemic continues, the more habits take root around some of the alternatives to travel, such as video conferencing, and the more CFOs realize that savings in travel budgets are dwindling. For the airlines, it’s a bad cycle.

Does this pose a threat to the airline industry?

McKone: How profitable? For sure. There has been talk of a rebound in prices, and airlines are cited as contributing to some of the outsized inflation numbers we see in the headlines, but as passenger volumes recover and the cost of tickets. of leisure increases last year, overall returns remain significantly down from 2019 as business travel is simply not there. The composition of fares is still unhealthy compared to the way airlines normally conduct their business.

Miller: That’s the key point. Yes, the lower fares are much higher now. So, the average traveler thinks that the airlines must do well because their tickets are so much more expensive. Well, your flight is more expensive now because the people who used to make your ticket cheap by buying very expensive tickets aren’t really subsidizing it anymore.

How will airlines adapt?

Ostrower: This will require a different mix of products. The so-called premium economy will be a winner, as will when business travel budgets tightened after the 2008 crisis. Companies that come back with reduced travel budgets will not want to spend on the long-haul flatbed product that was the norm for business travel before. Already, the recovery in the premium economy segment has overtaken just about everything except the lowest base economy fares.

Lewis: Interestingly, this is an acceleration of a pre-pandemic trend. Airlines have moved to denser, smaller business class cabins and larger premium economy and economy sections.

Did the government’s bailouts end up being good value for taxpayers? And have airlines handled bailouts responsibly?

McKone: I know there is controversy as to whether we should have had a better ROI for the taxpayer, or maybe even pushed harder to capitalize some of the taxpayer’s investments. But at the end of the day, the airline industry is a public good. It is a public service that we all benefit from, which is not very different in many ways from the financial system or the electricity grid. And I think the first order of business last year was just to ensure the survival of the industry. We have accomplished this.

Miller: I agree. We bought economic insurance. You can say, “Did we pay too much for this? What if we don’t buy it?

Lewis: It’s very hard to criticize given the uncertainty that airlines face, but one area where we might have wanted airlines to act differently is pushing early retirements and pilot leave, because we now have a shortage of pilots, which has exacerbated the cancellations. One of the main goals of the bailouts was to keep jobs in place. Another missed opportunity has been the lack of coordination on the part of governments regarding restrictions on international travel – we have had a frustrating, changing and fragmented system with a lot of inconsistencies. But this is not the fault of the airlines.

There is an old adage: don’t let a crisis spoil. Have there been a lot of innovations during the pandemic?

McKone: At first glance, the focus was more on survival than innovation. However, there have certainly been innovations from a safety standpoint – from applying antimicrobial coatings on seats to disinfecting aircraft with UV rays, and a whole host of advancements around biometric identification. passengers. All of these advances will transcend the crisis.

Additionally, at an industry level, we have literally launched dozens of new airlines around the world. There is still a great deal of entrepreneurial spirit and ambition in the airline industry, despite all these headwinds. There has also been more innovation in aerospace and other aviation sectors – in commercial space travel, eVTOL, drones, etc.

Ostrower: I am sometimes asked to give an alphabetical note to American airlines during the crisis. But for a crisis like this, it’s best to think in terms of pass / fail. The airlines are still in operation, they have not been nationalized. For a few months last year, it seemed like this result would require a miracle.

What about all the fighting in airports and on planes lately?

Ostrower: I don’t know if there is a simple answer, but I will say this: When the federal government makes decisions about public health, who ends up having to enforce them? The air rage epidemic is at least in part a result of flight attendants having to become the arbiter of public health demands.

Executives of private jet companies have to lick their chops.

Ostrower: Private aviation has benefited enormously from the pandemic. I was most recently in what can best be described as a petting zoo by plane. It was indeed a showcase for small aircraft manufacturers. Business aviation is booming right now. But it’s motivated less by fear of infection or air rage and more by the fact that airline schedules change so quickly. Private aviation provides the certainty of knowing that you will get from point A to point B without being diverted or canceled. This is the main attraction.

McKone: We tend to think of private aviation as a niche industry serving a scarce customer base, and while this is true, the number of people who can afford to fly privately is a multiple of the number who did. historically. There is room for growth.

Lewis: Yeah, and you’ve seen innovation in this industry as well, whether it’s charter, timeshare, aviation clubs – there are so many other ways to consume the service that isn’t. didn’t exist 10 years ago, which makes it easier for customers to try and get into private aviation.

Has aviation lost its appeal? Is industry still in demand as a place to work?

Ostrower: The lure of the airlines is still there because you get the benefits of free travel to see the world. It will always be something that attracts people. And there are exciting developments in aerospace, around future technologies like electricity and space that are very attractive to personnel; the magic of leaving the ground has always been a big trick for people and I think it will continue.

McKone: At the end of the day, aviation and travel is about connecting the world and that will always be attractive to young people.