The blow dealt to the Airlines by COVID-19 has caused passenger demand to collapse, forcing airlines to park more than fly their planes. With the Zoom effect on the business of travel and with travel related costs under increased scrutiny, air travel for business will take a lot longer to recover. And with leisure travel, even as lockdowns were lifted in time for summer holidays there was a clear preference for staycations and domestic travel as against hopping on a transatlantic flight. Without doubt, mandatory face masks, temperature checks, face shields and gloves are the next normal and in the short term the local parks will be busier than the local airport.

However, when things stabilise, and they will, the Airline industry will look very different than it does today. What will the new avatar look like once the flame is put out and the dust settles? Here’s my two cents on what we will see more of and less of in the short to medium term.

What we will see less of:

1. Hubs, dots on the map and product categories

There will be fewer hubs, fewer routes and dots on the map, and also fewer fleet types. airlines will also focus more on cities where it has a higher market share and ignore non-core, non-hub, secondary cities. airlines will also simplify products and revert more to a normalised offering and that means less categories (no more basic economy, economy plus and economy plus plus). There will also be a pause on adding more business and first-class seats and eventually some will even remove many of them and reorient the cabins.

2. Full-time employees

As attrition spikes, net headcount will shrink and airlines will revert to a less is more operation. There will be a steady decline in headcount but higher productivity per employee. We saw this after 9/11 as well where full time employees declined despite capacity growth. Will this translate as higher pay per employee - I doubt!

3. Inflight food and beverage service

Forget the three-course silver service in First and Business Class. Across the board there will be a significant cut back on everything F&B which is a money loser for most airlines, even when charged for. American Airlines reportedly spent $900M on “passenger food” in 2018 and it makes an ideal candidate to cull for easy cost saving.

4. Significantly lower capex

Airlines will dramatically cut back capex to near-zero and all airport improvement projects will be deprioritised to focus on paying back the debts. Technology upgrades and personalisation in product differentiation, culture and brand which were catching up after years of neglect will go back again to the backburner.

5. Ancillary revenue

With emptier planes, there will be less revenue from paid seats, extra baggage, upgrades, priority boarding, travel insurance and other high margin but miscellaneous income streams. As airlines scale down on perks, networks, and fly fewer premium seats the added value and usage of co-branded credit cards will also decline and there will also be fewer lounges in non-core airports and more shared and co-branded lounges instead.

What we will see more of:

1. More M&A and higher foreign ownership

Not only will the markets force takeovers but there might also be relaxed regulatory oversight which would not have been possible pre-crisis to save some dying airlines. As an example, the Delta Northwest merger happened right after the 2008 Global Financial Crisis and would not have been normally allowed. Also, there are strict rules on foreign ownership like foreigners can’t own more than 25% voting stock of a U.S. Airline. But given the financial struggles of many I think many of these foreign ownership restrictions will be relaxed in hopes of propping up failing carriers.

2. New entrants & more disruptive concepts

With lower barriers to entry for new players, this is a once in a lifetime opportunity for new entrants. Any new airline will have a large pool of planes, gates, routes and talent from which to use, operate, and hire. Good examples are Spirit Airlines which was born out of the global financial crisis and Jet Blue which grew after 9/11.

3. COVID related changes

There will be a lot more focus on cleaning and sterilising the cabins. I don’t think there will be perplex screen barriers from ceiling to floor between rows but on my last flight I saw fogging machines being brought in after disembarking and all of these will result in higher cleaning costs. Similarly standing in a straight-line neck to neck to board the plane is not likely to be a hit any time soon. So, when demand returns it will unfortunately mean the boarding process will take a lot longer.

4. Brain drain from management

Senior airline executives get paid heavily in stocks, which are down and limits on future pay will cause many to quit given those options may be expiring and worthless over the next 1-3 years. Some will agree to work harder for less money but many will leave especially those in main cities with more options.

5. ESG focus

Historically environmental issues tend to take a backseat to economic ones during recessions but this time ESG will be in mainstream discussions and airlines will strive to come out as an environmentally and climate friendlier variant especially as the average age of their customer is falling and this is a cause close to their heart.

Aradhana Khowala
CEO & Founder - Aptamind Partners
Aptamind Partners