In light of the increasing number of countries that have begun to ease closures, which have been taken to curb the epidemic outbreak of the emerging corona virus, attention has returned to focus again on the aviation industry, which has almost completely stopped for several months.
Since the commercial flights stopped, some passenger planes have flown into the air, to return stranded people from different countries of the world, while their counterparts have turned to freight cargo, rather than transporting people. But the companies that own and operate these planes, of course, prefer to return to their basic business. Of delivering passengers by air safely to their various destinations across the globe.
But the question that many people now have is the impact of the epidemic on the prices of air tickets, when passenger planes return to make regular flights again.
“We know that airlines want the planes to return to the airspace, and that passengers sit in their seats again,” says Benjamin Kenny of Amadeus Technology, which provides IT services to travel companies including one of its major reservation systems.
This desire leads, at least in the short term, to price cuts to motivate potential customers. But if one looks at the period after the next few months, he will find that there may be factors that lead to raising the prices of travel cards, starting with the bankruptcy of some companies, which will lead to a decrease in the volume of supply and a decrease in competition, until the number of aircraft available to passengers is reduced, due to stopping Use for obsolescence.
Moreover, the perplexing question remains, that of the speed with which passengers return to air travel again, in light of a general feeling among workers in the aviation industry that the conditions of this sector will not return to what they were in the pre-epidemic period, until a general year. 2022, 2023, or maybe after that.
Kenny says airlines are usually guided by their expectations for future demand, with levels of demand for them in the past. The problem, however, is that the current situation is unprecedented, which leads Beijing to ask, “What can airlines do when data on past experiences are radically different from the status quo or totally unrelated to accounts related to their future status?”
Benjamin Kenny says that airlines determine the prices of travel tickets on their aircraft, usually based on a mixture of scientific accounts and models. He explains: “It is here to understand the motivations that drive the consumer to travel, and the amount of money he intends to pay for obtaining a travel card. Airlines make a balance between factors such as these and their capacity, and countless other indicators, in the context of their desire to find The best possible deal for her and for travelers alike. ”
The matter here is a mixture between scientific calculations and the use of the art of attracting consumers. The scientific aspect, Kenny says, is “the use of machine learning methods and algorithms.” This issue usually includes determining, among other things, the nature of what the traveler would prefer from among the different options offered to him by the airline, such as traveling on an economy class or a distinct economic class for example, and his comparison between the various routes of his flight available to him, with its details that include the dates of departure and arrival, And the duration of the trip, too.
As for the aspect related to the issue of attracting clients, it lies in the pricing policy pursued by the company, and is related to the decisions taken by its experts in the field of revenue management, who benefit from the indicators that we mentioned previously, to crystallize the future expectation about the size of the expected demand. Kenny says that technology helps these experts, by giving them tools that enable them to maximize the accuracy of their expectations.
However, no one knows the extent of the changes that will occur in the aviation industry and the business models that have remained stable for decades, due to the exceptional challenges posed by the outbreak of the Corona epidemic, especially since the situation resulting from this crisis is still in the length of change, and has not reached the level of stability yet .
When will the demand for air return?
It can be said in the simplest economic terms, that airlines determine the prices of travel tickets on board their aircraft, depending on the path of the supply and demand curves. These firms usually take control of the supply curve. It is generally understood that it reduces prices if it wants to stimulate demand in order to fill its vacant seats. Of course, more people would travel if the company made the card for $ 50 instead of $ 100.
But the most influential factor in this context now is that many are afraid to travel, due to reasons related to their concerns about the issue of public health, or for reasons related to quarantine instructions and rules and public closure.
“The planes will continue to fly with far fewer passengers than their capacity, and will be the criterion that will determine the airlines,” says Joe Leader, chief executive of the APEX federation, which includes airlines and companies involved in the supply of this sector. Its card prices are based on its attempt to push consumers to travel by air in a world dominated by the Corona epidemic. ”
“Airlines have reduced their flights to the absolute minimum, and incur losses due to the vast majority of the remaining flights they fly. It is hoped that the combination of providing low-cost travel cards and enhancing safety and security measures aimed at preventing Covid-19 from getting infected,” he added. , To encourage the return of the air travel sector to its usual conditions. ”
Paul Simons – a former chief executive officer of many airlines around the world such as EasyJet and Malaysia Airlines – says the revival of air travel again, will depend largely on the importance of potential passengers on the issue of reducing the prices. “Maybe airlines will find that using their traditional method of lowering prices to increase the number of passengers does not come to fruition as before. People may now have more important concerns than that,” he explains.
There is a common view that domestic travel in every country will recover first before international flights, which is agreed by Peter Foster, CEO of National Airlines of Kazakhstan “Air Astana”, saying: “The initial indications derived from domestic flights are limited.” “The number, which has been rerouted recently, indicates that there is an underlying demand for travel on these routes. We believe that the movement of students, workers and company employees will revive well before the time, which will witness the boom of travel for entertainment purposes.”
The International Air Transport Association expects that the volume of demand for air travel will be low, in the period immediately following the resumption of flights between countries of the world, despite the need of some business travelers to travel for business and trade purposes, and the desire of others to visit their friends and relatives, from their excessive lack of them during Block and close.
The federation notes that among the good news for airlines, that the fuel that represents the largest variable value component in its budget will be low in price, due to an excess of supply in the oil markets, which keeps prices low, as car drivers now notice in many countries of the world Indeed.
Will the offer decrease?
In the recent period, among the most brutal images in the hearts of workers in the aircraft industry, those that showed aircraft lining up in long rows side by side on airport runways, or accumulating in what are known as “plane tombs”, which are places where they are placed for recycling .
And while in some cases older or less efficient aircraft will be referred to retirement, many years ahead of schedule, Paul Simons explains that most of the aircraft that were towed under the current crisis, from airline fleets “stored” and did not “disassemble”, which is what In his view, it is a “significant difference”.
In the opinion of Joe Leader, CEO of APEX, there will be “more than enough planes to serve the travelers, even though many of them are referred for early retirement.”
Certainly, the volume of demand for air travel initially will be low, to the extent that the limited number of aircraft currently available is sufficient to meet it. Although Airbus and Boeing announced a reduction in the number of aircraft they manufacture every month, the high demand for air travel again, may push them and other companies working in this field to increase production. Besides, airlines may increase the shelf life of the aircraft they operate, or even return aircraft that have departed and exited their fleet, to service again.
On the other hand, it seems clear that the picture of the situation in terms of commercial flights and companies operating in this field, has probably changed forever. Some of these companies have already gone bankrupt, or have filed for bankruptcy protection (i.e. they are allowed to stop paying off the debt installments for a period of time until they are restructured). In many cases, this will lead to a decline in competition, and increase the possibility of a monopoly on pricing by some companies, which will not benefit the consumers.
But it is likely that the regulators working in the field of air travel will crack down on the companies that will be seen as seeking to profit from the current crisis. Moreover, new airlines will be created and others will seek to take advantage of any opportunity to enter the markets dominated by these monopoly practices, all of which will lead to a “fluctuation” of travel costs, in a positive way for travelers.
Simmons comments on this by saying: “Although some companies will inevitably exit the market, others will increase their activities to fill the void. It may take ‘correction ‘ Volume of supply and demand may take some time, which could lead to higher prices in the medium term. ”
No easy answers
From this standpoint, “doubt” will become a slogan for the aviation industry in the coming period, just like many other industrial sectors, which are looking to recover after suffering losses from the Coruna epidemic. The future course of air travel will inevitably be affected by developments such as the occurrence of a new wave of HIV infections, or significant progress in terms of discovering a cure for it, as well as the issuance of any political or regulatory decisions that affect the aviation sector. These developments will also include the wider expected impacts of the epidemic crisis on the global economy.
Moreover, it is important to note that the volume of demand for air travel does not increase evenly across the world. The various restrictions that governments apply – especially those related to the quarantine period imposed on travelers coming from specific countries to other countries – will affect the demand for commercial flights, and will make it different between each country and another, or even between different regions, within the same country.
The United States is a model of how the level of demand for air travel varies within a particular country. And Scott de Angelo, Marketing Officer for Allegant Aviation, which specializes in leisure travel services, notes that consumer surveys have revealed that people in regions of the United States like the Midwest, the Mid-Atlantic, and others, are not convinced that What appears in the dark scene that appears in the newscasts about the situation of the travel sector. Recently released photos revealed that some places of entertainment in the United States were crowded with visitors during the Memorial Day holiday, which falls on the last Monday of May each year.
It seems likely that the increase in the rates of resumption of air travel between countries and regions close to one another will continue, as long as the levels of infection in these areas are “acceptable low”, which is a relative and also loose term. Although this may stimulate demand for air travel, some may be reluctant to contemplate going down that path, owing to concerns such as the possibility that they could get stuck abroad, if restrictions are quickly reimposed, due to any second outbreak of the emerging coronavirus. Here it also seems important to determine whether any travel insurance will cover the consequences of the problems associated with (Covid 19) or not.
Besides, airlines seem to need to start operating their own flights, in order for people to start purchasing travel tickets on board their aircraft, even if this occurs in the context of a low demand scenario for their services. We now see very few companies and have resumed operating their aircraft, according to severely limited operating schedules as well.
And in light of this mixed scene, it seems very complicated and difficult, that one can expect the effects resulting from all these intertwined factors that the airlines rely on in determining the prices of their flights.
Although Peter Foster, President of Air Astana, acknowledges that there are difficulties in setting prices for long trips, he expects larger and more powerful airlines to start reducing their prices on those flights, in order to stimulate demand.
At the same time, airlines that operate short flights may benefit from factors such as low fuel prices and low salaries for their workers, due to the current workforce in the aviation sector. Foster expects the price of travel cards to remain low on short and medium trips, for a period ranging between 18 months and two years.
In spite of the unprecedented nature of the current situation resulting from the outbreak of the Corona epidemic, Foster believes that there is a possibility that the experiences that we have had in the past provide us with indicators that we guide in terms of anticipating future directions that will prevail in the aviation sector. “Low-cost airlines are back on track faster and stronger, after every major crisis in the past 20 years, such as the Asian financial crisis of 1998, the September 11 attacks, and the global financial crisis as well,” he says.
He adds that the demand for this type of company is due to “the subdued demand that is created by this or that crisis, as well as by the decline in the strength of consumer spending.” “I doubt that what will happen during 2020/2021 will be different from that scenario in any way,” Foster concludes.