How to Gear Up A Full Return of Airline Industry In The New Normal?
COVID-19 has disrupted all economies and had momentarily seized cash-registers, which is why airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1% (IATA). Airlines all across the world witnessed a plunge due to the pandemic and the resulting lockdowns. Realizing the everlasting impact the virus is bound to inflict until a vaccine is developed, many countries are trying to restore normalcy with the virus in the backdrop. As the World Health Organisation rightly puts it, “We have all got to learn to live with this virus.”
The airline industry is preparing for an eventual return to business, but flying could look very different than it did before Covid-19. The new normal for airlines would fundamentally mean that commercial teams, unlike earlier, need to be discerning, revisit existing partnerships, rethink the intelligence they have for maximizing opportunities, and redefine revenue management. What challenges do they have to overcome for realizing this change?
Challenges for the Airline Industry
- The new normal has effectively made all historical data useless, making it extremely overwhelming for airlines to forecast demand and price in a unique environment efficiently. Airlines will no longer be able to follow a fixed way of doing business. They will need to evolve with the emerging scenario.
- Micromanagement of the inventory, regardless of what the inventories have been including car rental, hotel room, airline seat, or others, has to be taken into consideration. The airline industry has to continually look towards the government regulations in order to form new rules and regulations that will have to be accounted for in the new normal.
- Airlines cannot have fixed future prices or schedules, as everyone is uncertain whether what will happen next. The carriers who operate ten flights a day between two destinations may reduce it down to 2 to 3. Normals in different countries will govern demand. Therefore, more than ever, airlines today need e forward-looking competitive intelligence to make the right decisions.
The OTA-Airline relationship
The OTA-Airline relationship will continue to be an essential key in revenue generation, in the new normal, airlines would have to refocus and realign this relationship for success. Four factors that will mostly govern this:
- The airline sector has come a long way in adopting digital technology from issuing physical tickets to distribution capability. However, the airline partner ecosystem was quite never digitally integrated to provide accurate and real-time information about flights as well as assist in the after booking process. But the post COVID situation is driving an increased inclination to define an integration standard. Both OTA and airlines will have to prioritize it to ensure that OTAs and third-party partners can provide the right information for the best booking experience.
- The new normalcy of the travel environment will revolve around being able to send out timely information. It will help travelers make informed decisions at the time of booking and at the time of the departures. Most reservations will be made closer to the departure dates in the post-COVID19 world. Hence, airlines will have to adapt to a more real-time system that can respond faster and adjust to changes in fares more quickly.
Moreover, the customers may also seek transparent communication on easy and flexible refund policies, hygiene standards, frictionless customer experience, and conversational/chatbot-based e-commerce.
- Most experts in the industry predict a slow demand recovery, which places much more importance on cost management. Airlines will have to reduce their distribution, customer service costs, and other such costs to operate in the new normal. For instance, at various times, OTAs had difficulties with the customer’s refund or reissue requests. OTA should not consider such issues as an expenditure but as an investment. Otherwise, they will fail to drive demand for their own channels.
- There may be a challenge of capacity on top of demand, which will decelerate the demand recovery and may lead to price wars. And that is why the airlines, as well as OTAs, have to generate cash for the coming two years. They need to have adequate capital to deal with an impending price war. So, this brings cost and margin into the picture.
Role of Revenue Manager
Furthermore, forecasting the demand has become a new challenge, which has placed a renewed importance on revenue managers’ jobs. The revenue managers should be more attentive than ever and should focus majorly on three points:
- Market changes are happening regularly, and a precise prediction of each particular route’s situation is no longer possible. Analysts must focus on these aspects and create a fare structure that is in line with the network. One must consider the current situation of market competition’s strategy and their reactions, which will help in being more competitive.
- If a revenue manager wishes to change airline pricing strategies, they also need to regulate availability. Availability could be based on company strategy, airline’s load factor, or on the revenue plan.
- Preserving data quality as much as possible, is a point of high priority in the future. Specific data in a revenue management system can be used for forecasting in the future. The revenue manager must be keen and must not let this data affect the forecast inefficiently and decide what information is useful and what is not.
The demand will not come back immediately. Some of the world’s fastest-growing airlines employed this strategy even before the pandemic hit us, making sure their market position was always better than their competition. It is time for every airline to make this the new normal.
If one is looking for some expert advice on the same can watch a recorded webinar conducted by RateGain (a leading travel technology provider) with SpiceJet which was conducted on 9th July to discuss how India’s second-largest airline is preparing to welcome back guests and discuss the opportunity in front of the aviation sector beyond the pandemic.
For more information about the webinar, click here!