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The New Normal needs Flexibility in Strategy and Fleet

To come out of the pandemic more sustainably, Pereira suggested airlines to consider smaller aircraft and point to point flying

Issue: 11-2020By Ayushee ChaudharyPhoto(s): By Embraer
Post pandemic, airlines must diversify fleets and use smaller aircraft like the Embraer E2 series to balance capacity and demand

The pandemic due to the novel Coronavirus (COVID -19) has transformed the world drastically, leaving impacts that are likely to linger on most industries even when the pandemic is over but every industry is drafting new ways to move forward and sustain itself. The aviation industry, which remains among the most impacted industry, is also coming up with new models as innovation seems to be the survival tactic in this post COVID-19 world.

Even though some countries are beginning to reopen their borders and air travel is looking at ways to tentatively resume, IATA’s (International Air Transport Association) figures predict that demand for air travel is not likely to reach 2019 levels again at least till 2024. The ongoing threat of ‘second waves’ and further localised lockdowns is an additional uncertainty that is hanging on the industry’s head.

In a media interaction recently, Cesar Pereira, Vice President, EMEA (Europe, Middle East, and Africa), Embraer Commercial Aviation offered a few suggestions that he thinks the airlines need to focus upon. The “new normal” requires a new mindset, stated Pereira. “With infection cases worldwide showing little signs of abating, carriers need to adapt to a new normal as well as the need to have flexibility in strategy and fleet,” he added.

He also said that rather than complexity, a multi-fleet will be seen as an insurance to help airlines navigate the ever-changing environment. He also added, “The airlines must diversify fleets to balance capacity and demand post-pandemic. Given the travellers’ anxieties about the Coronavirus, airlines need to be more flexible and use smaller aircraft to fly more point-to-point regional flight paths.”

Most industry experts also agree that even with this challenging backdrop, there are still opportunities for carriers to adapt in their operations and to navigate the ongoing uncertainty, flexibility has to be the most significant aspect. Flexibility is being believed to be crucial not only in terms of the fleet but also in terms of the timing and number of passengers so as to let the airlines begin on the path to recovery.

“Flexibility should be the cornerstone of all carriers’ midterm plans – building in a greater level of agility than ever before so that technology, systems and staff can respond quickly as the situation inevitably continues to change,” global travel technology company Amadeus also stated.

Pereira mentioned about using regional flights as connecting points and have point to point flights to directly reach the destination instead of long haul flights to have airlines save cost as well as to encourage passengers to travel.

Travel demand cannot be stimulated by just low fares anymore, highlighted Pereira. “The airlines need to rethink their networks, rethink their strategy and be more flexible on how to downturn this disease.” As part of the institutional response to the COVID-19 crisis, the World Economic Forum has been regularly convening a multi-stakeholder community of prominent experts, policy makers and businesses from the region as the Regional Action Group for South Asia, to discuss the impact of the pandemic on the travel and tourism industry and the measures that need to be adopted to support recovery efforts. Public sector representatives and businesses from the region agreed that domestic tourism will lead the way in this recovery journey. This puts countries with a large domestic market, such as India, at an advantage since they will be able to create more favourable fiscal conditions for stimulating growth in the sector while actively promoting local and regional tourism.

“Rather than the passenger having to take two flights to reach the final destination, he/she can just take one flight with smaller aircraft. That way not only will the passenger feel more confident and safe but even the airlines will save cost by flying a smaller equipment on shorter routes. Smaller equipment will also further reduce the cost of maintenance,” said Pereira.

Regional connectivity can be a significant aid not only in helping carrier to begin movement but also to gain the confidence of passengers. The longer aircraft are in storage, the more likely they are to require heavier maintenance work before they can return to service which is why some movement is a must for the fleet of the carriers and connecting point to point not going for longer routes will allow them movement with lesser expense.

One way that Pereira thinks they can stimulate the traffic again is by finding more point to point regional sectors so that passengers don’t need to go to congested hubs, or airports as a connection to reach somewhere else. “If you think about the passengers, making a decision to travel with the fear of getting infected to face crowded environments is present all around right now. So rather than the passenger having to take two flights to reach the final destination, he/she can just take one flight with smaller aircraft. That way not only will the passenger feel more confident and safe but even the airlines will save cost by flying a smaller equipment on shorter routes. Smaller equipment will also further reduce the cost of maintenance.”

This way, Pereira believes, that the passengers may be stimulated to travel again because then the journey will be safer and quicker, and eventually the passenger confidence can also be handled better.

Pereira also talked about the hub and spoke system. A hub is usually a central airport that flights are routed through, and spokes are the routes that planes take out of the hub airport. Most major airlines are known to have multiple hubs. Hub and spoke is a system of air transportation in which local airports offer air transportation to a central airport where long-distance flights are available. The routes in this system are organised as a series of ‘spokes’ that connect outlying points to a central ‘hub’.

While talking about this system, Pereira especially mentioned the long-haul flights and routes where this can be utilised because, “right now it is difficult for airlines to get flying especially for long haul routes, it is very expensive. So airlines have to find new ways to operate and the regional aircraft can bring more passengers to the hub for a long haul flight, hence that should be explored.”

Management and consulting firm, McKinsey also believes that the hub model will remain relevant post-crisis, but airlines will need to update their operations and network strategies. The benefits of the model for airlines and passengers remain largely intact, and long-term trends—including rising demand for thinner routes and the increasing market share of leisure travel—support the continued importance of hubs.

COVID-19 has drastically decreased airline traffic across all routes, but the volume of connecting passengers has been among the hardest hit. Questions have arisen as to whether the current crisis will lead to structural changes within the industry, the company stated.

McKinsey explained that in a hub model, airlines use banks of incoming and outgoing flights to offer passengers a large number of possible itineraries. This model has been a cornerstone of full-service carrier networks across the globe for several decades. The demand for connecting flights on key intercontinental routes has been stable or rising in recent years because of both the many logistical and financial advantages for airlines and passengers and recent improvements in passenger experience.

“Given the travellers’ anxieties about the Coronavirus, airlines need to be more flexible and use smaller aircraft to fly more point-to-point regional flight paths”

Going forward, the relevance of the model will depend on the ability of airlines to adapt their operations to the realities of the next normal. In the short term, airlines will need to seek out new sources of insight to guide the tactical rebuilding of their networks. In the longer term, success—and in some cases survival—will require a reassessment of market positioning, aircraft technology, and pricing, as well as a better use of available data, added McKinsey.

Speaking about the Intra-Asia, ASEAN region, he said it is about getting to the destination in a faster way or in a shorter period of time so connecting point to point by passing congested hubs like Singapore, Jakarta, Kuala Lumpur or Manila should be looked at, even though these were the congested hubs before the COVID-19 since now the demand is low. “The way forward for the airlines is that they can build flexibility by having multiple aircraft sizes allowing them, either for those who have a network model that they need to rely on feeder traffic for long haul flights, they can use regional jets to do so or those low cost carriers that want to bypass hubs, fly more point-to-point.”

Recently Pereira also shared that the right kind of sizing is gaining traction especially in South East Asia.

Pereira further underlined that the demand will not be there anymore in near term so smaller aircraft can help the airlines to stay in the network, to keep the flights going while reducing cost and bring the demand back to the system gradually.


Editor’s note:
Cesar Pereira has extensive knowledge and experience of the Asia-Pacific market. He was Vice President, Asia-Pacific, Embraer Commercial Aviation before being appointed as Vice President of Europe, Middle-East and Africa in August 2020.

In this article, he speaks about a new normal with an interesting aspect emerging out of COVID-19 covering cost effectiveness of operations and how to handle the reduced level of demand. These comments, mentioned in the article, are extremely pertinent in the context of Asia-Pacific market.