The latest overused term circulating among the media is “New Normal”. Everyone, in every field is looking for signs of what may emerge as post-pandemic patterns of behaviors, and particularly whether these behaviors are temporary or permanent – a new normal. This makes sense since long term adjustments in business models may have to be made, and so it is with airlines and their passengers (airline shorthand – pax) returning to flying.
If you’ve done any amount of flying since the pandemic, it’s instantly noticeable that the flights seem to be fuller than was normal; the load factors are higher. This prudent approach by the airlines reflects a careful return to flying to keep profits as high as possible following the hemorrhagic losses of the covid period. This prudence is manifested by cautious management of capacity which is the number of seats being made available as measured in ASKs, or Available Seat Kilometers. Too much capacity or ASKs, historically has led to damaging price wars to fill seats, lower load factors, and overall diminished profits. Also, tamping any temptation to add too many ASKs is the non-availability of spare aircrews and other airline personnel. So, who is now filling up those seats?
Prior to the pandemic the marketing models utilized to segment the pax population was well established and mature; for example, the numbers of business and leisure travelers in what markets with seasonal adjustments. The question now being asked is whether the current high load factors are manifestations of pent-up demand, and therefor a bubble, or whether traditional ratios of business and leisure travel are exhibiting new models.
Here’s a new term to add to your lexicon, blended travel. Blended travel mixes elements of both business and leisure travel. It is attributed to the popularization of remote work and particularly hybrid arrangements whereby employees work remotely with frequent in-office meetings which in many cases requires air travel. This business travel frequently results in extended stays or tack-on destinations for leisure purposes, thus the blended travel.
United’s CEO Scot
United’s CEO Scott Kirby said “With Hybrid work every weekend
can be a holiday weekend. This is not pent-up demand. It’s the
new normal” 1
Another major airline reported that in a recent quarter blended travel demand accounted for about 45% of passenger revenue compared with only 25% for traditional business travel1.
If blended travel is a new normal, look for changes in cabin configurations. It turns out that blended travelers are less likely to opt for premium first-class seating but more than a few would take the economy-plus or business seating, so look for fewer first-class seats and more of those variations on economy-plus and business accommodations. This too bodes well for the airlines since this equates to more seats.
CHANGES IN PEAK AND OFF-PEAK TRAVEL
Another welcomed alteration is in peak and off-peak travel. It used to be fairly predictable that business travelers got out on Sundays and Mondays, and returned on Fridays, with mid-week and Saturday being a good day for leisure travelers. With blended travel, flight demand is more evenly distributed across the week. This equates to more efficient and productive use of fleets.
CHANGES IN HUB ACTIVITY
I’ve characterized this article as taking place in a post-pandemic setting, but it is clear that the effects of the contagion continue to exhibit symptoms and hot spots, and that there are still lingering or contingent restrictions globally. Passengers with needs to travel internationally seem to be purposely avoiding destinations or hubs with perceived onerous procedures. One such hub which has exhibited marked declines in activity for example, is Hong Kong. For anyone traveling in the Asia Pacific (APAC) region, it used to be very common to transit through Hong Kong, but as the article “Has Hong Kong Airport lost its status as Asia’s super hub?”2
suggests, look for demographic changes in hub dominance in the APAC region. Singapore has seen a noticeable increase in hub activity seemingly attributable to Hong Kong’s malaise.
WHERE ARE WE GOING NOW?
2023 seems to be the year everyone is predicting that airlines will return to profitability. According to the article “How will the global airline industry look in 2023?”3,
“As we look to 2023
“As we look to 2023, the financial recovery will take shape with a
first industry profit since 2019…As for passenger flights, the
demand should reach around 85.5% of 2019 levels, generating
revenues of 522 billion in 2023.”
The affects of inflation and higher fuel prices are likely to have a moderating result on these forecasts.
Regionally, South America and Africa are not yet expected to see profitability in 2023, while North America is expected to be the global profit leader.
Over ‘n out
Roy ‘Royboy’ Resto
1 Legacy Carriers React to Shift Toward Blended Travel; Aviation Week and Space Technology; November 7-20, 2022; Page 28