Airlines will need to review their strategies to survive, according to aviation industry specialist, Manoj Papa.
Manoj was speaking in a webinar on June 17 conducted by the GBTA SA, and hosted by board member, Robyn Christie.
Manoj said airlines were now in a ‘tough game’. Most airlines in Africa are state-owned, and this raises the question of whether or not governments will be able to bail them out. “Is there a place for a national carrier? Travel and tourism play a big role in African GDP, but governments are in a situation where they have other priorities, like healthcare.”
Robyn noted that a big challenge coming for airlines was the non-negotiable guidelines. “Safe distancing, for example, will come at a huge cost and inconvenience.”
Speaking of the vacating of the middle seat, Manoj said before COVID-19, airlines had been moving to a strategy of increasing their ancillary revenues with additional leg space, baggage etc. “So, somebody will have to carry the costs of the middle seat being empty. Isn’t this the right time for airlines to relook at their ancillary revenue strategy and bring it back on course? You both sit next to me and risk getting COVID, or you pay US$40 and get your space. What choice do you have? Airlines are going to hike up ancillary revenues.”
Manoj said airlines should be looking at their cost strategies right now. “The strategy around costs and cost containment would have actually been done during the three months of not collecting any revenue. Coming out of COVID and getting an indication of what current demand will look like, they will be focusing on pricing, distribution and other revenue opportunities. If you take up the middle seat on an aircraft, you’re reducing supply, and demand goes up. Simple economics: increased demand means an opportunity to increase prices. It’s a tough game out there.”
Travel bookings were down 82% compared with June 2019, and customers were no longer booking long-haul well in advance, said Manoj. “Distribution is going to change – airlines will be looking for ways to decrease cost of sales. A higher cost of sale will increase the ticket price. Airlines have started to curtail operations, downsize aircraft, and downsize network, which means there will be limited inventory… this will bump up the seat price. Prior to COVID, they worked with travel agents and other distribution channels, but how do you keep your cost of sales down? Airlines are reinvesting in online strategies, coming up with the latest technology, and pricing to attract customers and building those relationships.”
On the issue of refunds, Manoj said: “Airlines are offering vouchers and customers are not happy.” He added that some airlines had managed to take insurance for cancellations, and could offer full refunds. But he predicts that going forward, airlines will be pushing customers to take out travel insurance.
“In the next 6-12 months airlines will focus on getting their cash flows up, and then start to build and bring in other issues like loyalty programmes, dealing with refunds, etc.”
Manoj believes airlines will face challenges with their loyalty programmes. “Under normal circumstances, it’s difficult to get a loyalty ticket. What happens now?” He thinks airlines might look to create other redemption processes. “Another initiative would be one designated flight a week for customers to burn miles. In order to gain loyalty, you need the right strategy to attract and gain customers. We call these the loyal customers. And the loyal customers are going to be the frequent travellers. But are there going to be that many?”