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6 November 2020
by AviaPro’s Head of Industrial Services, Jorge Abando
At the close of October, IATA’s Economic Chart of the Week revealed the industry’s projected 2021 unit cost will still be higher than projected unit revenue by 0.88 cents despite the forecasted reductions in labour (52% lower than 2Q 2020), MRO, changes in infrastructure, and other costs leading to a 2.6 cent reduction in overall unit cost. While the industry is expected to see a gradual return in travel demand, total revenues forecasted in 2021 would still be about 50% below pre-COVID levels leading to 0.42 cents reduction in unit revenue. Overall, this would leave a 12% gap to close before break-even.
While the IATA analysis examines the results of the industry’s cost cutting efforts, on the revenue flip side, what would it take to close the break-even gap? There are many factors, of course, that come into play which affect demand. For example, an interesting trend pre-COVID has been the tendency for passengers to take upon themselves to make their own itineraries and connections. The diversity of the industry’s booking engines or OTAs (‘online travel agencies’) in our digital world has provided for increased passenger interaction on the distribution side, which would include managing accommodations and other forms of required ground transportation to complete the journey. Evidently, the manner to which a would-be traveller manages their own itinerary has proven to be influential in a digitized economy, which may in turn affect the perceived value of a ticket or set of tickets.
Eventually there will be a return of passenger traffic to pre-COVID levels, but how best to capture as much of that early on and continuously, will be a function of both external and internal factors. External factors would be regulatory in nature, such as lifting quarantine restrictions for travelers and societal in nature, such as the promise of a vaccine. Internal examples, that are basic tenets, will be the airline’s continuous evaluation of viable routings and how well an airline can rebuild and/or reshape its network to better capture demand and effective application of IT related tools such those used for Demand Forecasting, Reservations, and PSS ‘Passenger Service Systems”.
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