The sector is a major driver of economic development, global connectivity and the livelihood of some of the populations and businesses most vulnerable to, and hard hit by, the pandemic. In 2019, T&T’s direct, indirect and induced GDP accounted for about 10% of global GDP.
In 2020 alone, the travel and tourism (T&T) sector faced losses of $4.5 trillion and 62 million jobs, impacting the living standards and well-being of communities across the globe.
International tourist arrivals rose by 18 million in January 2022 compared with a year earlier. This equals the increase for the whole of 2021 from 2020, but January’s numbers were still 67% below the same month in 2019, according to the United Nations World Tourism Organization (UNWTO). More recently, the war in Ukraine has added to instability and economic disruption for the sector.
However, the Global Business Travel Association confirms the current recovery since double-digit surged last February. There are more international travel resumes and travel bookings, spending and willingness rises, alongside policy, inflation and sustainability factors. Travel will take off in and between countries with manageable caseloads. In contrast, domestic trips will lead the recovery of travel in near-zero countries.
Leisure trips are expected to lead the rebound, with corporate travel trailing behind. In the United States, the savings rate among this demographic is 10 to 20 percent higher now than before the pandemic, and such people are eager to spend their money on travel.
According to McKinsey, airlines can focus on four key areas to regain their footing after staffing shortages and flight cancellations:
1. Bring back capacity by reactivating pilots and cabin crews, preparing grounded planes for service, and rehiring and training service staff.
2. Invest in digital operations to improve the customer journey — including new technologies that help address postpandemic- travel pain points.
3. Anticipate changes in demand and optimize pricing according to the shifting habits and behaviors of airline passengers.
4. Devote resources to digital analytics to help identify emerging trends, identify opportunities to differentiate their services, and look for ways to collaborate across the travel industry.
Last but not least, McKinsey points out six key traits from the best performing airlines:
1. High-performing airlines effectively manage their capital base, especially aircraft. It is often measured by ROIC, the best metric of value creation. Most airlines focus on increasing the numerator, which is profit. However, an often overlooked way is by managing the denominator, or capital base, wisely.
2. They know that conduct matters more than market structure. Therefore, airlines based in slow-growing home markets are outperforming their peers in high-growth markets. This is consequence of more new entrants and ticket prices fall when planes are rapidly added in anticipation of demand growth.
3. They give customers choice through ancillaries (an undertapped channel of value for many airlines). With more options, customers enjoy greater control of their travel experience. They are less price sensitive for the add-ons they want compared with base fares. Thus, ancillaries are a way to delight passengers by offering additional or unexpected value, for instance, by auctioning off otherwise empty business class seats before a flight. Airlines may offer price-sensitive passengers a low base fare to give them a great sense of value, and then entice them with a range of add-ons. In economy class, for example, many high-performing airlines are actively innovating new ancillaries such as aisle seats, premium meals, reserving overhead space, or private-car transfers by selling them at the right moment in the customer’s journey. Margins for ancillaries are generally high and without them, many airlines would fail to return their cost of capital.
4. They create pockets of privilege in their flight network. When it comes to origin-and-destination (O&D) pairs, an airline enjoys privilege when it’s able to provide passengers with a unique itinerary that others don’t. Every carrier’s network of flights has some privilege. Successful airlines are able to identify, create, and monetize niches in their flight network.
5. They differentiate themselves by their reputations. Customers no longer buy tickets solely based on price and schedule. They fly more frequently and are more knowledgeable about the differences between airlines, including their product offerings and operational performance. Today, it’s common to find seat details, on-time performance for the flight, Wi-Fi availability, seat maps, customer review scores, and even environmental impact on online travel agencies (OTAs). Most passengers understand that aviation has a significant impact on the environment, continue to believe that aviation must become carbon neutral, and want their governments to step in to reduce airline emissions. However, though many travelers are prepared to act on these concerns, most of them still prioritize price and connections over sustainability in booking decisions. In general, as travel volumes are returning in many parts of the world, customer experience is emerging as the challenge of the recovery. Whether it’s more tailored products, greater digital parity with analog services, or faster turnaround, customer expectations of what great customer experience (CX) looks like have shifted significantly. Business travelers typically travel more frequently than leisure travelers, and often have higher expectations; they have long complained at higher rates than leisure travelers, and COVID-19 has only exacerbated this divide. COVID-19 only accelerated all these trends, leaving the travel ecosystem in a game of catch-up. In this changing landscape, travel companies that prioritize CX can gain loyalty, build resilience, and future-proof their businesses. All in all, it’s obviously crucial for airlines to aim high and build a positive reputation by keeping standards up and implement insights quicker.
6. They are great organizations with highly skilled and motivated workforce. In general terms, all companies could work on improving their organizational health.
Demand for air travel is coming back, and projections see a return to prepandemic levels of traffic by 2023 or 2024. These six traits of value creation could empower them to generate value for both passengers and investors in the postpandemic world.
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