4484_USAirlineIndustry_Blog (2)This article originally was published on Forbes.com. 

Access COVID-19 resources 

As I mentioned in my post a few weeks ago, network implications for U.S. airlines from COVID-19 will be severe and long-lasting, reshaping the landscape as we know it. Here’s how other critical commercial areas will be impacted, and how airlines can win back customers in the wake of the crisis:

Cleanliness will be a top priority: Customers’ decision-making processes for travel—the things that matter to them and what they’re willing to pay for them—will change considerably. In the pre-COVID world, barely anyone knew how airlines sanitized planes, let alone making purchases based on it. Going forward, however, cleanliness will likely be the first thing travelers consider, maybe ahead of even number of stops or loyalty—a baffling reality that no one could’ve predicted a few months ago. As a result, airlines will have to deliver on this and communicate it effectively, which they’re already starting to: American Airlines and Delta, for instance, have rolled out enhanced cleaning procedures. United recently launched its CleanPlus initiative, teaming up with Clorox to redefine their cleaning and disinfection procedures. Shortcomings in this area will be amplified by traditional and social media and could have devastating effects. On the other hand, excellence in this area and effective communication of this value proposition could be a major driver in market share and even warrant a price premium.

Pricing will be more erratic than ever before: Like network planning implications, pricing implications will also vary greatly in the short term vs. long term. In the long term, pricing variances and anomalies will be addressed through capacity and schedule adjustments. But in the short term, we will likely witness an erratic pricing environment. While pricing even leading up to the pandemic swung greatly based on things such as origin and destination, flight schedule and time of purchase, the pricing environment in the recovery phase will likely be even more inconsistent. The need to stimulate demand, especially in competitive markets, will likely have a downward effect on price vs. significantly less competition as a result of major capacity cuts that will drive prices up. (An IATA study points out that fares will be low initially, but air travel could become more costly as drivers such as restrictions on seats and aircraft utilization increase costs.) Other dynamics such as customer segments and flight schedules will also have a compounding effect on the price variance. For instance, if in the short term there are only one or two non-stop options between two major cities on Monday mornings, airlines can charge very high prices because the demand for that flight will be dominated by relatively inelastic business travelers. But pricing for a flight between a hub-and-spoke city that the airline flies to feed a major international route could be a vastly different story; the airline could lower prices significantly for the remaining seats to stimulate demand. While such dynamics have always affected pricing in the past, the effect of COVID-19 will create unprecedented disparities in price.

Distribution strategy will be a key revenue driver: The new distribution landscape will be one of the most interesting areas to watch in the recovery phase. Pre-COVID, the focus in distribution was on increasing penetration of the lowest distribution cost channels in .com, delivering the most profitable customers to the network by growing corporate revenue and enhancing content offerings via new distribution capability (NDC). Today, airlines will likely be pursuing customers across all available channels to generate revenue and fuel the operation. Corporate customers will still be a focus given their relative price inelasticity, but lower yielding passengers on demand constrained routes will be aggressively sought after. As noted by The Beat, while NDC could be lower on the totem pole of some airlines, many airlines will continue to invest in this area to more effectively target the highly valued and significantly depleted customer pool, and according to Skift, become an integral part of airlines’ commercial strategy. This could help to differentiate offerings, but the continued investment may be challenging for many airlines.

Loyalty will have to be “re-earned”: Leading up to the pandemic, loyalty and membership status were major drivers for which airline travelers flew. They compromised on schedule, route and even price to fly their preferred airline. But the environment we’re about to enter is different. The overhaul in airline networks, and relative increase in importance of safety, reliability, cleanliness and sanitation will influence purchase decisions more than ever before. So, while airlines are doing everything in their capacity to retain their members through status level extensions and other attractive offers, airlines may not be able to rely on prevailing loyalty as they have in the past. On the other hand, airlines that can differentiate themselves on these new priorities have a unique opportunity to win new customers and grow their loyal customer base. While factors such as route networks, pricing, and even current loyalty affiliation will remain key influencers, passengers will be more inclined to shift their loyalty to airlines that deliver on these post-COVID priorities.

All in all, it’s safe to say that the commercial environment in the airline industry will be very different than it is today. But while changing the way airlines operate, it also gives them opportunities to reshape the competitive landscape for decades to come.

For more ZS insights on the impact of COVID-19, visit zs.com/COVID19. 


RELATED CONTENT 

BLOG POST: Adjusting Revenue Management Strategies During the Travel Industry's Recovery

BLOG POST: How Coronavirus Will Reshape U.S. Airlines: Network Implications


 

Topics: Loyalty Programs, Travel and Transportation, Airlines, covid-19, U.S. airlines