For those of us who aren’t professional traders, the closest we ever get to a real-time commodities market is an airline booking site.
Watching costs flicker out of fact before we can make a transaction is an infuriating knowledge that surely donates to the discontent that many feel when dealing with air travel.
- Still, it has proven the best way to get a perishable asset — generic air tickets for specific departures — to the people who want them, at a cost that’s most optimal for both airline and passenger.
Those systems are facing their biggest test right nowadays. Airlines’ debts have increased to unimaginable levels throughout the pandemic, and must ultimately be paid down.
It could be late in this decade before they shrink to the levels of profits at which bank lenders’ warning lights quit flashing. Reducing that leverage will need increasing revenues faster than ever before — but that’s difficult when carriers are hoping to coax wary travelers back on board with attractive airfares.
Airline industry uses to guide its pricing policies
Making things worse is that two years of Covid has scrambled every tool the airline industry uses to guide its pricing policies. Typically, carriers choose which fares to offer at which prices depending on an analysis of air traffic the previous year, updated with more current data based on the strength of ticket demand.
last comparable period is now three years ago
- That trove of data is almost meaningless at present. The last comparable time is now three years ago. Gratitude to the way the pandemic has upended all our lives, there’s no guarantee that 2019’s passenger behavior will bear any similarity to what we’ll see in 2022 or any year in the future.
“They’re flying blind if they rely on the old data,” according to Oliver Ranson, a former Qatar Airways QCSC executive who consults for airlines on pricing policy.
For example, whereas traditionally costs are higher close to the date of travel because only urgent flights would be booked so late, that might be changed now when only the most committed travelers would risk the border and cancellation turmoil that might result from reserving seat months in advance.
Low-cost carriers have some benefits here
With simple point-to-point flights and a long-standing need to fill every seat at all costs, they’re already operating systems that trust more on real-time bookings than historical forecasts, according to John Harrison of Cumberland Consulting, who formerly headed up Iberia’s revenue management.
Computer storage now costs less than 1% of what did 20 years ago, but so far airlines have followed after other consumer companies in enduring advantage of the wealth of alternative data that are available to predict demand, told Harrison. “The ones that airlines are using trace their origins back 20-to-30 years, based on airline reservation systems with primitive data communications and data structures,” he stated.
Alternative sources of data are likely to reach in three main forms, according to Ranson. Social media talk like that monitored by Migacore, accepted by travel analytics business Cirium Ltd. last year, could tip off airlines earlier to newly-popular destinations, permitting them to raise costs or capacity to take advantage.
Credit card data could even indicate when people are probably to begin traveling more, with spending on fine dining, jewelry, and theater tickets correlating particularly well with air ticket need. Data from mobile phones and communication platforms like Zoom can also show when voice traffic between cities is heating up, a potential precursor to physical travel.
Aviation sector knits itself back together post-Covid.
aviation sector knits itself back together post-Covid .One reason carriers are even using such antiquated legacy systems is that updating their ways of selling tickets is usually treated as a lower priority than managing with the day-to-day working mess of operating an airline.
- Rs 200 cr losses due to back- to- back flight cancellations, passenger traffic dips
- The Govt mandates all international arrivals to undergo 7-day home quarantine
- Aviation and telecom companies like Verizon and AT&T are warring over the rollout of 5G
If that’s been the case in last years, it’s going to be even more important now as the aviation sector knits itself back together post-Covid.
2020s aviation market
The change will finally come, though. Just as the environmental pressures of our immune systems have forced the SARS-Cov-2 virus to adapt and develop new variants, so the strains of the 2020s aviation market might advance a long-delayed evolution in the way airlines earn their money.
If you’re expecting that’s going to relieve the frustrations of getting cheap travel tickets, assume again. With the motivation to keep headline fares low to get passengers on board, likely, the trend toward earning money from ancillary services such as baggage fees, in-flight dining, exit-row seats, and flexible airfares will advance into new areas.
Global aviation industry
Those ancillary costs, traditionally offered at a fixed amount, might exact begin seeing variable pricing, as carriers operate ever harder to avoid deadweight losses from under- or over-priced fares.
This pandemic has put unprecedented strain on the global aviation industry. It’s passengers who’ll ultimately end up spending for its recovery.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times, and The Guardian.
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