Will Coronavirus accelerate Innovation in Air Travel?
Hint: Airlines need a new business model
As the global economy is slowly crawling out of Coronavirus-induced stupor, entire markets will have to face a new reality. Habits have changed, many of their old customers are gone, and their old business models are not sustainable anymore.
Air Travel Blues
Airlines are in trouble. Their business model has never been very sustainable to start with – they always depended on large subsidies (both direct and indirect) and lived off of pretty small margins.
Many of of the larger airlines are de facto owned by governments to start with.
While travel as we know it is surely going to change, travel itself will certainly not go away. People need to travel and they love to travel. Yet, people hate the experience of flight. They find airlines expensive and hate how bad air travel is for the environment.
Meanwhile, entire countries, regions and cities whose economies depend on tourism (travel!) are struggling as well. They need inflow of people in order to sustain their economies. Their whole economic framework is built around people coming in with pockets full of hard currency. If travelers are not coming, their economies will collapse.
A different way to think about travel
To recap, we have :
- Airlines: forever-struggling, infrastructure-heavy, government-subsidized;
- Entire Countries/ Regions/ Cities: in desperate need of travelers/ tourists;
- Millions of travelers/ tourists – keen to travel but hating the travel experience as they know it and unwilling to pay more;
Maybe the travel business model is broken. Over the last 50+ years, airlines have been trying to make a profit off people paying for tickets. This has lumped in business travelers with family travelers with package tour enthusiast with overseas students all in one. It made pricing so complex that very few people can claim they fully understand how it works. Yet, the economics never really worked and every so often, Airlines go to governments hat-in-hand, looking for bailouts (on top of all the other subsidies).
What if catching a plane would be free?
What if instead of trying to make a profit off travelers (B2C), Airlines would sell their services to cities/ regions or even hotels?
Countries – who are already pumping billions into airlines, this is important to remember – would instead negotiate long term pricing with airlines and structure these into their budgets and into their own long term financial planning.
Governments – and cities/ regions/ hotels – would be incentivized to attract as many spending travelers as possible and the cost of flight would simply be balanced against the capital injected in the economy by all the travelers.
The cost of one person catching a flight simply becomes part of the “client acquisition cost”.
Most importantly, as the costs are spread over decades, money will be no more be a viable excuse not to clean up and reduce externalities.
Obviously this does not have to be the only model, but it is one that I am sure Airlines and Tourist destinations alike are already looking at, as the economic pressure is increasing.