After a year and a half of the dismal situation in the air travel business, the outlook finally seems slightly brighter. Some of it is happening thanks to the improvements in the world's dealing with the ongoing pandemic. Vaccination has been gathering steam around the world, while better COVID-19 treatment and control measures are introduced in health care facilities. But several key positive factors are at play in terms of the regulators' organizational response and airlines' strategies themselves.

Concentration on the domestic market. With international travel essentially grounded to a full halt in 2020, the only viable strategy for airlines was focusing on domestic flights after the severe lockdowns were gradually lifted. This approach paid off helping many carriers to find their way back to black. Nevertheless, besides the obvious resurgence of the virus (see https://www.bloomberg.com/news/articles/2021-08-11/southwest-warns-new-covid-19-surge-may-lead-to-quarterly-loss) one more factor can play a negative role in this strategy becoming the norm in the future: increased competition. As domestic flights ha ve become more predictable more market participants deem them to be the backbone o f their operations. If actually realized more broadly in the longer term, this strategy may lead to overcrowded domestic markets and lower fares in the near future.

Vaccine passports. Full vaccination is likely to become a prerequisite for the rebound of long-haul flights. As the practice of vaccine certificates or 'passports' used in the EU (see https://www.bbc.com/news/explainers-57665765) shows, trans-border travel can be made substantially easier. It means that if the current vaccine passport initiative is successful, it can be broadened to include other countries. In this situation, long-distance international travel can come back on the growth track fairly quickly.

On-Off approach. What the pre-pandemic air travel business lacked was a swift reaction to changes in destination routes demand and supply patterns. Passengers wanted comfort. Not only in the air but in knowing that the regular scheduled route is always there to fly as well. The passengers' attitude seems to have changed as current flight cancellations and regular routes complete liquidations have become the norm (see https://www.bloomberg.com/news/articles/2021-08-05/airlines-see-grounds-for-optimism-over-long-haul-travel-rebound). You just cannot rely on the sc hedule anymore and have to check the flights available at the moment every time you travel.

Most times these flight cancellations are some form of force majeure due to governments' restrictions connected to the epidemic situation. But in any case, this acceptance by the passengers allowed air carriers to employ a much more flexible on-off scheduling of the flights. It is hard to say if this approach is here to stay but if it does we could see a boom of new passenger-flight matching services and apps.

Low-cost airlines intricate situation. Many regular carriers have stopped providing lavish in-flight services after the pandemic started. In general, passengers have also become less demanding. This lead to the regular airlines service getting to virtually the same level low-costers provide. At the same time, the necessity to eliminate most flights and to lay off trained staff made acute the low-cost carriers' problems in dealing with employees. While the employees of the regular airlines usually stayed calm and professional waiting for the operations to resume, many people working with the lost-costers were more prone to moving on to another job or leaving the workforce whatsoever. This lead to some low-cost airlines falling short to resume carrying when conditions allowed doing so (see https://www.foxbusiness.com/lifestyle/spirit-cant-rebound-airlines-cancellations). It is quite probable that the pandemic and its aftermath will test the future viability of the low-cost air travel business model.

Overall, the changes engendered by the recent COVID-19 pandemic have already transformed the air travel industry in many aspects. While it remains to be seen what the long-term outcome will be, several serious strategic shifts seem to be under way.

by Serge Narkevich