LCCs See Potential For Post-COVID-19 Demand
Executives from four LCCs believe air travel demand is being suppressed by national COVID-19 restrictions, but there is a lack of solid trend data for airline planning.
Speaking on a panel at the Virtual World Aviation Festival Sept. 25, Pegasus Airlines chief commercial officer Guliz Ozturk said revenue management and capacity planning has become incredibly short term.
“Unfortunately, we have lost all the historical data-price elasticity calculations, demand curves—they are all outdated, so we cannot see a week or two weeks [ahead] in terms of demand. That affects both the production, plus the pricing side,” Ozturk said. “Pre-COVID, we had a strategy behind it, but now we see it more on a tactical level. It’s a daily evaluation of the flights in a week’s time and [then] weekly going over the pricing and demand. Then you shape up what you want to fly in the coming two weeks. The last two weeks of October, for example, doesn’t say anything to us right now. That’s incredible.”
Ozturk said pricing and promotion can stimulate demand on some markets, but on other routes frequencies are capped, so pricing is more cost-based.
HK Express commercial director Jonathan Hutt said even hub airports are reopening at “a very slow pace,” as they look to moderate passenger numbers and adjust to new processes. Hutt is seeing an increase in flight-booking searches, but capacity may not keep pace.
“Demand is going to well exceed capacity in the market. Inevitably, that will mean there will be a rise in fares,” Hutt said. “There will be, in the short term, a very strong rise in fares, particularly in Asia. LCCs will not be able to resume the capacity they once had.”
Hutt said on key routes like Hong Kong-Bangkok and Hong Kong-Seoul, capacity will not return to normal for at least three years. “[LCC] prices will be higher but will still be the most attractive option in that market.”
Hutt believes passengers will be less concerned about price and more focused on security, hygiene and flexibility.
Cebu Pacific Air director-ancillaries Apple Ignacio said that government restrictions—and changes to government restrictions—are deterring travel. “There is a fear of not being able to return, or getting stranded somewhere,” Ignacio said.
Ryanair director of marketing and digital Dara Brady also believes the demand is there and people are willing to travel, particularly after lockdown. But uncertainty over travel restrictions is stifling the recovery.
“The growth is probably going to come again,” Brady said. It will be a recovery driven by markets reopening, competitor withdrawals and the availability of attractive incentives. Brady said Germany could be “very interesting,” if Lufthansa starts to reduce capacity.
“I wouldn’t say it’s about ‘new, new markets,’ it will probably be more about capitalizing on the existing markets that we have,” Brady said. “Decisions will be made on the basis where markets become more commercially attractive.”
Brady welcomed the European Commission’s proposal to centralize risk data and provide traffic-light color coding, indicating COVID-19 infection levels. “Certainly, this would make travel more accessible and more logical,” Brady said.
Brady said this initiative is expected to be in place by mid-October. “We certainly advocate that all—certainly in the EU—pick up this framework,” Brady said. “It is very clearly defined, it’s being pushed at a central level and I think if that happens, we get some hope of giving confidence to passengers.”