Aviation looks to domestic services and regional travel for growth

I’d guess that the majority of you reading this column won’t be doing so from an airline seat, airport lounge or hotel room. Since the pandemic was announced, most borders have closed and business travel suddenly, well… stopped.

Aviation has been the highest profile casualty of Covid-19. IATA recently indicated that international passenger demand in 2020 was 75.6 per cent below 2019 levels with domestic demand down 48.8 per cent. Similar figures recently announced in March 2021 by the UN’s aviation body ICAO indicate an overall 50 per cent reduction of seats on offer with almost 2.7 billion fewer passenger movements in 2021 than 2019 and an approximate US$371 billion loss of revenue from passenger travel. These are sobering figures.

While the future looks to be more positive, with vaccine roll-outs well underway in most countries, most airlines are still taking a cautious approach to re-growth until travel corridors, vaccine passports and border opening deadlines become clearer and demand sustainable.

Yet amongst this unprecedented contraction there has also been growth. Some have identified the contraction of 2020 as an opportunity for new ventures in 2021 – centred around domestic and regional travel growth given long haul intercontinental travel is expected to take much longer to rebound.

What has partially fuelled these ventures is a drop in the cost of capital and operational costs. New aircraft prices have dropped around 20-30 per cent since the start of the pandemic according to CAPA, Centre for Aviation. CAPA also reports similar and greater drops in monthly leasing rates. Add to this the fallout caused by mass redundancies leading to an over-supply of skilled crew and airline staff as well as service suppliers prepared to trade on competitive terms. The result is opportunity for new and existing players to expand and disrupt existing markets.

An example is Australia’s domestic airline Rex (Regional Express) which until 2021 had focused exclusively on regional flights, using 36 seat Saab 340 turboprops to link rural centres to the east coast capitals of Sydney, Melbourne, Brisbane and Canberra. Rex had never attempted to compete with the major domestic giants Qantas/Jetstar and Virgin Australia on the major trunk routes which are serviced by high frequency jet services without a koala in sight.

Qantas and Virgin Australia offer full service business class products aimed at the corporate market, with cradle seating (and even lie flat beds on some aircraft) together with full catering and opulent lounges. This is in direct contrast to Rex’s self-proclaimed ‘rural hospitality’ and casual style.

With Virgin Australia’s sudden entry into voluntary administration in April 2020 (from which is has now emerged under a new owner), Rex grabbed an opportunity to compete. Suffering less financial exposure from the sudden drop in demand than its rivals, Rex quickly picked up some of the 40 plus B737s Virgin were forced to suddenly shed. That includes taking on redundant ex-Virgin pilots and crew no doubt keen to return to work.

The result has been Rex’s launch of B737 full service flights between Sydney and Melbourne (historically one of the top 3 busiest city pairs globally) on March 1, 2021 with services to Adelaide, Brisbane and the Gold Coast also planned for 2021. In contrast to the tighter cabins on its turboprops, Rex’s 737s feature a proper business class cabin and extra legroom economy sets (ironically retaining modified Virgin Australia cabin fittings) at airfares up to a third of what Qantas charges for the same route.

With Australia’s borders still closed for the foreseeable future and demand for domestic travel growing rapidly, Rex’s new offering is expected to disrupt the duopoly Qantas and Virgin Australia have enjoyed since Ansett collapsed in 2001 and will be particularly attractive among value-conscious small to medium business travellers.

Across the Pacific Ocean, Breeze Airways – a start-up and brainchild of JetBlue founder David Neeleman – plans to disrupt the US domestic market. Expected to launch by the second quarter of 2021 using a low-cost model, the airline wants to capitalise on growing demand for domestic US travel by operating routes between mid-sized airports which have been under serviced, or are low on competition, through a leased fleet of regional Embraer 190s and 195 which Brazil’s Azul is shedding. It has also ordered 60 state of the art Airbus A220s for longer term growth.

With technology increasingly becoming an integral part of our lives due to the pandemic, Breeze is reportedly embracing ‘tech’ by intending to interact with its customers predominantly through a ‘super-app’. Flightglobal reports “Breeze customers will be able to book, upgrade, change and cancel flights as if they were ordering and returning products on Amazon or reserving cars on Uber. Further iterations will enable customers to use the app to book hotel rooms, rent cars and order food while in-flight. Breeze would receive a cut of the profits from all products purchased through its app”.

Neeleman had apparently intended to launch Breeze by the end of 2020 prior to the pandemic but has since admitted that “[Covid-19] created a great opportunity for Breeze. There has been a lot of service pulled out of a lot of markets” creating more possibilities for rapid growth.

Closer to Europe, and taking advantage of Norwegian Air Shuttles recent woes, the new Norwegian airline Flyr is also set to enter the market by mid-2021 through services within Norway and Europe. Flyr says its goal is to deliver the “simplest flight, in a more sustainable way”. As with Breeze, Flyr aims to be a “digital product based on the needs of the passengers” with an app being the core method through which the airline interacts with its customers. Breeze and Flyr will need to be careful though, as recent attempts of targeted marketing – such as Air France’s Joon brand – were confusing to customers and failed.

Nevertheless, change will be inevitable in 2021 and these are but a few examples of how airlines are continuing to evolve and expand, despite the unprecedented damage inflicted by the pandemic. Hopefully though, in 12 months from today you’ll be reading another column in this magazine about the success these and other new airline ventures which started in 2021 have enjoyed – hopefully doing so free of lockdown, while nestled in your favourite airline seat, lounge or hotel room. Fingers crossed.