Skift Take

Covid-19 caused disruption in the travel business. The industry was put on pause and is now returning in different ways. Companies that view post-pandemic recovery as something new and unique will have an advantage over those that expect to pick up right where they left off.

This sponsored content was created in collaboration with a Skift partner.

Boston Consulting Group (BCG) research shows that 600 aircraft have been retired since the start of the Covid-19 pandemic, and 30 percent of the global aircraft fleet remained in storage as of January 2021. Over 20 percent of cruise capacity has been disrupted in some way, and nearly the entire industry has been shut down for over a year.

At the peak of the pandemic, nearly nine in 10 hotels had to lay off or furlough workers, and the hospitality and leisure industry lost 7.5 million jobs. Some estimates put business travel spending down more than 50 percent in 2020 and expect a five-year recovery to get back to its peak levels.

Coming out of the pandemic, travel companies will have more efficient and attractive capacity. With cruise companies and airlines shedding old fleets, newer products mean higher efficiency from a cost perspective and could command a premium with an eager consumer base.

SkiftX spoke with three leaders from BCG’s Travel & Tourism practice — Jason Guggenheim, global head of travel; Marguerite Fitzgerald, global lead for lodging and leisure travel; and Adam Gordon, global lead for airlines — who identified key opportunities for travel suppliers in this unprecedented time.

RETHINKING THE SUPPLY AND DEMAND CURVE

The travel industry has experienced its share of economic ups and downs, but recovery following the disruption caused by Covid-19 is looking a lot different than economic cycles of the past. Therefore, a “business-as-usual” approach to supply and demand strategy will not apply.

The good news is that travel suppliers have a unique opportunity to throw out the playbook and focus on what works for them. Those best positioned to succeed will take the time to pause and rethink, whether that means taking a lead on hybrid meetings and events, forging air travel partnerships, or resetting expectations for planning and execution in the cruise business.

“No amount of contingency planning could have predicted Covid-19. But a lot of companies, including travel companies, have become incrementalist in how they’ve planned year to year, because growth, wealth, and GDP have just been ticking up nicely,” said Jason Guggenheim.

Because the speed of recovery will be so unpredictable, travel companies will need to manage supply by sensing demand in their own ways, instead of looking to competitors or other industry players for guidance. There’s no time for “wait and see” with demand already resurging.

“There’s a discontinuity where the business more or less stopped. As recovery starts back up, the industry is going to be in a different spot with a different set of expectations,” said Marguerite Fitzgerald. “An executive in the cruise industry told me, ‘We’re always planning for smooth seas, and yet that’s never the case.’”

In cruise, this massive, global machine was simply put on pause. When consumers are ready, they’re going to expect the industry to be ready as well. The ships may be set to sail, but there’s a significant amount of additional work that the consumer doesn’t see. Are the same crews still available? How do you get them to port quickly and efficiently? What new training will be needed? These questions are fueling big operational considerations about how to be more agile, rather than planning 18 or 24 months out as they’ve done traditionally.

“You have to ask how you create more variabilization in your costs so that you can turn things on and off if you need to,” said Fitzgerald. “It’s about becoming more agile in planning and being able to react more quickly to both risks and opportunities.”

Meanwhile, airlines are planning for a range of scenarios with variable triggers that would set off potentially divergent strategies. Ultimately, these scenarios will likely force difficult choices, which can be mitigated with a hyper-focus on what demand makes sense. For example, airlines may go to their corporate customers and ask, “Where do you want to fly?” If they’ve cut a flight during the pandemic that they now can anticipate will be important in six to 12 months, that will give them the opportunity to optimize their capacity.

“There certainly is a set of scenarios where demand bounces back quickly and meaningfully, and you find yourself supply constrained,” said Adam Gordon. “That would be unfortunate, but  airlines have spent a lot of time thinking about the order in which they would bring things back, what that means for the broader operation, and how to prepare some degree of agility in their plan. The real question may be how can they bring the seats back fast enough?”

OPPORTUNITIES FOR PRODUCT INNOVATIONS AND PARTNERSHIPS 

Disruption is when new ideas, business models and even companies emerge. Legacy players will also need to keep an eye on what innovation is already taking place. “The pandemic has made many travel players realize that the world does not always play out in the ways we think it will. This has given them a jolt to rethink how to drive performance and growth,” said Guggenheim.

Using lessons from Covid-19, travel suppliers are reimagining the customer experience with products that will be critical to long-term satisfaction. This will lead to creativity, and potentially create some alliances that wouldn’t have existed before.

“[In the cruise industry,] a number of ships were either scrapped or sold. That’s clearly a discontinuity, but it’s also provided some definite opportunities,” said Fitzgerald. “Now you have these fantastic ships that are more modern. The economics are more attractive in some ways. The unit costs of running them are often cheaper.”

In air travel, there may be some unexpected opportunities as airlines are forced to think outside the box. One thing we’ll likely see in air travel is how companies get creative with alliances and partnerships,” said Gordon. “Mainline carriers might supplement shorter routes with regional carriers, or international carriers could start to link up if they find themselves in a situation where they have point-of-sale strength, but can’t cover all the flying.”

Leveraging technology to create opportunities through automation or other efforts toward digital transformation could be an additional silver lining, Guggenheim said.

“The hybrid element of meetings and events is not a passing fad, and platforms that we use for everyday meetings right now will not scale to thousands of people really taking part in complex meetings,” he said. “For example, there could be a partnership opportunity between a lodging company and a technology provider to take 20 different conference rooms in hotels around the world and link them, and then also link 5,000 people who are sitting at home. I think you’re going to see more and more of that.”

Fitzgerald added: “The new world will be hybrid. You’ll see some new innovation in how hotels treat their properties. For example, can you use your conference centers for purposes that are more locally based?”

LOOKING TOWARD THE FUTURE

If Covid-19 has taught the industry anything, it’s adaptability — and a willingness to try whatever works without second-guessing based on what competitors are doing. Investment budgets aren’t going to come back unilaterally, and in the short-term, there likely will be a retreat from convergence of business models where the industry moves in a certain direction at the same time together. Conversely, individual players might diverge to take more big bets on unique ideas.

“It’s going to take a level of creativity and flexibility for travel to recapture some of that premium revenue and demand,” said Guggenheim. “Travel suppliers are just going to have to get smarter and not be as stuck to the existing models. They can no longer say, ‘Look, at some point everyone will just come back. We’re just going to wait for that day.’”

This content was created collaboratively by Boston Consulting Group and Skift’s branded content studio, SkiftX.

Have a confidential tip for Skift? Get in touch

Tags: covid-19, cruise industry, demand, SkiftX Showcase: Consulting, travel recovery

Up Next

Loading next stories