LCCs the right model for post-Covid world; recovery is not near, but out of creative destruction may emerge new entities 04/09/2020, by Vera Lye, in Featured,Marketing,News,Sectors
Low cost carriers might just be the right model for the post-Covid world, said Scoots CEO Campbell Wilson, but recovery is still some distance away.
Speaking atCAPAs virtual Australia Pacific Aviation Summit, Wilson suggested this is agood time to be an LCC for a few good reasons.
One, weare typically point-to-point operators and not hugely reliant on hubaggregation. Two, we mostly carry leisure and are not so reliant on corporatebudgets and business class travel; three, typically its regional travel soits close to home and peoples risk perception follows familiarityhousehold budgets, annual leave, quotas will all play into regionaltravel; four, it is low-touch service model and people dont like touch at themoment; its lower cost and lower price.
For all those reasons, at the moment, I feel the LCC model is probably going to recover faster and more strongly than perhaps the full-service model, but obviously contingent on borders being open and people being able to travel, said Wilson (pictured).
But here iswhere the harsh reality emerges. Wilson said he doesnt see a rapid recovery inthis area since almost all the borders remain closed. We started out with alot of optimism, but weve been disappointed repeatedly throughout the pastnearly eight months, he said.
From thegovernments perspective, it is hard to see what would trigger them totake a more progressive approach because this is very much driven by domesticpolitics, added Wilson.
Questions around each governments political capital, eachcountrys dependence on trade and tourism, the degree of isolationism thatresides within the populace at the moment (and there are many that have becomevery isolationist) will impact the decisions governments make.
To whom they open up is probably a function of familiarity,and proximity and economic ties. Were going to see neighbours open up toneighbours more than from far afield, suggested Wilson.
He said the rest of this year will likely not be muchdifferent to what weve seen thus far, and looking ahead, it is more a questionof how far into 2021 before we see material recovery.
As far as demand goes, Wilson is optimistic. People stillwant to travel, and they are at least somewhat assured by the steps that theindustry is taking to make travel safe.
However, the changing regulations around quarantine (willthe quarantine regulations change whilst Im away?) presents a big concern fortravellers.
Addressing questions around the survival chances ofairlines, Wilson said while flag carriers have the support of governments,private carriers will have a more difficult time.
How long can carriers hold their breath without governmentinvention and still stay conscious?
Most carriers are enjoying some degree of support orconcessions, but these are winding down or will wind down. The variable coststhat can be controlled have been controlled for the most partthe consequencewill be that almost all airlines will shrink a bit. Some will shrink a lot, andsome will disappear, said Wilson.
But Wilson said the cycle will continue, because while theappetite for launching new airlines is obviously weak at the moment, aircraftand fuel are cheap, and staff are available.
Whether its green fields or relaunches as in the case ofVirgin Australia, the cycle will continue. Weve been here before, saidWilson. The cycle of creative destruction will happen.
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