The global landscape is undoubtedly changing at a relative fast pace for the airline industry. An industry which has been constantly growing year after year. In 2019 there were more than 68 million flights representing 188000 flights per day and a 10% increase in comparison to the 2018. 2019 was a rather weak year for the global airline industry in terms of net profits, with 25.9 billion US dollars generated in comparison to the optimistic forecasts predicted in 2018 of 18 billion US dollars.
COVID-19 and Airlines
The International Air Transport Association forecasted in December 2019 a global net profit of 29.3 billion US dollars for the upcoming 2020 in the airline industry. Unfortunately, the industry has been hit with perhaps the most devastating event in the history of the airline industry. Since the start of the worldwide COVID-19 pandemic airlines have been pushed to their limits financially. The International Civil Aviation Organization (ICAO) has measured the impact of the worldwide pandemic by comparing it to a hypothetical 2020 without the side effects of the pandemic. The ICAO has estimated that 50% to 52% of the global transit has ceased. Less people traveling means less available revenue to airlines. The ICAO determined the global loss in revenue to be in the range of 386 to 399 billion US dollars. It is yet nearly impossible to determine when this situation will be reverted, and airlines will prosper once again
MCAS and Boeing 737
However, this is not the only critical phase the airline industry has experience in the last years. 2019 a sequence of failures in the MCAS software lead to two tragic crashes involving the Boeing 737. Manoeuvring Characteristics Augmentation System (MCAS) sensor readings are fundamental to assist pilots in correctly stabilizing the plane. However, if the readings are wrong the system will continuously push the plane’s down or upwards to try and stabilize the plane. Reports concluded that the system has not been properly tested and lead to wrong readings which consequently got pilots fighting against the computer over control of the plane. The MCAS system’s failures lead in big part to a tragic event and took the life of 347 passengers. The influence of the MCAS in the crash lead to further investigation over the software. Months later, reports of Boing outsourcing the software engineering of the MCAS software to engineers at 9 US dollars per hour, as an attempt to reduce costs fuelled the doubts regarding the safety and integrity of the company.
What technologies and IT trends might help reverse the declining stage of the Airline Industry?
AI and ML
While none of these technologies will help directly to reverse the current situation regarding the COVID-19 pandemic. There are arguably several technologies which could have an added value to the product offering of airlines and/or the way airlines conduct operations. One of them is AI and Machine Learning. From a customer-oriented perspective, AI could create better recommendations unique to the customer based on their specific needs during a trip, reducing baggage delays and providing real-time updates. Furthermore, AI could potentially disrupt the marketing strategies by tailoring offerings based on the user previous history, demographics, needs etc. KLM is one of the airlines alongside AVA that taken steps towards a digitalization strategy. KLM has implemented AI in their operation systems which has led to better decision making and more robust schedules.
One of the key steps to harvest the benefits of AI and Machine Learning is correctly leveraging data. Although there is currently a use of data analytics, it is relatively low in comparison to other major industries. Moreover, the use of data can be perceived as a natural step forward given the vast amount of data that is available to airlines.
Digital Twins
Digital Twins is another topic which is receiving more attention in the airline industry. The technology encompasses a 3D design of an airport collecting real-time information about planes arrivals and departures, delays, number of people in transit and much more. The technology is to be implemented in the operations room as a touch screen for controllers to have access to the current stage of the airport as well as tracking back historical events and replay them as it happened.
Sustainability and Fuel
Perhaps, an even more disruptive force than the COVID-19 is the rising concerns surrounding sustainability in the airline industry. Aviation currently contributes to 2% of the world’s carbon emissions and it expect to double by 2037. However, it is not only the carbon emissions emitted by plains but also the plastic waste both inside the plane and outside. It is expected that airlines will be pressured by multiple stakeholders, namely: customers, governments, corporate governance, and investors. Although some attempts to fight the negative effects of aviation have been put in place, such as CORISA, which is global target to reduce one third of the current greenhouse emissions by 2040, this attempts only aim to partially offset the effects of the major environmental player: Fuel.
While improvements in Biofuels and efficient engines can decrease a portion of current greenhouses emitted, it is only a partial part of the grand total to achieve the desired stage. Sustainable aviation fuels (SAF) is one of the main drivers to reduce the gap between the target stage and the current one. However, SAFs are only at an early stage of development and they will not be made available in the short to medium future. Furthermore, Biofuels and efficient engines are still overpriced which further put a toll on airlines net profits.
Sources:
https://www.icao.int/sustainability/Pages/Economic-Impacts-of-COVID-19.aspx
https://www.bcg.com/publications/2020/seven-trends-reshape-airline-industry
https://www.flightradar24.com/blog/flightradar24s-2019-by-the-numbers/
Hi Gonzalo,
Thank you for his interesting post, I like it. In my opinion, digital innovation will have tremendous effects on the consumer side in the travel and airline industry. However, I think that the real digital opportunity for airlines is on the operational side. You already mentioned the effect of technology on fuel cost. However, there is also a great opportunity to prevent delays, since many of them are caused by delays of earlier flight (and not by weather conditions and airports). KLM for example is working on an AI software that could easily detect flight delays and automatically take operational decisions. Moreover, British Airways are working on an AI detection system which warns flight managers of potential delays.
Moreover, secondary activities are face automatizing as well. KLM’s subsidiary, KLM catering services, handles inflight meals. The company recently announced that the catering operations will be supported by a robot, making it the first airline to do this. The robot reduces labor cost and increases flexibility. Making it easier for airlines to offer inflight meals with dietary preferences.
Interesting reads and videos:
https://www.youtube.com/watch?v=Tkn0Q-lKTP0
https://www.cnbc.com/2019/11/18/british-airways-trials-ai-at-londons-heathrow-airport.html
https://news.klm.com/klm-catering-services-takes-innovative-robot-into-operation/