The closest we ever get to a real-time commodities market is an airline booking site for those of us who aren’t expert traders.
It’s upsetting to watch pricing vanish before we can complete a purchase, and it’s no wonder many people dislike flying.
Those systems are currently being put to the ultimate test. Throughout the pandemic, airlines’ debts have escalated to inconceivable heights, and they must be paid off eventually. It may take until the end of this decade for them to reach the profit levels at which bank lenders’ caution lights stop flashing.
Reduced leverage will necessitate faster revenue growth than ever before.
Worse, Covid has jumbled up every tool the airline industry utilizes to influence its pricing decisions after two years. Carriers typically decide which fares to offer at which costs based on a prior year’s research of air traffic, which is updated with more recent data based on the strength of ticket demand.
At the moment, that treasure of data is almost meaningless. It’s been three years since the last comparable period. There’s no guarantee that passenger behavior in 2019 will be the same as it is in 2022 or any other year in the future.
According to Oliver Ranson, a former Qatar Airways QCSC executive who advises airlines on pricing policy they’re flying blind if they rely on the previous data.
Although computer storage costs less than 1% of what it did 20 years ago, airlines have lagged behind other consumer industries in exploiting the abundance of alternative data. The ones that airlines are using date back 20 to 30 years, and are based on airline reservation systems with rudimentary data connections and data structures, said Cumberland Consulting’s, John Harrison.
Alternative information sources are more likely to take one of three types. Social media chatter might alert airlines to increasingly hot destinations ahead of time, allowing them to hike prices or increase capacity to capitalize.
Credit card data could also reveal when people are likely to start spending more on fine dining, jewelry, and theatre tickets, indicating when they are likely to start traveling more.
Data from mobile phones and communication platforms like Zoom can also reveal when voice traffic between cities is increasing, indicating a possible prelude to physical travel.
Of course, none of this information will be inexpensive. The change will come in time. However, the pressures of the aviation business in the 2020s may hasten a long-awaited change in how airlines make money.
If you believe it will help you get rid of your troubles with finding inexpensive airline tickets, think again. With the pressure to keep headline tickets low to attract passengers, the trend toward making money from supplementary services like baggage fees, in-flight cuisine, exit-row seats, and variable airfares is set to expand.
The worldwide aviation sector has been put under unprecedented strain as a result of this pandemic. Passengers will be the ones to foot the bill for its recovery.
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