Case Study | Title: Aviation and allied industry during Covid-19 and its impact on post Covid scenario - GRM Institute

Case Study | Title: Aviation and allied industry during Covid-19 and its impact on post Covid scenario

HOW WILL COVID-19 CHANGE THE AIRPORT BUSINESS MODEL?

 As airports begin to reopen over the approaching months, they’re going to find themselves in an exceedingly very different operating environment. Airlines tottering on the sting of bankruptcy, national governments providing sporadic infusions of cash, so the ever- present threat of a brand-new wave of shutdowns. All those factors will have an infinite impact on how airports make money- and thus the way they spend it.

Moving forward, airports will see a serious reconfiguration of their cost canters and revenue sources, resulting in a paradigm shift within the airport business model. What components of that model are visiting be the foremost resilient? Which are most liable to disruption?

Within the short term, airports will must allocate a decent bigger component of their budget to health & hygiene. We are visiting to determine airports spending extra money on digitization and global natural process adaption. Both will cause big up-front costs but will provide considerable benefits within the future. Full automation of check-in and CIQ procedures will cut down on airports labour costs. And while making airports more resource- efficient would force major capital investments, these measures will reduce ongoing energy, water and waste disposal charges.

 

WHAT ABOUT REVENUE SOURCES?

Before coronavirus, airports derived about 60% of their revenue from aeronautical charges that’s, fees levied on airlines and passengers. The remaining 40% came from non-aeronautical revenue like travel retail, parking and property development. How future proof is that business model, given the scale of current crisis?

With virtually no customers within the air and debts piling up, they’re struggling to pay their bills. Many are wishing on parking and lending fee waivers to induce through the crisis. Airports immediate challenge is to exchange that missing income.

So, what’s the better approach?

1)Successful airports will target on increasing non-aeronautical    revenue, which they’re going to try to do this in two ways: first, they’ll adapt their terminal concessions strategy to have interaction with post pandemic travel habits and shopping patterns. Second, airports will prioritize non- passenger revenue so as to expand their existing customer base.

2) Pandemic proof concessions: As passengers start visiting again, they’re going to avoid activities that involve sharing confined spaces with strangers. Which is able to take a toll on terminal concessions.

3) Expand airport’s customer base: Successful airports have expanded their customer base, beyond just airlines and passengers, to include customers on the underside.

 

THE POST COVID -19 FLIGHT PLAN FOR AIRLINES

In line with the flight plan, airlines should take the next actions:

  • they must start by determining the optimal size and dimensions of their networks and fleets.
  • they must consider M&A and consolidation opportunities.
  • the following step is to resize and restructure the operating model and organization employing a zero- based approach.
  • Airlines should also steel oneself against ramping up, once airports and countries reopen.
  • Finally, of course, finance teams will mustbe closely involved to safeguard cash levels, capture revenues ASAP, and delay cash-outs ASAP.

 

TEN INNOVATIVE SOLUTIONS TO ASSIST AIRLINES AND AIRPORTS MAXIMISE ANCILLIARY REVENUES POST COVID-19
1)Plusgrade: Accelerating The Transport.
2) CarTrawler: Preparing For The Bounce-Back.
3) Air Black Box: Delivering Revenue With Managed Interline Solutions.
4) Moviebill: Bringing Inflight Products To Life.
5) AtYourGate’s Mobile Ordering And Delivery App.
6) Dubai Technology Partners: Common Situational Awareness App.
7) Airfree: Digitalizing Inflight Shopping.
8) InflightFlix: Creating Destination Experiences.
9) Gordian Software Upsell Distribution Post Covid-19.

10) FrontM: Driving Intelligent Collaboration.

 

How machine Learning in Travel Can Reopen the industry post COVID?

Amid uncertainties, computer science (AI) is offering adaptive solutions and self- learning systems for travel businesses to convert the new normal. Especially Machine learning in travel is paving ways for contactless applications that not only promise safety but also improve the decision-making.

Future-ready Applications of Machine learning in Travel & Hospitality
 1) Contactless Thermal Scanner with Face Recognition
2) AI-Powered OCR for Seamless Check-in
3) Cognitive Chatbots for immediate Bookings

COVID implications for Travel and Tourism
Considering the continuing pandemic, the planet, Travel and Tourism council projects a worldwide loss of $2.1 trillion in revenues. With a 30% drop by business volumes, travel and tourism companies stare at a bleak future until a vaccine is found. The immediate and long-term concerns for the travel industry look quite similar including-
• Economic uncertainty
• Travel restrictions
• Unaffordable employment
• Political uncertainty
• Unsatisfying pricing, and
• Directionless marketing

 

Example 1

Impact of pandemic on airlines

Based on travel restrictions and an expected global recession, IATA estimates that global air transport industry revenue could fall $252 billion, 44% below 2019’s numbers.

Example 2:

IATA Economics Chart of the Week                                                                   21st August 2020

COVID-19 lowers airline credit ratings and raises the cost of debt

Source: IATA Economics using data from Thomson Reuters Data stream

 

SOME FACTS FROM indigo ANNUAL REPORT 2019-20

Opportunity, Threats, Risks, and Concerns

The Indian aviation industry is expected to continue to grow at a robust pace in the long term.  At indigo, we believe our structural cost advantage gives us the ability to withstand various challenges, even in the current pandemic. However, our growth also depends on certain external factors. Set forth below are some of the risk that may potentially have an adverse impact on our business, financial results and performance outlook.

  1. Pandemic Risk
  2. Operational issues with certain A320 NEO engines.
  3. Exceptional variation in fuel price.
  4. Adverse movement in foreign exchange as a large proportion of our expenses are exposed to foreign exchange rate risk.
  5. Airport infrastructure constraints and increased airport costs in India.
  6. Competition in the airline industry.
  7. Changes in the government regulations.
  8. Increased market supply of pilots and inability to recruit and retain key talent.
  9. Breaches in IT/ Cybersecurity.
  10. Reputation risk.

 

Risk Management

The Board has constituted a Risk Management Committee to frame, implement and monitor the RM plans. The committee is responsible for monitoring and reviewing the RM plans and ensuring their effectiveness. The Audit Committee has an additional oversight in the areas of financial risk and controls. The company has implemented an Enterprise Risk Management (ERM framework) based on the guiding principles of Risk Management.

 

Disclosure of commodity price risks and commodity hedging-

Exposure of company to commodity risl faced by the company throughout the year.

I)Total exposure of the company to commodities in INR: for the year , the company had fuel expenses of INR 124538.22 million

II) Exposure of the company to various commodities:

Jet Fuel                            124,538.22                                 Not hedged through any commodity derivatives

 

Financial Risk Management

The Company has exposure to the following risk arising from financial instruments:

  • Credit risk
  • Liquidity risk
  • Market risk – foreign risk; and
  • Market risk- interest rate

 

Final Thought:

A recent study by Mckinsey estimates that it will take until a minimum of 2022 for traffic to return to pre-crisis levels. In a worst-case scenario, the recovery could last well into 2023 and beyond.

Though airlines are gazing at a sharp declination, striving to revive and take root, transformation of their business model is the only alternative. If they can fruitfully sail through the covid-19 crisis by reinstating their customers, then this would be a great example for other struggling sectors.

 

References:

www.bcg.com

www.goindigo.in

www.crisil.com

www.futuretravelexperience.com

www.artificialintelligence.oodles.io/blog

 

Submitted By: SUMANT SHEKHAR (PGDRM Batch Jan 2020)

Mentor: Alumni

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