Future of the Aviation Industry

Hello! Its my 2nd week as an analyst with ST Engineering Ventures, and there are many skills/insights that I’m still trying to pick up with regards to my role. I have ventured a little into the books and after going through many webinars and discussions, the main point into start-ups gaining traction and success always boils down to key factors that go down the thought process:

1. What are the pain points in certain industries and how can start-ups solve for it moving forward?
2. Are the products/solutions that start-ups provide align with the trend of what the society envisions for the economy?
3. Even though there seems to be a pain point that the start-up can solve, is there market value that can translate to revenue/profits?
4. Lastly, when all of the boxes are checked above — how can the start-up differentiate itself with the rest of the crowd in terms of its technology/ lower capex expenditure/ co-integration with current systems …. to the end point of its go-to-market strategy?

Moving forward from here, this will be my thought process that I’ll be conducting my due diligence on whenever I’m looking into start-ups and how much of a value they can add into the economy.

With that being said, let us move back to the main topic of this post: The future of aviation in a post-covid economy.

Since the surge of the COVID-19 health crisis that started in late December 2019, the pandemic has resulted in disruption of the global economy, placing key industries such as hospitality/tourism & aviation in turmoil. This reduces funding available in start-ups due to cash flow constraints during an economic recession, as well as the disruption of global supply chains and closing of many consumer outlets.

Through attending various webinars/seminars, I have come to a few findings :

According to surveys by McKinsey and International Air Transport Association(IATA), airline capacity hit its lowest at about 80% decline, with slight recovery towards the second half of 2020. Currently, by surveying a few countries, they can identify that airline capacity is generally about 65% of pre-COVID levels. This is a huge improvement, with more upside to come as certain countries are arranging special agreements to have ‘green lanes’ — where mutually agreeable countries will resume international flights, subjected to their regulations and standards that health factors have to be met. Further, on ground level, McKinsey has also reported that for domestic travel & tourism within China, there has been some improvement. With a comparison between Tomb cleaning day(April) and Labour day(May) , one can identify an increase in trips and revenue from April to May, almost 70% of pre-COVID level. It can be seen that certain tourist attractions during their visits at Labour Day had to be restricted due to enforcement measures for social distancing.

With regards to the findings, this can be a huge sign of recovery along the whole food chain of the aviation industry. Firstly, since MRO is largely correlated to miles flown by an aircraft — scheduled flights will indicate a source of recovery towards MRO operations. Secondly, OEM manufacturers will be receptive towards such indicators, as this is a sign that order books will continue to be filled with time. Lastly, airline companies can maximise the use of their aircrafts without incurring too much cost in its depreciations expense and capital expenditure. However, although this is a sign of good news, many analysts have been skeptical towards a “V-shaped” recovery of the global economy. On base case, they have only predicted that aviation will head back to pre-COVID levels towards the end of 2021. One can imagine that with an additional 1.5 years of sub-par capacity and capex optimisation along with incurring costs — it is to no wonder that the aviation industry is still heading to the slumps. Such can be seen with the plunge in share prices for the big 4 aircraft carriers in the United States to SIA in Singapore.

Many business organisations & companies have also been trying to identify consumer trends during this COVID period as it can can provide them a better idea towards innovation and factoring for disruption. Additionally, they can cater towards further progression of various industries that have been arduously affected. From the webinars attended by Plug and Play and OurCrowd, they have reiterated significant trends forming within the consumer space when it comes to aviation.

1. Younger generations form up bulk of the fights taken for travel
2. Trips tend to be shorter by nature (pertaining towards preference for domestic travel)
3. High end family resorts are most popular as of now. Resorts that are closer to major cities have accounted for almost 90% occupational capacity.
4. Apart from the travelling that has been done, majority still feel uncertainty towards travel pertaining this COVID period, with consumers preferring to have little to no contact with machines etc when dealing with purchases/interactions. (Contactless transactions are preferred)

Such insights have proven to be important in dictating for trends to come and how new business models can be set up to accomodate such changes in consumer preferences.

1. We can identify that certain tourism companies have revamped their business model , now providing for self guided/drive tours at family level — where tourists are able to enjoy a holiday and yet practice safe social distancing.
2. In a more localised start-up context such as Dr. Poket that provides medicine through a machine dispenser, the team has identified some concerns that there topline has decreased substantially due to consumers being unwilling to have physical interaction with the screen. As such, they had to work quickly to deploy new sets of machine that can receive order through an audio sensors. This is to show how significant and disruptive trends can be and how new market value can arise globally. With that, this is how unicorn start-ups appear and claim huge amounts of market value — due to the value proposition that they have provided
3. Lastly, there has been a huge shift in Biosecurity, where it used to be the checking of animals and hygiene factors. Today, we are seeing an increasing need to re-strategise a passenger’s journey in airports such as quick COVID testing, immunity passports, ‘sanitagging’(tagging baggages to be cleared for loading/unloading once they have been sanitised), etc. Such re-strategising is important to save and adapt to specific changes, as without focus on the disruptions, the key aviation industry players will be wiped out, leaving the new incumbents to take over.

Our Crowd has actually presented a very detailed roadmap as to how a new passenger journey looks-like, as we start adapting to disruptive changes in the economy. They key focus here is incorporating safe social distancing in ‘taboo’ places such as airports, where most consumers associate it with the coronavirus. As such, it is highly essential to enforce social distancing measures, provide customer satisfaction and bring back revenue maximisation in airports/flights.

Some start-ups presented valuable proposition as to how they can capture market share in a COVID outlook, thought I took more focus with vocalZoom. They are a contactless sensors start up that have re-pivoted their business model from provision of sensors in an IoT world to multi-sensory screening in airports. Such quick decision making, apart from how disruptive technology can be — shows how important startups have to be in being innovative, so as to avoid from losing out in the market.

vocalZoom has actually proposed various competitive advantages such as the sensors being battery-operated, so there is no need to connect the sensors to plugs. The sensors have quick identification, being able to identify certain parameters within 10 seconds or so. Moreover, vocalZoom as been trailed at some airports and data analysis have shown that the sensors have adopted safe distancing and yet increases 30% throughput improvement. This way, consumers have more time to shop and spend money in the duty free zone areas, which wouldn’t be possible if the consumers had to spend time being screen individually at the screening areas.

Overall, it has been interesting to see how consumer trends are ever changing in this crisis such as the ones that are stated above, along with a permanent work from home possibility and many more to mention. What start-ups require apart from a market fit with a MVP, perhaps certain alignment of a business model so as to attack market needs and wants, such as what Dr.Poket and vocalZoom are doing.

Originally published at http://nathanielventureinsights.wordpress.com on June 1, 2020.