The air travel industry is recovering from its worst crisis since its inception in 1944. It’s facing a triple challenge: getting back on its feet while making necessary changes and anticipating the next crisis.
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The air travel industry is a fascinating one, it’s full of contrasts which are as many opportunities for the industry to transform itself.
It drives massive growth in the world – yet the airlines, on average, hardly return their cost of capital, while other players in the value chain enjoy strong returns.
It was a fully interconnected industry, with all airlines, airports and travel agencies working on the same networks, years before the e-commerce existed – yet it struggles to innovate with speed compared to other industries.
It’s the safest and fastest mode of transport – yet it failed at remaining open during the pandemic and at convincing health authorities that flying is safe from a health perspective.
It is the first industry that came together with a vision to cut carbon emissions – yet many people believe that the roadmap is not aggressive enough.
This industry has successfully deregulated itself in the 1980s and become a competitive service industry – yet it has been sold for decades as a commodity where only schedule and price were displayed.
This industry has led customer relationship, from managing successful loyalty programs to protecting passengers in case of disruptions, yet it is still handling transactions (PNR) rather than customers, using multiple travel records (PNR-tickets-EMD) instead of an order.
This industry has an intense use of digital services, for flight search or network optimization, yet it has not embraced the latest digital breakthrough, from open-source code to blockchain.
This industry came up with the first credit card model in 1932, before the banks created their own card networks, yet it is paying high credit card fees, suffer from card fraud, and cannot get its corporate customers to pay with bank transfers like any other suppliers.
A long time at the forefront of technology and innovation, the air travel industry is coming back, fueled by new technology trends, major process transformations and investments.
Artificial intelligence (AI) has many applications in the air travel industry, from commercial use cases to operational efficiencies. On the commercial side, airlines used to optimize revenue by making pricing and seat allocation decisions based on sophisticated forecast. As the environment becomes more volatile, airlines cannot rely as much on forecast and need to innovate in terms of revenue generation. As airlines make more personalized offers, combining a dynamically created product and a dynamic price, AI helps increase the relevance of offers to customer needs and expectations.
Blockchain has the potential to transform the air travel industry as much as internet two decades ago. While legacy network technology relied on central servers which created central data banks, blockchain relies on distributed technology. While internet was designed for open sharing of data, where security came as an afterthought, blockchain is designed around protocols built for security. The applications on the commercial side range from the management and fulfilment of orders to payment and settlement.
AI, blockchain and other technology trends, combined to process changes like e-tickets and NDC, have enabled the development of new travel tech companies and attracted new investments. From the sales of Farelogix, a developer of NDC solutions, to Accelya, following the failed $360m merger deal with Sabre, to the $56m funding of Duffel, an NDC aggregator, the travel tech market is creating value through digital transformation.
Investors, from Venture Capital looking at new travel tech startups to Private Equity accelerating the growth of new airlines or aircraft manufacturers, are facing many opportunities while the industry recovers for the pandemic.
The investments in travel tech are growing, despite the COVID crisis. Indeed, the last major crisis, the Global Financial Crisis in 2008, saw two new businesses starting and changing the game in mobility and hospitality: Airbnb was founded in 2008 and Uber in 2009. They disrupted the following decade and changed consumer and traveler behaviors. What are the companies created in 2020 or 2021 that investors will want to bet on?
The travel industry has seen a few meaningful startup accelerators develop in the past years. Plug and Play, the Silicon Valley based accelerator, has a Travel and Hospitality branch running annual selection process. Airlines, like JetBlue, or groups, like IAG, still operate their startup accelerators despite the crisis, showing that innovation is relevant during the recovery.
TNMT, the research arm of the Lufthansa Innovation Hub, estimates that VC funding for Travel and Mobility Tech will be higher in 2021, at $US44bn, than the last peak in 2018, at $42bn. This does not mean that it was easy for young startups to sail through the crisis. Although the investment numbers are driven by innovations like “air-taxi” and on-demand aviation, based on EVTOL technology, the industry is facing an unprecedented appetite for investment, promising major developments in the coming decade.