How Airlines are Responding to Increasing Seasonality
Because tourist air traffic has been growing faster than business travel globally for years, seasonality is also increasing. This poses problems for airlines. Management consultants McKinsey recommend a bundle of measures to compensate for weaknesses in the low season.
According to the consultants' analysis, the gap between summer and winter demand is particularly pronounced in Europe. In 2019, the five largest airlines generated around 30 percent of their annual turnover and 65 percent of their annual operating profit in the third quarter, i.e. the peak tourist season. In summer, these peaks in demand presented airlines with operational challenges, while in winter there was a lack of revenue.
If airlines struggle to provide enough seats to meet these peaks in summer demand, they could be leaving a lot of money on the table, the McKinsey analysis says. At the same time, the peaks in demand could also put a considerable strain on operations and staff, leading to flight delays, stressed employees and dissatisfied passengers. Passengers and employees experienced this painfully last year and the year before.
Yield Management and Flexibility
The management consultants' advice can be summarized as follows: On the one hand, it is important to use the conventional levers of pricing and yield management and get the route network, sales and pricing teams to work closely together and look for other ways to alleviate the winter slump. On the other hand, flight equipment and personnel must be handled flexibly.
It would also make sense to review foreign vacation periods in the flight planning process in order to make better use of potential traffic increases due to these holidays and to identify counter-cyclical destinations to compensate for weaknesses in the low season. The search for alternative sources of demand such as business and mice contracts is also promising.
Adjustment of Contract Conditions
The consultants also recommend linking contract terms for summer tour operators with the obligation to maintain a higher volume in the low season. Tour operators are now very familiar with this game. It is also important to take advantage of sudden peaks in demand, for example due to unexpectedly sunny weather in the spring and fall seasons.
In addition, a large part of the gap between actual and optimal crew hours can be closed by shifting crew training to off-peak times, promoting staff vacations during slack months and offering seasonal contracts.
Adjustment of Maintenance Times
Fleet availability can be maintained during peaks in demand by scheduling planned maintenance work for the weaker periods, the consultants continue. For airlines that have to contend with pronounced seasonal fluctuations, it could also be advisable to park part of their fleet with lower investment costs, i.e. usually older, depreciated aircraft, in the hangars or to fly less frequently in times of lower demand. This would increase the utilization of the newer, more expensive aircraft that are kept in operation, according to McKinsey.
Wet Lease: Both Opportunity and Risk
Last but not least, there is of course the wet lease option to compensate for seasonality. This does not always work entirely smoothly. However, this increasingly common instrument offers flexibility in capacity management. As an alternative to leasing aircraft during the peak season, there is also the option of renting your own aircraft during lean periods. Sun Express, for example, is currently flying four aircraft in southern Africa for South African Airways. And Finnair quickly leased out underutilized aircraft to British Airways and Qantas due to the Russian crisis.
(ReiseVor9, Jan 12, 2024)