The aviation industry has been among the worst hit sectors amidst the covid19 scenario. Owing to the travel ban which was imposed in most of the countries, the sector has faced huge and significant losses. In many cases, for pre-booked flights, airline companies started offering travel vouchers valid as late as 2022 for cancelled tickets. The Indian aviation industry was already under a financial crisis prior to covid and aviation fuel taxes and the existing situation only catapulted the aggravating losses for the companies.
Job cuts have also become quite rampant in the sector with several companies asking employees to be on extended leaves without pay. Emirates, state-owned airline company of Dubai, fired 600 pilots in the month of Sep’20 which is one of the largest layoffs in aviation history. Indian airline company Indigo however tried to change the crisis into an opportunity by converting its large fleet of passenger carriers into freight carriers. This was aided by the fact due to rising freight rates ( which almost tripled to approx. USD 3000-3500 per tonne compared to pre-covid rates). Yet despite such opportunities and rising demand for supplies, it wasn’t quite enough to cover the costs for the airline operator. According to various reports, it is estimated that the Indian aviation industry will require a bailout package of as much as 1.5 bn USD to tackle with the ongoing crisis.
The other interesting source of revenue that airlines companies globally have turned to is “Flights to Nowhere”. As the name suggests, these are flights which actually take the travelers no where, meaning they have the same start and stop destination. The flights also referred to as scenic flights have become the preferred choice for travelers across the globe. Australian airline Qantas started its flights for travelling all across the country which were sold out in a matter of few minutes. One would be surprised to know that these flights are not cheap either and ranged in pricing from USD $575 to $2765. The airline company has also started its sightseeing flights to Antarctica that does not land in the continent but allows those onboarded to have a view of the continent. The flights have been quite popular with several travelers requesting for more such flights on Instagram. Such sightseeing flights are also being operated by other airlines such as Singapore Airlines as well and have been widely popular. So why are individuals buying tickets for such flights?
Image courtesy: Youtube
The main reason appears to be the interest for travelling. The frequent fliers have finally been able to travel again and such individuals are willing to pay such astronomical sums of money without traveling any distance. The other and perhaps the more critical factor might be that this is the future of our travel and sightseeing for the next couple of years amidst the pandemic. I know, it sounds scary but who knows. However, here lies the opportunity for airline companies in India to also in the covid times.
Let us try to look at the economics of such a business model assuming certain key assumptions. Based on a survey in UK in 2014, roughly 70% of all air travel is done by just 15% of travelers. Let us assume this figure is close to 50-55% in a country like India. It is a sizeable market which still does not have “flights to Nowhere”. Given the diversity and size of the country this can be a very enriching experience for all travelers and can ensure significant contribution to the bottom-line of the airline companies. Now combine this with the air freight rates which are 3X of pre-covid rates, airline companies can still operate at 70-75% of its operating revenue in pre-covid times. The challenge, however, lies if individuals would be willing to take such flights in a price sensitive market like India. Yet, one should never underestimate the potential of chartered flights as well as high networth clients. Imagine, a flight over the mountain ranges or reserve forests, many travel enthusiasts would love to enjoy such a scenic beauty.
Let’s assume a normal airline ticket costs approx INR 5000 and is of a duration of 2 hours. Considering an average sitting capacity of 150 and with 80% occupancy rate, the average revenue per flight works out to 0.8*150*5000 = INR 6,00,000 per flight. Now if we use the same model for “Flights to Nowhere”, lets try to figure out a similar model:
Flight time: 4 hrs (considering t0 and fro journey)
Flight occupancy: 50% (considering social distancing)
One needs to generate twice the revenue in order to generate the same operating margin for the airline in other words approx INR 9,00,000 (this is assuming that as fight time is doubled operating cost would increase by 50% from previous scenario). The per ticket price then works out = INR 9,00,000 / (0.5 * 150 )= INR 12500. Considering some of the revenue can also be achieved through extra freight that can be carried, the ticket price should range from INR 11000 to INR 13000, which is approx 2.5x of the original price point. While the price seems steep, there are many for whom this may fall in an affordable range. [ please note: This is a very simple model created just for understanding].
I definitely see there is a strong market for such flights in India. The revenue can further be increased by inflight gaming competitions where individuals can compete with others by paying a small fee or even communicate with each other through in-flight chats. The possibilities are endless. What really matters though is the right mix to fix the challenges facing the airline sector. It is estimated the losses will be in billions for many of these companies and as individuals we should be willing to take such “Nowhere flights” or be prepared for a future when there are no economical flights left. The choice is yours to make.
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