Recent Posts

Archive

Tags

Virgin Atlantic files for Chapter 15 bankruptcy - the start of a new age for air travel?

Like many others, I’m waiting the hear back from an airline having had flights cancelled during lockdown. Having endured an overly onerous process to claim a refund, British Airways stoically announced that instead of my money, they’d be sending me some travel vouchers ‘in due course’.


“But I asked for a refund” I replied, somewhat surprised.


“Tough. We’re keeping your money and offering you and your family the chance to fly at

some undefined point in the future whether you want to or not” they didn’t reply, but the gist was the same.


A browse of social media and various consumer rights forums showed that BA wasn’t alone amongst airlines in keeping hold of traveller’s cash. Now, with news that Virgin Atlantic has filed for Chapter 15 bankruptcy in New York and initiated proceedings in the high court in London, that desire to hoard the loot seems more understandable.


The bankruptcy is the second from Virgin this year with after Virgin Australia went into administration in April, owing nearly seven Billion dollars to 12,000+ creditors.

The International Air Transport Association was quoted as early as May that airline losses could reach billions of Dollars globally. At the same time, the aviation consultancy CAPA predicted that "…most airlines in the world will be bankrupt" without help. By late June, six major airlines had filed for bankruptcy including Britain’s Flybe – despite efforts from the government and, ironically, Virgin Atlantic, the regional airline entered voluntary administration in March.


Beyond the pandemic, nobody knows which airlines have the cash (or, more likely, the debt facility) to survive and latterly thrive. What is unquestionable is that air travel as we knew it is over. In an interview with the Harvard Business Review in May Jon Ostrower, the editor-in-chief of The Air Current, was asked how passenger experience of international air travel would likely change post-pandemic:-


I suspect flying may become more boring for a while, as airlines try to recover financially. We’ve already seen airlines pulling in-flight entertainment systems… There will be huge pressures on the cost side”.


Cost savings won’t be the only item on the agenda for change. As margins tighten, the need to maximise profitability will increase, meaning empty seats simply won’t be abided. Wide bodied jets will likely fall out of favour in preference for more nimble, regional aircraft that can be filled more easily.


Additionally, business travel will likely become more restricted as CFO’s push for more video conferencing in place of costly international trips. The ‘Zoom Boom’ has been one of the few positives to come out of Lockdown, but unfortunately for airlines, the posh seats are the ones they would really like to keep full. In their excellent 2017 report on the economics of airline seating, Kerin & Hartley Marketing demonstrated the value of different seat classes, illustrated with this handy infographic:-



In their example, they looked at a British Airways 777 round-trip, non-stop flight between London and Washington D.C. The front sections of the plane account for 45% of the seats but generate 84% of the revenue. For us laypeople in cattle class, we’re dead-headers – making up the numbers to pay for air plan fuel whilst those that turn left are relied upon to turn a profit. For anyone else over 5 foot 11 who has flown intercontinentally in an economy seat recently, the idea that we don’t really matter to airlines won’t come as any great surprise.


Beyond this singular example, the report found that in general, airlines get approximately 66% of their revenue from Premium, Business, and First-Class seats. The very seats that are most likely to be replaced by a webcam and a Zoom/ Hangouts/ Teams account…


Of the regional airlines, a softening of Lockdown has been pounced upon with easyJet, Wizz Air and everyone’s least favourite airline Ryanair all adding flights and aggressively pushing flash sales to get full planes airborne again. Whilst their smaller planes are easier to fill than their long-haul siblings, there’s no doubt these firms are fearful for their unknown future, with panic selling sales being the first iteration of their attempts at recovery.


In times of crisis and change, there are always fast-moving predators who can manipulate a profit – bucking trends and turning poo into profit. In the same HBR interview, Ostrower was asked who the winners would be from the slowdown in the aviation industry:-


“Amazon. Surprise, surprise! As airlines retire their wide-body aircraft and shrink their fleet, the aircraft are going to conversion shops to become cargo planes and then sold to companies like Amazon. The glut of aircraft is going to drive the price down”.


Despite a historically strong brand and customer advocacy, even national carriers like B.A. aren’t immune to the current crisis. The International Air Transport Association (IATA) has stated that airlines won’t recover any sooner than 2024, if they do at all. In the meantime, those stuck in the UK could do worse than exploring the hundreds of thousands of less popular holiday destinations outside the South West, thus doing your bit for the planet’s CO2 emissions and also to aid the recovery of beleaguered B&Bs, holiday parks, pubs and restaurants that are in as much trouble as the airlines. Sadly for them, these business owners have significantly less chance of a bailout, and they’re well aware of John Paul Getty’s famous take on their situation:-


If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem”.


As with all other industries, those that innovate to offer the best solutions and prices for customer needs and have the flexibility and speed to move on opportunities quickly will be the airlines that fly out of Covid-19 with confidence. Others will join Virgin Atlantic in the courts, simply trying to keep their engines ticking over.


Harry is the founder of Brand Architects, a UK based strategic brand and marketing consultancy specialising in digital start-ups, online gaming and esports. He’s available to take on brand, marketing strategy, copywriting and PR briefs.

You can contact him at Harry@BrandArchitects.co.uk or connect on Linked In

London, UK

©2020 BrandArchitects