The Coronavirus is disrupting the global economy, and in particular the airline industry. PROS legacy is to be a resource for our customers, and we are doing everything possible to support them during this difficult time. There are so many questions: Where can airlines focus? What can they learn? How can they generate demand? How can they recover? We explore these topics and more with PROS experts during this special edition of PROS Travel Podcast, The View from 30,000ft.
In This Episode
[01:13]: How are airlines currently responding?
[06:01]: What can airlines learn from past events?
[08:19]: How is PROS supporting our customers?
[09:44]: Future and current forecast recommendations
[12:46]: How airlines can recover faster
Aditi Mehta: Hi everyone, and thank you for joining another episode of The View from 30,000 ft. My name is Aditi Mehta, and today we have a special edition episode to cover a very hot topic, Coronavirus. Right now, there's a lot of turmoil in the travel industry, and things are changing very rapidly. And it's given that by the time you hear this episode, more things will have changed. It's clear that this is a tremendous global impact, an extreme impact to the aviation industry, and we would be remiss not talking about it. So, I wanted to invite two people from PROS that you guys have met before and talked to on this podcast....
Aditi Mehta: So, I'd like to introduce Michael Brownfield, who is the Vice President of Professional Services and then Justin Jander who leads the Product Management team for our Revenue Management Solutions. So welcome guys. I'm just going to jump into the questions then.
Aditi Mehta: So the impact of coronavirus is changing rapidly. New markets are being affected daily, and just yesterday we've heard news about limited travel now from Europe into the US, as well as markets like India revoking visas. And so can you talk a little bit about how airlines are having to shift quickly and what is the response that you're seeing on the ground now?
Michael Brownfield: Yeah, I guess I'll start. I'm also curious to hear Justin's reaction. Well, the first thing that airlines are doing is, that they're having to do, is really reduce capacity as much as possible so that they can reduce their operating costs. It's not easy to do that at some of these airlines that have high fixed cost structures, but to the extent that they're able to cut capacity, it's helping.
Michael Brownfield: So you see the news, for instance, of Lufthansa grounding its entire fleet of A380s, same thing with Qantas. You have the news of Cathay cutting routes. I think airlines are doing what they can responsibly to serve their customers, but also make sure that they have the right size network in the face of the crisis that we're facing.
Michael Brownfield: They're also doing other things like offering paid and unpaid leave to their staff so that they can reduce their costs. I think that's on the business side. They're also having to keep tabs on the geopolitical changes that are happening. So airlines have a lot of responsibility to adhere to the government regulations that are getting rolled out on a daily basis, making sure that they are not boarding passengers who are under travel restrictions, or making sure that they are not operating to places that have shut down.
Michael Brownfield: And then some airlines are also having to just logistically re-accommodate passengers from other airlines that have been disadvantaged. So, there is news obviously last week of Flybe declaring bankruptcy. And there were some airlines that PROS works with that I got news of that had to quickly re-accommodate passengers who were on codeshares or other things like that, so there's a logistical challenge too. But I'm curious to hear what Justin's hearing, too.
Justin Jander: Yeah, so obviously I think you've covered a lot of it there. But I think the big thing that I've found interesting is how it's evolved. Because when it first started coming out, it sort of started out as, "Okay, we've got to cancel some flights." And people reacted to that as like, "Okay." Well, I mean obviously not going to fly to these affected places. And so it was more about, "Okay, well how do we handle the flights that are canceled to these places, and how are we managing that situation?"
Justin Jander: And then it started kind of growing so you're canceling more flights. Then the regions around the affected areas started seeing lower demand. And so now it's no longer just, "Oh, we can't fly to these places. Now we shouldn't, we don't need to fly to these places.” And that's where the stuff Michael talks about are starting to redo your capacity, because in some ways airlines I think even looked at it as, obviously would never say it was a good thing, but they saw this as like, "Okay. Well, we'll do some of the maintenance that we need to do while we have planes on the ground." You start doing some adjustments.
Justin Jander: And then you start seeing it grow and then you say, "Well, now we're not flying as many passengers to these places." We start to see hits in those, and then it just starts growing and growing. And then you start getting to the part where now it's no longer just your fleet management that's an issue, but now you have personnel things to consider. You're starting to figure out where you want to put people, how you use your teams. And of course everything trickles down from revenue is really the top part, and revenues are how you obviously pay your people and really drive the way that the airline goes. And so then you really start getting into the parts that Michael was talking about.
Justin Jander: And I think that's been the part for me, the reaction isn't like other types of events where, like a volcano type of thing where there's the volcano blows, and you just immediately react. This has been this rolling reaction as you've gone. It has made the approach to a kind of interesting to watch and see how airlines are reacting and doing the things that Michael did to approach the cost side.
Justin Jander: And then of course as Michael mentioned too, there's all of the ancillary stuff that whenever governments make a decision on something, the airline is the one that actually has to execute on that. They have to be the ones to check names and they're in some cases trying to keep up with that. And there's stories that are out there about what information can the airline collect and how quickly can they start collecting that, so that we can keep the country safe and keep all the countries safe.
Justin Jander: So a lot of things that you don't ... The airlines, they're thinking of their position as, "I'm here to fly people from A to B," and suddenly they're responsible for a whole lot more. And that's where you started seeing too the cleaning of the planes and messaging around that, how they're getting that out there. And you can see it's just like, it went from, "Oh, we can't just fly to one destination or two destinations," to we're seeing this dramatic impact across the entire network.
Aditi Mehta: Yeah. And like you guys mentioned, there's so many moving pieces and parts, and it's very different than past events. But I did want to talk a little bit about past natural disasters. There was the Icelandic volcano that you've mentioned. There's events like SARS and Ebola that have affected travel, for example, even 9/11. So how can airlines learn from those events and apply that to what's happening today?
Justin Jander: Yeah, I can jump in first there, just based on continuing my thought on the volcano. I think obviously the one big difference is that of course some of the events are more snap of the fingers, something changes. And that's true of the Icelandic volcano. Obviously SARS and Ebola were a similar type of case to Coronavirus but on a smaller scale.
Justin Jander: I do think there's a lot that airlines can learn from that. Obviously just understanding how they weathered those storms during those times and understanding what to do. But I guess, at least in my opinion, this is pretty unprecedented the types of things that we're seeing. So I think you try to take those events that you have seen and try to blow them up on a grander scale.
Justin Jander: Michael, anything to add to that?
Michael Brownfield: Yeah, I think the keyword that you mentioned was unprecedented. And there's lots of other events in the history of the airline industry that have caused these demand shocks, but this one really, I haven't seen any of it in my career. I haven't read about it in the history of the industry, at least in its modern form. But I do think that there are some learnings the industry can take from some of this.
Michael Brownfield: One is that making sure that they are on top of what's going on and making sure they're adjusting their demand forecasts appropriately, that they're making sure their capacities align correctly, and that they're getting ahead of some of these things. And then as we climb out of this, I think there's going to be a lot that they need to focus on, and that they can learn from quite frankly, to make sure that on the revenue management side they're prepared for what this is going to look like in next year's forecast. I think Justin can expand on that later too.
Michael Brownfield: But then of course they're going to have a huge role to play in making sure that they're regenerating demand, and in a lot of regards, I think that is similar to what we saw in the recovery of the industry after September 11 for instance, where they're going to have to do more on the sales side and the marketing side to generate demand. And then really, I guess, build back up their customer base and then start to revenue manage that as the capacity comes back.
Aditi Mehta: So let's now shift to that revenue management conversation. How are airlines working with PROS, for example, to adjust in this volatility? Michael, can you walk us through what PROS is doing to support our customers?
Michael Brownfield: Yeah, I mean obviously our legacy at PROS is in the airline industry. We're feeling the pain with this just like our customers are, and it's hard for me to be out there talking to our customers. I just got back from a trip and obviously I won't be traveling again anytime soon for work, or for pleasure for that matter, and it was hard to be with customers and just see their reaction. And so we feel for them, we're trying to do everything we can to support them.
Michael Brownfield: We've been doing multiple conference calls with our customers that are open to all of our customers where we make our product experts available to them so that they can talk about how to adjust demand forecasts, how to reset strategies in our RTDP product, or whatever's necessary for them to respond to this crisis.
Michael Brownfield: And we're going to continue to do that. We're going to continue to have sessions where we are just making all of the experts that we've got available to our customers to help them through this. We are proactively working with our customers to move any upcoming engagements we've got, whether it's a software deployment or a training or some kind of creative workshop, to either move that to a remote session where we can make it as collaborative as possible using new collaboration tools, or reschedule it as necessary. So, we're trying to do everything we can to help them get through this.
Aditi Mehta: And Justin, what are some of the recommendations that we're making to help airlines manage future and current forecast?
Justin Jander: Yeah, so the word that Michael and I both used is unprecedented, and if you think about unprecedented things, that's hard to forecast. It's really hard to forecast something you've never seen before. Whether that's a system doing the forecast or whether that's a user trying to help a forecast. So a lot of what we're doing right now is there's a few different areas of focus.
Justin Jander: One is on what to do with flights that have been canceled and passengers that have been re-accommodated, to make sure that those markets where there's just full-blown cancellations that have happened, those we make sure that they come back in a way when they come back into the schedule, that the forecast can recover well for those. And in reality, those are actually a bit of an easier thing to handle, believe it or not, because when you cancel a flight, our system can project forward, keep the same level, and it makes things a little bit easier to come back from.
Justin Jander: Really the bigger issue is of course these situations where the bookings have just dropped off entirely. So you're still operating, but there's just a tremendous drop in bookings. There's a different way that we have for approaching that. We're giving some recommendations based on different scenarios, so we're understanding the different ways that we're hearing about it.
Justin Jander: One is that we have some tools to help mask that data. So basically act like these periods didn't happen and just wipe it out from the background. That's probably the easiest way because the good thing there is that next year, or whenever we come out of this, the system doesn't see this big drop in the forecast. And of course that's a really important part.
Justin Jander: But no matter what, the big thing is for the today side, what you do today, it's a lot about what Michael talks about with RTDP or the availability tools to make sure that you're opening the right classes and giving the right availability given what the market needs right now, which in some cases we're seeing really low fares. And so that's making sure that, okay, the forecast thinks there's a lot of demand because that's what you were expecting last year at this time, and that's not materializing. So you want to make sure that the system is open to what the strategy is for the airline, so we're helping out with that.
Justin Jander: And then the real big thing, which I think we're going to talk about in a bit, is what you do when you come out of the situation. And obviously a lot of us are pretty desperate to come out of this situation just from a personal perspective. And then obviously, globally and from the global economy, we're all ready for this to be over. And so of course we're looking ahead to try to look at what's going to happen when you come out.
Justin Jander: And from a forecast perspective, a lot of it is going to be those who understand their markets and start reading and playing on the forecast where they think that they should be. And it's going to be a lot of trial and error, just being frank. I mean, again, that word unprecedented has been used here, and it's tough to know how the market's going to react to that. And so the forecast is going to be a big part of that. And then of course an RTDP adjustment type of thing are going to be really important as well.
Aditi Mehta: Right. So, no one has a crystal ball into this and we don't know when it's going to end and, but what are some things that airlines can do to recover faster, and what do you think that recovery is going to look like?
Justin Jander: So I guess I'll, I'll start and let Michael finish up on it. But I think we're seeing already that airlines are lowering their fares right now. They're trying to stimulate demand with the lower fares, just because they want people to fly and keep the business alive as much as they can. And I think that's also going to probably be a big part of the strategy coming out. Michael referenced it earlier, it's going to become a marketing type of activity for the airlines to make sure that they're showing that it's safe.
Justin Jander: The other thing that I think that's interesting from the airlines' perspective, and it's an interesting topic because not everybody can relate to it, but one of the things I've been reading about is how the airlines will react for their elite travelers. There's this period of time where frequent flyer programs are now ... Normally people are right in the heart of earning their statuses and so forth. And those are your most loyal members that fly you and their obviously some of the biggest paying members for you too. And some of your highest value passengers.
Justin Jander: And so now you've got to make sure that you earn their business back and figure out, are you giving incentives to this or are you…to keep them around? How are you treating those passengers? Are you treating them differently? And to be honest, I don't know the answer to it necessarily, but I think that it's something that the airlines are definitely talking about right now, to make sure that you come back and say, "How do we come out ..." I think a lot of us think about it from a leisure perspective because that's what we're used to doing, but it's not necessarily just leisure passengers. The business travelers are a big part of how we come out of this.
Justin Jander: Michael, anything else to add?
Michael Brownfield: Yeah, I think you had a lot of really good points. One thing, so I'd be remiss if I didn't say, to get out of this, the airlines need to go back to some of the basics. And a lot of that revolves around really disciplined revenue management. So making sure as they're climbing out of this, that they're staying on top of their forecasts, making sure that they're opening and closing classes appropriately. That they're staying on top of markets where demand may have fundamentally shifted, and doing as much analysis into that as they possibly can.
Michael Brownfield: So it's really just a back-to-basics revenue management 101 type thing. And it's a really good opportunity for them to double down on some of those skills and learn from this adversity. The second thing I would say is a lot of airlines have dramatically cut capacity, and I think as they climb out of this, they're going to have to be very disciplined in how they add back in capacity to the system. And of course that and revenue management go hand-in-hand.
Michael Brownfield: But if you believe some of the analysts who look at publicly traded airlines, the thing that they worry about the most is excess capacity. And I think the industry was, even before this crisis, getting a little bit of pressure from the analyst community about adding too much capacity aggressively. And so certainly climbing out of this crisis is going to put a lot more focus on making sure that they're not adding too much capacity too quickly back into the system, which is then going to just tank revenues. Again, that's revenue management 101.
Michael Brownfield: And then like I mentioned earlier, I think there's going to be a huge sales and marketing initiative that needs to happen to recreate the demand. And Justin mentioned one specific case of that which is with the high yield passengers, the elite flyers. Are they going to come back to the particular airline that they were loyal to before? And a lot of that depends on how those airlines are going to treat them through this crisis. But there's lots of other examples where airlines are going to have to really recreate the demand, and so they have something to revenue manage going forward.
Aditi Mehta: Yeah, great. Well, thank you guys so much for your insight, and I know it's a really tough time in the industry right now and we feel very strongly for our airline customers. So I do want to leave this saying that for our airline customers, if you do have questions or concerns or want to pick the brains of these guys, they're here, they're available. PROS in general is available for you, so please do reach out to us.
Aditi Mehta: Thank you guys for joining another episode of The View from 30,000 ft.