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Lights and Shadows of Covid-19 on Digital Transformation – IV

Expected impact of the epidemic on investment in the air transport area. Notice how Digital Transformation is expected to grow whilst aircraft orders are expected to decrease according to the majority of people interviewed. Image credit: Rohit Talwar – Fast Future Publishing

I followed an interesting webinar on “Post pandemic scenarios for AirTransport” organised by Fast Future. It was really interesting, you can get the opening presentation by Rohit Talwar here.

Among the different aspects addressed there was the impact of the epidemic and the economic (dramatic) downturn on future investment. Many experts (not just the ones on the panel) are expecting a slower recovery than the one we saw after 9/11 (and that one was not particularly fast). The air traffic now is down some 80 to 90% (depending on the areas) and airlines are getting rid of planes to decrease cost (American, as an example is retiring all its 757 and 767 plus some old planes in the fleet). Unfortunately, the air transport business has significant fixed cost, from keeping a plane parked on the tarmac to labour cost. Lufthansa, by having over 90% of its planes grounded, is losing 1 million € per hour, and of course if an airplane is not flying it is not making money. The long recovery time that is expected will lead to planes flying with fewer passengers (airlines, on the average, need to have planes at least 85% full to generate a margin) for quite some time and this is another force pushing airlines to reduce capacity.. In the US the expectation is of a reduction of 10 to 15% in capacity this year. Since a plane uses roughly 100 people to operate (it needs much more than the crew!) this reduction may lead to some 100,000 people losing their jobs by year end (airlines that are receiving government funds have agreed to save jobs till October).

All in all, there is the expectation of lower investment in aircraft orders (Boeing and Airbus are expecting significant losses by year end) as well as in other areas like facilities upgrading/constructions, procurement…. as you can see in the graphic.The areas that are expected to see a growth are the ones that can lead to cost decrease by increasing effectiveness, such as automation (also making use of AI) and innovation as well as customer service, in particular those actions that can accelerate the uptake of business (like increasing the perception of safety to prospective passengers).

Top investment increase is expected in the area of Digital Transformation. Airliners, as well as facility operators (airports, catering, transportation…) are looking at ways to dematerialise as much as possible their processes. It is an ongoing process, the boarding pass has moved from a paper form to a QR code on our smartphone and in some airport it is no longer required. A video camera picks up your face, cross checks the biometrics with the one coded in your passport and let you board the plane.

Bags are more and more self tagged by the customer with no operator attendance, meals are pre-ordered and delivered to your seat thus cutting on waste (this is particularly advantageous in business and first class where a meal is pricey and there have to be a sufficient number of extra servings to accommodate passengers’ choices – by having passengers pre-selecting their meal airlines can cut cost and give the passengers the perception of a better service…).

Entertainment is more and more based on BYOD, bring your own device/screen. That makes for a cheaper and lighter aircraft. In the coming years we might expect airlines starting to offer “office-in-the-sky” by creating a virtual enterprise environment that connects business passengers to their company by data shadowing and mirroring (this will be a significant improvement on todays’ lousy internet connectivity, the data you need will travel along with you).

Here again, we are seeing the Covid-19 accelerating the implementation of the Digital Transformation, a good thing if you look at the increased efficiency (both of airlines and of their passengers) a bad one if you think about the loss of jobs that this implies.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the Industry Advisory Board within the Future Directions Committee and co-chairs the Digital Reality Initiative. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.