VUCA — short for volatility, uncertainty, complexity and ambiguity — best describes the world today, and more appropriately today’s air travel demand. In a VUCA environment, survival is mainly driven by exposure (risk) and competitiveness. Neither factor must be at the expense of the other. Competitiveness is achieved through larger volumes, but volumes increase business exposure and vice versa.
In the airline world, cost-per-seat dictates competitiveness, while cost-per-flight reflects exposure. In a price-sensitive market, cost-per-seat is the mantra and has been achieved through narrow-body aeroplanes. These aircraft have a higher cost-per-flight, and to mitigate that exposure, many seats are filled through discounted fares and price wars. However, even pre-Covid-19 results have shown that this approach is unprofitable. With restrictions on domestic airfares since May 25, 2020, the average passenger count per flight has fallen from a pre-Covid-19 high of 140 to 100-110. Domestic passenger volumes in India have been rising, but because the number of operated domestic flights is increasing, at about a near-constant of 110 fliers per aircraft.
The high of 90 per cent average domestic load factors across airlines now sits at 70 per cent. Once the fare caps are lifted, airlines will resort to sizeable discount pricing. While this may have the effect of bringing loads back to the 90s, the low fares may not be able to cover costs.
Does competitiveness necessarily have to come at the expense of exposure? Is there perhaps a way to ‘have the cake and eat it too’?
Certified in 2019, the 146 seat Embraer E195-E2 is the world’s latest narrow-body jet. With enhancements in structure, aerodynamics, flight control and propulsion, the E195-E2 realises a cost-per-seat lower than larger narrow-bodies, and a cost-per-trip at least 22 per cent lower than these aeroplanes.
Chances of survival in the VUCA world are highest when competitiveness matches the market while the exposure is lowest. The E195-E2 achieves just that.
(The writer is Airline Marketing Manager for South Asia, Embraer Commercial Aviation)