“You’re not thinking fourth dimensionally”
Five Ways COVID Alters the Future of Travel
Pia Hauch and Gaetano Crupi are the COO and CEO of Cabin Technologies, the tech-enabled long-distance mobility company solving intercity travel.
TLDR: COVID broke travel. When we put it back together, it will never look the same. Structural changes to how we work, shifts in personal travel preferences, an increase in health concerns and a renewed focus on carbon emissions will forever change how we fly and how we travel.
In October 2019, Cabin launched its second generation service, which included contactless boarding, additional separation of each private sleep compartment, and a proprietary active suspension system for comfort. In the first week of March 2020, we made the tough call to halt operations due to COVID-19.
Over the past two months, we have reflected on this new, alternate future of travel, how it will impact the industry and what that means to Cabin. The long-term demand impact of COVID will undoubtedly change travel. In the interim, forced adoption of new technologies and behaviors is unnaturally accelerating existing trends.
We believe there will be five major structural shifts in travel.
Humans are incredibly resilient and a large proportion of innovation and behavior change happens in downturns and dislocations¹. When the momentum of “how-we-do-things” comes to a screeching stop, we start to ask the more important question: “why-we-do-things.”
COVID will accelerate both the decline of regional flying and what we believe is a shift from metro areas to more regional living.
When we founded Cabin, we went through a first principles analysis around the most efficient way to travel 50–500 miles based on (i) current technology, (ii) future technology and (iii) shifts in consumer behavior. Our core insight was that connectivity (Zoom, Netflix), delivery (Amazon Prime, Doordash) and mobility (Uber, Cabin) enable completely new types of cities and behaviors; we no longer need to be tethered to urban centers for work and sacrifice lifestyle. COVID has accelerated our long-term strategy by showing people we could live significantly more distributed lives. We started Cabin to forge this alternate future. We’re just getting there faster.
1. BUSINESS TRAVEL MAY NEVER FULLY RECOVER
“It’s definitely put it back into your thinking, even if you’re not an environmentalist. What is my essential travel?”
Celine Fornaro — Head of European industrial equity research at UBS²
Since March 2020, the airline industry has experienced a 96% drop in passenger volume³ and major airlines expect the trend to continue for some time. United CEO, Oscar Munoz said they “expect to fly fewer people during the entire month of May than we did on a single day in May 2019⁴.” A factor in this decline is companies’ unwillingness to put their employees at risk for non-essential travel, especially international trips.
In the short-to-medium term, business travel demand will remain anemic due to:
- Health Concerns — why expose employees to unnecessary risk?
- Travel Restrictions — is that international trip worth two weeks of isolation upon arrival / return?
- Budget Cuts — some of the first expenses to cut during a downturn are travel & entertainment
COVID-19 has forced all businesses to transition to remote work at a faster speed and larger scale than anyone could have predicted. Companies have not only increased their use of existing platforms like Zoom, but many Fortune 500s have accelerated their adoption of collaboration tools, like Microsoft Teams in record time (Microsoft recorded an increased in 12 million users in just 7 days⁵).
Historically, economic downturns have resulted in a temporary reduction in business travel. What’s interesting now is the industry’s awareness of remote working trends that, unlike past downturns, will have a permanent impact to demand⁶. The longer we work remotely, the more comfortable we become with new tools and distributed work teams. A recent survey suggests that 24% of people newly working from home want to continue working from home⁷. These new behaviors will likely cause businesses to permanently substitute some face-to-face interactions with video conferencing⁸.
The burning question is what percentage of business travel and related expenses (e.g. airport lounges) will return?
The answer will fundamentally alter airline pricing strategy.
Pre-COVID, Americans made ~405 million long distance business trips per year, about 12% of all airline bookings. That business cohort is roughly 2x as profitable as leisure travelers due to last minute bookings and companies’ general price insensitivity. First class and business class tickets can cost up to 10x the price of coach tickets which means that business related travel can account for up to 75% of an airline’s profit margin¹⁰. About ⅔ of all airline costs are fixed¹¹ and the average profit margin for US carriers is 9%¹².
Stripping out even a small percentage of the highest margin customer has a severe impact to the bottom line. In the medium-term, average ticket prices across the board will go up if airlines wish to maintain margins.
Beyond just ticket price, route breakeven calculations also shift. Those 5:00 AM flights that land just in time for an early meeting might be relatively empty. Smaller routes might suddenly be unprofitable¹³. The implications of a permanent shift in business demand will mean a complete realignment of airline pricing and route demand. The almost inevitable airline industry consolidation will put further upward pressure on prices as competition goes down¹⁴. According to industry consultant Mike Boyd, “There’s going to be fewer airplanes. That means less flying. So there’s going to be less choice, and you’ll be paying more. There’s no way around that¹⁵.”
The structural shift in how we work is not entirely due to COVID — it is an acceleration of existing trends. Imagine if in 1995, everyone in the world was forced to use email and the internet for all communication for three months. That event might’ve accelerated mass adoption by 5 years; maybe a whole decade.
Business travel may one day recover, but will look very different. Maybe your employees will live across several different cities and commute between several locations on autonomous vehicles, working in different cities a few times a week. Whatever the future holds, business travel will never be the same.
SUMMARY
- Increased ticket prices: lost revenue due to a reduction in business travel will be amortized over all other passenger tickets
- Elimination of lower volume routes: countries with strong alternatives to flying such as Europe and China will see an acceleration in high-speed rail travel. Many flights under 300 miles, which account for ⅕ of European routes, will likely disappear while some less established international routes like London-New Orleans or Amsterdam-Salt Lake City may also get cut¹⁶
- Depending on how severely business travel decreases, airlines may have to rethink the fleet make-up and in-cabin layout to right size their cost structure for lower margin leisure tickets (different / more seat classes and price points)¹⁷
2. PERSONAL TRAVEL WILL BOUNCE BACK BUT LOOK DIFFERENT
“Leisure travel went from being as popular as ever at the beginning of 2020 to grinding to a complete and indefinite halt by mid- to late-March. We’ve seen more than a hundred thousand lives cut tragically short. Those factors will combine to create a world in which travelers will no longer put off taking the trip they’ve been dreaming of for months, years or even longer.”
The Points Guy¹⁸
While the coronavirus pandemic has brought global travel to a screeching halt, leisure travel will rebound in the long term. In a post-quarantine world, pent up demand for vacations, getaways and family reunions will fuel trips across the world.
Unlike business travel, personal travel cannot be replaced with an online experience. Even though consumers will have significantly less disposable income, personal travel can be modified to fit within budgets. Business travel is dictated by factories, offices, clients, etc. Most leisure travel, beyond visiting family, is not destination-specific and can be modified. “Short-haul travelers, in particular, have the option to replace air travel with surface travel¹⁹.”
We expect leisure travel to bounce back but there will be a shift in the type of trips taken, especially in the short-to-medium term as consumers remain fearful of crowded and confined spaces. Post lock-down, leisure travel will likely take the form of road trips, a trend that was already having a resurgence pre-COVID among Millennials and Gen Z ²⁰.
Local road trips are (a) inexpensive, (b) can be planned quickly, (c) can be for very short duration and (d) provide access to remote, less populous destinations.
Short-haul, domestic air travel will rebound thereafter in the United States but may take longer to recover globally. In the US, there are limited alternatives to air travel for distances <500 miles. Europe, China and South America, however, are likely to see an increase in train and bus travel. In general domestic travel will bounce back faster as shown in a recent graph featured in the Economist²¹.
Longer lines, increased health screenings at airports, more rigid immigration requirements and continued exposure to international viral clusters will make international travel take longer to return. As international travel stabilizes in the long-term, we may see an increase in consumer demand for remote destinations, pushing airlines to reshuffle their routes and schedules.
Similar to trends impacting business travel, we see COVID as a catalyst for acceleration of existing behaviors in leisure travel: higher frequency, regional and shorter duration trips.
Any increase to remote work flexibility will only increase the ability for people to travel and work from a variety of places as they become untethered from an HQ — the “digital nomad” lifestyle. Although not leisure in the traditional sense of vacation, people will be able to personally travel to various different destinations while continuing to work.
SUMMARY
- Leisure travel will skew more heavily towards domestic and non-air travel
- International leisure travel will rebound but the timing will depend on the length of the COVID recession and will ultimately be driven by consumer disposable income
- Demand for remote destination travel will force airlines to open new routes at affordable prices or lose out to smaller, regional competitors (air and ground)
3. CONSUMER FOCUS ON CLEANLINESS WILL FUNDAMENTALLY CHANGE AIRLINE OPERATIONS
“The big [question] that everyone is asking is, are airlines going to be required to provide more space in between passengers, which is very difficult to do. When the time comes that people want to fly again, there’s no way that airlines can make money unless they pack them in like sardines. That’s the whole business model. That’s worked over the last 10 or 15 years.”
Jay Shabat, senior analyst at travel industry publication Skift²²
It should come as no surprise that a global pandemic would incite fears and questions around how airlines have historically operationalized their sanitation protocols and where short, medium and long term changes are necessary.
Boeing ran a simulation on their 757–200 and 757–300 aircrafts to understand how “decreased airplane turn time can positively affect airline profitability.” They found that the overall turn time took between 52.5 and 59 minutes, roughly 18 minutes of which is spent on cleaning²³. With 240 passengers…that is mere 3.75 seconds per passenger seat area if they spend 1 minute cleaning each of the three bathrooms onboard!
The takeaway? What sufficed in the past will no longer pass as acceptable in the future.
In a survey of aviation experts, 92% of respondents said they expected to see an improvement in aircraft hygiene requirements post-COVID²⁴. Major airlines like Delta, United, American, Qantas and Southwest²⁵ have already come out with statements outlining their updated cleaning programs, including electrostatic fogging, use of EPA-registered disinfectants and increased overnight cleaning schedules that were previously reserved exclusively for long-haul flights²⁶.
New social distancing requirements are also forcing airlines to provide adequate space between passengers and rejigging in-flight food and beverage service to limit human contact. In a post-COVID world, there are three key changes we expect to see.
Cleaning Protocols
First, airlines will publish and prioritize transparent cleaning protocols, including extending deep cleaning practices for all flights. It isn’t publicly known how often aircraft undergo a full deep clean but it’s thought to happen no more than every 1–3 months or when the plane goes in for routine maintenance²⁷.
Given that your seat-back tray is 8x dirtier than the toilet flush button (gross)²⁸, it feels appropriate that every surface be thoroughly sanitized after every single trip. In the near term, airlines will begin requiring passengers to wear masks (Delta, United, Frontier and JetBlue have already come out publicly with this rule²⁹) and possibly offer complimentary PPE to travelers. On the whole, more training and labor hours, longer turnaround times between flights and additional hygiene-focused amenities means more costs to both airline providers as well as a likely passthrough to passengers.
Social Distancing
Second, in the short-to-medium term, the social distancing mandate will necessitate that airlines block the middle seat, a decision that could have a dire financial impact. Removing ⅓ of all seats is unsustainable in the long-term so airlines will likely begin experimenting with creative ways to monetize the lost space³⁰. Again, the question here remains, who will bear the brunt of this cost?
Short-Distance Alternatives
Finally, consumers will look for alternatives to flying, especially for short-haul distances — why put yourself at risk of international health exposure on a plane when you could drive yourself or take a train? This is especially true for aging populations or anyone with pre-existing health conditions. The ongoing perceived health risks of flying (largely a derivative of how aggressively airlines tackle cleanliness as one of their core value props going forward) will determine how quickly air travel bounces back.
SUMMARY
- Cleanliness certifications and transparency around Standard Operating Procedures will be expected by all passengers (and possibly required from a regulatory standpoint).
- New costs associated with training, testing and added labor will ultimately increase ticket prices. Jessica Nabonga, founder of travel firm Jet Black, explains it well: “Flights are going to be cheap because they’re going to have to convince people to go on planes, but costs of some things are going to have to go up because of the necessity of more sanitation³¹.”
- Passengers will seek alternatives to flying where possible to limit exposure.
4. NEW AIRPORT HEALTH PROTOCOLS WILL MAKE TRAVEL MORE CUMBERSOME
“The entire passenger’s journey through a terminal has to be rethought around themes of new conventions for personal space and new concepts for protecting wellness”
Jonathan Massey, co-leader of the aviation sector at Corgan³²
Gone are the days when waiting in line to show your ID, removing your computer and shoes for security and queuing to board your plane were the primary friction points of travel. In a post-COVID world, airports will be forced to implement more rigorous health screenings and immigration checkpoints as well as additional infrastructure to support social distancing in an already crowded environment.
In the short-to-medium term, check-in lines, TSA lines, boarding lines, etc. will increase, adding time to the front-end of any trip and adding dead time to the beginning of air travel, regardless of flight time. “A four-hour wait at the airport could become the norm, as some airports opt for “sanitagging,” an extra process that involves passing plastic and metal suitcases through UV light to disinfect them.”⁵⁰
The good news is there are a number of existing technological innovations already underway. With a heightened focus on health and safety combined with the short-term challenges described above, the industry as a whole will move fast to test and implement new robotic, biometric, AI and automated contactless-technologies. Some experts even believe the technology already used to spot terrorism threats (advanced CCTV and surveillance platforms) could be adopted for virtual health screenings³³.
Below are the likely short-term changes and medium-to-long term innovations we expect to see gain momentum:
Short-Term Changes
- Staggered queuing to enforce continued social distancing. Tara Mulrooney, VP of Technology for Edmonton International Airport in Canada believes these may include “solutions that help manage queuing by providing time slots for entering security lines and boarding airplanes.” She also predicts an increase in “mobile and contactless check-in processing,” a trend that was already growing pre-COVID³⁴
- Written communication within airports may even change. Design firm Teague hypotheses that the term “touchpoint” could disappear on signage and public health officials could mandate “contactless accessibility” scores for various surfaces and areas³⁵
Medium-to-Long Term Innovations
- Design changes to airport floor plans to remove all doors requiring pushing or pulling
- Automated gesture and eye-movement based stations for payment kiosks, check-in stands and in-flight entertainment systems³⁶. (Remember how dirty your seat-back tray is? Imagine a world where you never had to touch it again.)
- Cashless merchandising and contactless dining: Amazon has already started licensing its Just Walk Out technology to airport retailers across the US³⁷
- Robots and drones equipped with UV lights and other disinfectants that sanitize surfaces: This would likely start in large areas within airports and eventually take over more labor intensive overnight aircraft cleaning³⁸. Some experts even believe that airlines could install VR technology to verify that each aircraft is cleaned and ready to go before passenger boarding (39)
- Thermal imaging and body sensors to enable virtual health screenings⁴⁰: Etihad Airways announced it will be the first to test contactless check-in technology which is powered by a service that can also detect passenger heartbeat, temperature and respiratory rate⁴¹
As with all positive technological innovation, there always remains the question of the longer term impact on existing workforces and ultimately, whether the tradeoff between efficiency and human empathy is worthwhile. What we do know is that seamlessly rolling out any new technology at scale takes time and money, both of which will impact the guest journey for the foreseeable future.
SUMMARY
- Longer travel times: this is a certainty in the short-to-medium term; wait times in the longer-term will depend on both the speed of technological adoption as well as public health recommendations for continued oversight of health screenings
- Increased Ticket Prices: just as $5.60 was passed on to the passenger to cover the cost of TSA screenings post 9/11⁴², we expect that the cost to implement and operate new technology will be split between airport operators and consumers
5. COVID WILL DELAY AIRLINES’ RESPONSE TO CARBON EMISSIONS, ACCELERATING CONSUMER ADOPTION OF ALTERNATIVES
“This issue (flight-shaming) presents a clear and present danger if we don’t get on top of it.”
Robin Hayes, CEO of JetBlue
In January 2020, a few weeks before COVID became a full-blown pandemic, JetBlue CEO Robin Hayes said that the “Flygskam” (flight-shaming) movement “presents a clear and present danger… We’ve seen that in other geographies and we should not assume those sentiments won’t come to the U.S⁴³.” Following other European airline operators, JetBlue committed to full carbon offsetting in 2020.
Commercial air pollution is vastly outpacing projections. Unlike in the auto sector or for city grids, there is no practical solution for airlines to massively reduce their carbon footprint in the next few decades. Climate change experts are not so keen on carbon offsetting, the go-to airline response to climate change. Kevin Anderson, a leading climate research, wrote in the journal Nature that “Offsetting is worse than doing nothing… It is without scientific legitimacy, is dangerously misleading and almost certainly contributes to a net increase in the absolute rate of global emissions growth⁴⁴.”
Moving to electric aircraft or cleaner fuels (like compressed natural gas) will take 20 years with no solid path to mass adoption. As other sectors decrease their carbon footprint and flight volume continues to expand, commercial aviation is projected to grow from 2.4% of the world’s greenhouse gas emissions to roughly a quarter of emissions by 2050. This would mean that commercial air could be the largest carbon emitter by mid-century⁴⁵.
What does this have to do with COVID? As air volume collapses, so do emissions. Isn’t that a great thing?
Not if it stalls investment in cleaner air travel.
It is too early to tell when commercial aviation will reach pre-COVID levels, but it is safe to assume that carbon footprint will be a much lower priority as airlines face anemic demand, regulatory restrictions, new health protocols, and ultimately consolidation (and bankruptcy for many). Even fleet-upgrades to more fuel-efficient aircraft will likely slow as airlines change their orders⁴⁶. The only good news for airline operators is record-low fuel prices…which is bad news for the planet.
The predicament faced by airlines is similar to the one faced by legacy automakers⁴⁷: an inability to continue investing toward greener alternatives even though consumer preferences toward cleaner alternatives have not shifted.
Even during the crisis, the focus on emissions has not disappeared. The French government gave a €7B coronavirus aid package to Air France, but one of the conditions was for Air France to stop competing with TGV (French Train System). The new ban on short-haul flights will apply to routes where rail is a viable alternative (less than 2.5 hour ride)⁴⁹. Short-haul flights are notoriously bad because the most intense fuel burn occurs between take-off and cruising altitude. For long-distance flights, you can amortize that fuel-burn buy-in across thousands of miles. You use as much fuel in the first 66 miles of a flight as the next 520.
The European Investment Bank released a survey in late 2019 that showed that most US, Chinese and European citizens were already planning to fly less in 2020 as a way to mitigate climate change. Even more surprising, 62% of the 28k European citizens polled would support a ban on short-distance flights to combat climate change⁴⁸. One of the reasons for these surprising numbers has been the increased awareness of flight emissions.
Commercial aviation is a dirty business. In areas where we have superior alternatives (short-haul flights), we should switch to more sustainable solutions. If industry and government don’t take the lead, consumers will.
SUMMARY
- Airlines will not be able to significantly alter carbon emissions for several decades, presenting an opportunity for alternative forms of transportation — especially if they are zero emission.
- Post-COVID, airlines will see positive wins on fuel cost but unprecedented financial headwinds will limit how much they can invest in even the most tepid green initiatives
- Consumers will experiment with alternatives while simultaneously seeing first-hand the positive impacts of lower carbon emissions.
- Customers may not return to short-haul flights
WHEN OPPORTUNITY CALLS, BUILD A BETTER FUTURE
British Airways CEO Alex Cruz said that “We have to reimagine and reshape our airline and create a new future for our people, our customers and the destinations we serve⁵⁰.” There is no recovery for airlines; no return to the the high water mark of the past decade. Airlines will have to think of a new future.
We feel incredibly well-positioned for a post-COVID world. Based on the five structural shifts outlined in the piece, we see four major new opportunities.
- An increase in average airline ticket prices makes Cabin more competitive, allowing Cabin an opportunity to capture market share
- Shifts in air demand will alter regional air route distribution, allowing Cabin to capture increasingly ill-served markets
- Cabin is way ahead on cleanliness, already employing a contactless check-in system and a private ‘pod’ layout that limits human-to-human interaction from boarding through check-out.
- Cabin’s complete transition to zero emissions is realistic in the next five years and COVID does not affect that timeline
COVID has accelerated our long-term strategy by showing people we could live significantly more distributed lives. As we set our sights on the horizon, we imagine a new world: one where you don’t need to travel across the country to close a deal or pay all your wages in rent so you can live near your office; one where we revive our domestic supply chain and local manufacturing; one where you can live in multiple cities and travel to new places like never before; one where living well is synonymous with doing right by the planet.
ABOUT GAETANO CRUPI: Obsessed with building teams and organizations, Gaetano currently serves as the CEO of Cabin. Previously, Gaetano was the COO of Betable and founder of Machina Pictures. Gaetano was nominated for a Grammy in 2013 for his work with Foster the People and also produced Beyonce’s “Move Your Body” video for Michelle Obama’s “Let’s Move!”project. Before becoming a producer, Gaetano was a consumer and retail investment banker at Goldman Sachs in New York. Gaetano is an alumni of Wharton and the Stanford Graduate School of Business. Having grown up in Brazil, Venezuela, Canada and United States, Gaetano speaks three languages fluently, and lives to explore.
ABOUT PIA HAUCH: Pia is the COO of Cabin Technologies. She started her career in private banking at JPMorgan before spending several years in the food & hospitality industry, overseeing new product development and culinary operations at Starbucks and Munchery. She is a Bay Area native, self admitted Francophile, graduate of Stanford University and lover of all things food, travel and adventure.
SOURCES
(1) The Economist; (2) Bloomberg; (3) United Airlines; (4) United Airlines; (5) Data Economy; (6) United Airlines 10K; (7) CNBC; (8) Irish Times; (9) The Economist; (10) Trondent; (11) Investopedia; (12) Wall Street Journal;(13) Bloomberg; (14) Bloomberg; (15) CNN; (16) Bloomberg; (17) Forbes; (18) The Points Guy; (19) United Airlines 10K; (20) Vox; (21) The Economist; (22) Conde Nast Traveler; (23) Boeing; (24) Conde Nast Traveler; (25) CNBC; (26) AFAR; (27) Forbes; (28) Forbes; (29) CNN; (30) Future Travel Experience; (31) VOX; (32) Skift; (33) Skift; (34) Skift; (35) Fast Company; (36) Fast Company; (37) Engadget; (38) Fast Company; (39) Mindtree; (40) GovTech There are privacy concerns and debates circulating about the necessity of such a technology long term. Matthew Guariglia, policy analyst with Electronic Frontier Foundation (EFF), argues that “after 9/11, we got the Patriot Act. A lot of times [after a large event] the initial public safety concerns allows people to ignore or disregard the long term civil liberties implications, because of the initial panic. Terrorism is one thing — because it’s an ongoing problem. But there’s no reason why this kind of technology would need to stick around after the COVID-19 crisis is over.”; (41) Future Travel Experience; (42) TSA; (43) Yahoo Finance; (44) Inside Climate News; (45)New York Times; (46) Reuters; (47) The Driven Taking the example of the auto-sector, as earnings and cash dry up in a recession, automakers will struggle to keep up with the electric transition, slashing R&D budgets. This benefits Tesla, who is already in-market and solely focused on electrification. According to Morgan Stanely analyst Adam Jonas, “The further along other competitive EV programs get pushed out, the more Tesla will, in our view, be able to extend its competitive edge in electrification from the perspective of the consumer⁴⁷.” Similar stagnation will affect the airline industry from operators to component manufacturers. The “Tesla” in this example is either not flying at all or substituting flying with trains, buses, etc.; (48) Airport Watch; (49) Business Traveler; (50) NBC News;
