Although traffic across all routes operated by the Gulf carriers has drastically decreased during the pandemic, the volume of connecting traffic has been among the hardest hit due to its increasing complexity. In the past few months, questions have arisen as to whether the current crisis will lead to structural changes within the airline industry; also the the big question of when connecting traffic will return to the pre-crisis level.

After every single crisis in the past the landscape of aviation has changed fundamentally, it is highly likely that this will be the case after the current COVID-19 crisis. Linus Benjamin Bauer, Managing Director at Bauer Aviation Advisory and author of this article, believes the hub-and-spoke model will remain relevant in the post COVID-19 era. In order to make that happen, the Gulf carriers will need to reshape their strategies around operations and network.

The Future of the Hub Model has been Questioned

Even before the COVID-19 pandemic, the future of the hub model was being questioned by experts and industry leaders; triggered by changing aircraft technology that favours direct flights (point-to-point, long-haul thin routes and ultra long-haul flights), change in customer preferences (e.g. avoiding stress around tight connections), the environmental concerns threatening circuitous connecting itineraries of passengers and finally the hub congestions at various mega hubs across the globe (including London-Heathrow). These factors were potential limitations to the further growth of hub airports and hub carriers in the Gulf and beyond.

The Gulf carriers have been forced to rethink and redesign the hub-and-spoke model. The rebuilding of hub systems is considerably more complex than that of point-to-point networks, due to the regional differences in COVID-19 restrictions and the interdependencies among routes. The current COVID-19 pandemic can be considered as another major threat to the growth of hub airports and hub airlines in the short and medium term.  

Relevance in Post COVID-19 Era

The pandemic will put short term pressure on the hubs in the Gulf region; in the longer term, there will be fewer hubs left on the aviation map worldwide. But we can agree that the hub model in the Gulf region will still remain relevant in the post COVID-19 era. Long-term trends in aviation, the rising demand for thinner routes and the increasing market share and importance of leisure and VFR travel (visiting friends and relatives) during and after the pandemic will support the continued importance of hubs in the Gulf region. In terms of market segments, the VFR segment will come back first. This will later be followed by leisure/tourism travel, however business travel will take a longer time to come back to post COVID-19 levels. Due to having large market shares in the growing VFR and leisure segments, the Gulf carriers( including Emirates, Qatar Airways and Etihad Airways) could be in pole position to use the current crisis and the recovery patterns to their advantage as hub carriers. In general, price-sensitive leisure and VFR travel is more closely linked with connecting flights via hubs.

The relevance of the hub model will greatly depend on the ability of the Gulf carriers to adapt their operations to the new normal in post COVID-19 era. In the short term, the Gulf carriers will need to rebuild their networks in a tactical way by reducing the very large dependency on connecting traffic (reopening of networks). In essential collaboration with the stakeholders, they need to work on joint strategies to lure more leisure and business demand to cities like Abu Dhabi and Doha in the post COVID-19 word. In the longer term the Gulf carriers will have to not only reappraise their market positioning, but also revenue management and pricing strategies/tools, fleet structure (aircraft technology) and most importantly the better use of data; in order to be well positioned in the post crisis environment.

Customer Centricity and Value Creation are the keys

In saying this, the Gulf carriers must become more customer-centric. They have to put their customer first and at the core of their business, if they wish to provide a positive experience and build long-term relationships in the post COVID-19 era. With the help of their loyalty programs as an all-encompassing platform (access to large amount of data and information about customers), the Gulf carriers can build and grow lasting customer relationships during and after the pandemic. The true driver behind a successful modern loyalty program is Big Data and the detailed information it captures on consumers, through an array of interactions across all channels. Through the better use of data and constant highlighting the safety and health benefits, the Gulf carriers would be able to reduce the churn rate of connecting passengers in the short- and long-term.

The reassessment of the level of the network privilege should also factor heavily into the design of the Gulf mega hubs, like Dubai, for the longer term. Especially because the key source of the Gulf carrier’s value creation is network privilege (the carrier’s ability to offer every single customer segment a unique service).

Concentrating passengers through the Gulf hubs enable the Gulf carriers to offer connections for markets that lack sufficient demand for a non-stop link, thereby creating a cycle of reward between the Gulf carrier and passengers. Therefore, it is necessary for the Gulf carriers to reassess the level of privilege in their network (e.g. reorientation of services by launching flights to secondary cities with smaller aircraft).

Conclusion

In conclusion, the current crisis in the aviation industry does not spell the end for the hub model in the Gulf region. The development of efficient aircraft like the Boeing 787 may empower hubs, rather than threatening their importance in the near future. The economic benefits remain largely intact for the Gulf hubs and carriers (efficient model) and its passengers (attractive fares). There is now doubt that the pandemic will continue to wreak havoc within the industry; however, we will see a continued role for the hub model in the Gulf. We have heard the roars of the turbofan of here in Dubai more frequently again in these days (thanks to the increasing demand for air cargo, as well!).

Thus, it is essential for hub carriers to make the most of this opportunity to revaluate their network and fleet strategies. Although there will be fewer hubs across the globe in the future, the remaining hubs will emerge stronger and become more profitable. However this will only be possible if they make the necessary short, medium and long term adjustments to their current and future model. It is also essential that any changes made are done so in collaboration with all stakeholders. Ultimately, the growing VFR segment, driven by the globalization effect, will play a very crucial part in keeping the hubs alive.