Covid’s double-edged sword

posted on 17th March 2022
Covid’s double-edged sword

Much needed digitisation and automation will continue to be implemented, but we should not forget the importance of skilled personnel, where the shortage of labour will boost automation even further but will also continue to cause inflation and supply chain disruptions, highlights Sebastiaan Scholte, CEO at Kales Airline Services

Nobody has a magic crystal ball to look into the future. No one could have predicted this pandemic, nor the capacity shortages and rate increases in the last months. The only certainty we have is that there will be a continuous uncertainty.
Unemployment levels in most developed countries are very low. The Covid crisis has functioned as a double-edged sword. People could spend less on travel, which obviously lead to the belly capacity reduction. But the disposable income is also higher, which resulted in more demand, especially on e-commerce. This ‘perfect storm’ of reduced capacity and increased demand has caused shipping and air cargo rates to be at record levels. Add to that the labour shortages of drivers and warehouse personnel, and capacity was even more constraint.
Overall energy prices, higher transport costs, and higher wages have increased the inflation levels. Strangely enough interest rates have stayed quite low, but the question is for how long.
In my opinion 2022 will be similar to 2021. There probably will be a lot of volatility and capacity will remain constrained and demand levels will be high. As soon as consumers can spend more money on travel and eating out, inflation levels will decrease. If inflation will increase further, this could potentially lead to a slowdown.

Licence to print money
Anyone with freighter capacity basically will continue to have a licence to print money. Demand for qualified personnel will continue to be high, further putting pressure on wages. On the positive side, air cargo logistics has become a lot more attractive for younger people to join our industry, since in the last two years it has become obvious that air cargo is so essential for e-commerce and keeping healthcare systems going.
Long-haul business travel will probably continue to be less than pre covid levels, while shorter leisure travel will continue to improve. The question will be if travel remains restricted, how many airlines, who rely on long haul (business) travel, will be able to survive without being bailed out or getting even more debt. This could potentially lead to even further capacity reductions.
Airlines traditionally have the aircraft capacity, but in 2022 the share of freighters operated by e-commerce companies, forwarders and even shipping lines will most likely increase. As some acquisitions have shown, when profits soar of certain companies, there likely will be more consolidation as well.
Much needed digitisation and automation will continue to be implemented, but we should not forget the importance of skilled manpower. The shortage of labour will even further boost automation, but will also continue to cause inflation and supply chain disruptions.
As Darwin said, it is not the strongest but the most adaptable that will survive. Also in 2022, agility will be key. Luckily at Kales Group we are very agile and extremely quick to react to market changes with our lean entrepreneurial organisation structure.

Further outsourcing to GSSAs
Most likely airlines will continue to outsource more to GSSAs, in order to remain flexible with all the changing market conditions and because there still will be pressure from board level to keep (labour) costs down. At Kales group, we basically completely unburden the airline in a very cost-effective and efficient way. Moreover, we truly see our airline customers as partners, where we are also willing to take more commitments on capacity and where we can help our airlines perform better. With state-of-the-art real time market intelligence combined with digital booking processes, we are sure that 2022 will be good year for our partners and us.