Passenger Travel

Drivers

All industries are being shaped by the global Megatends of Globalisation, changing Demographics, Climate change and Technology innovation.  Shaped by the these trends and now the pandemic, the industry is being shaped by five major drivers:

 Demand

Population growth, increasing wealth (GDP will double by 2050) and urbanisation (70% in cities by 2050) will create demand for travel and transportation services. 

Passenger transport will increase from 44 trillion in 2015 to 122 trillion passenger‑kilometres in 2050 (China and India will account for a third of the total). Private vehicles will remain the preferred mode of personal travel worldwide. Travel in cities will shift towards public transport and shared mobility, which will account for 50% of total passenger‑kilometres by 2050. 873 billion passenger kilometres were travelled in Britain in 2019, an increase of 11% from 2009. 84% of passenger kilometres made by cars, vans and taxis. UK public passenger travel is down 65-90% depending on mode in 2020. Business travel and tourism is not expected to recover until 2024. A worldwide recession may push recovery out even further.

Customer Expectations

Digital consumers and rising delivery expectations (driven by the like of Amazon) is raising expectations for  consumers.

There is considerable friction in researching, planning, buying and replanning transportation. International tourism has been found to take 45 touchpoints and 36 days to book due to fragmented information and user journey. Complicating their efforts is an acute shortage of digital talent – a chronic concern in the industry.

The pandemic and now the recovery in travel demand has caused considerable impact on transportation experience especially with airport congestion. Recovery of the aviation sector could up to 18 months due to the time it will take to rehire staff and return operations to pre-pandemic levels.

Sustainability

Transportation is responsible for 25% of CO2 emissions worldwide, road transport accounted for 74% of this. Worldwide transport CO2 emissions are projected to grow by 60% by 2050.

 Cities are responsible for 70% of global emissions.

Pressure will come from customers (seeking to reduce their footprint), investors and government especially in local travel and aviation. Accelerated electrification (and/or hydrogen or SAF) will be required to meet further proposed emission reductions and the banning of combustion engine sales in 2030. UK companies will have to disclose sustainability performance under the Task Force on Climate-related Financial Disclosures (TCFD) regulation starting in 2023.

At the COP26 climate conference a number of announcements were made on commitments to Net-Zero:  

  • Road Transport - 24 governments (including the UK), 11 automakers & 39 cities pledged to go zero emissions for new car sales by 2040. 
  • Travel - Travel companies pledged to halve emissions by 2030 and reach Net Zero  before 2050.
  • Shipping - 14 nations (including the UK) issued the “Declaration on Zero Emission Shipping by 2050”.

Security & Resilience

Reliability, safety and security are key issues in transport. Reliability is impacted by road congestion and air/rail systems aging infrastructure and limited capacity. Security of air and transit systems is also a major issue. The complexity of transportation systems means that technology can play a significant part in controlling risks and improving reliability.

Regulatory standards play a crucial role in transportation spanning safety, emissions, data privacy, working conditions and border/import/export controls.

Profitability

Despite growing demand, many firms are suffering from eroding margins. EBIT margins range from -1% to 8%. Capital and fixed operating costs are high, and companies are struggling to differentiate. They are challenged by high labour costs (50-60% of the total overhead cost), low automation, and in some cases low utilisation post pandemic (e.g. transit systems). Up till now there’s always been a trade-off between service levels and costs. However, a mix of lean optimization, second-wave automation, and product redesign can significantly cut operating costs and increase productivity. 

The pandemic has had a negative impact on travel firms. The likely recession will cause profitability challenges and the need to balance cost with investment.