• Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
  • Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Phase 1: Fighting through the sanitary crisis

Covid-19 has hit all forms of shared urban transportation hard. Now that many western economies are beginning to reopen and ease lockdown restrictions, let’s take a brief moment to review how the crisis unfolded for different subsegments of urban mobility:

Public transit demand declines across London, New York City, Paris and the San Francisco Bay Area. Source: Transit app

Source: Second Measure

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

2.1 Public transit must digitize and continue partnering with private mobility players

Rider Alerts is a tool that enables transit agencies to better communicate service interruptions to riders. Source: Swiftly
Scooter app downloads from Austria, Denmark, Finland, France, Germany, Norway, Sweden and Switzerland. Source: App Annie

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

3.1 Public policy could play a key role in shaping the new normal for urban mobility

Conclusion

While uncertainty remains with respect to length and long-term impact of the crisis, there is bound to be some enduring change to the urban mobility landscape precipitated by Covid-19:

For now, one of the big unknowns is how consumer demand will recover for urban mobility in the months and years to come. The unanswered question is how many trips will be replaced by virtual work and entertainment once this is all done?

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

Introduction

Recently, we delved into the impact of Covid-19 on manufacturing. We saw that key industrial players have been hit hard by the crisis and that they are digitizing at a forced march. But what about their involvement in green energy?

Until now, the renewables market was projected to grow rapidly; changing the way we fuel our cars, heat our homes and power our industries for decades to come. Yet today, the industry is facing headwinds as a result of the Covid-19 pandemic, the global economic downturn and the collapse in oil prices. The question is, will Covid-19 slow the global shift to renewable energy?

Quarantine period — Renewable energy has been the most resilient energy to Covid-19 lockdown measures so far

The International Energy Agency says energy demand is likely to fall by 6% in 2020 — seven times the scale of the drop suffered in the 2008 financial crisis. In other words, 2020 will be equivalent to losing India’s energy demand in absolute terms.

Despite it being the biggest shock since the Second World War, renewable energy has, so far, been the most resilient energy to lockdown restrictions, making up more of the energy mix. This is mainly due to the solar and wind projects that were completed in 2019 and to the priority dispatch of renewables over other energies, due to their low operating costs and favorable regulatory incentives.

But it goes without saying that the renewable energy industry was affected by supply chain disruptions and a slowdown in installation activity during quarantine.

  • Solar energy: as Chinese factories account for 70% of the world’s solar panel supply, global production of solar photovoltaic (PV) was reduced in February due to factory closures in China’s key manufacturing provinces. Despite some shipment delays, production is now ramping up again.
  • Wind energy: the wind supply chain however is very interconnected. As wind turbines require multiple parts across the world, Europe, which is a major manufacturing hub for wind turbines, suffered massively from China’s reduced production.
  • Liquid biofuels: the liquid biofuels industry directly suffered from the decline in road transport fuel. US ethanol production was down nearly 50% by early April, leading to growing biofuel stocks, decreasing biofuel prices, thus compromising profitability. Many ethanol plants in fact shifted towards manufacturing hand sanitizer.

For small renewable energy suppliers, the situation was particularly difficult. According to Julien Tchernia, CEO of ekWateur, France’s leading supplier of renewable energy, the contraction in demand forced them to sell the excess of energy that had been contractually purchased (electricity can’t be stocked) at extremely low prices, making them lose a lot of money.

A decline in renewable energy additions due to delayed constructions and supply chain disruptions

Although Chinese factories are starting up, we expect global supply chain disruptions and delayed constructions to cause a significant dip in renewable energy additions. The procurement, construction and commissioning of new power plants will be slowed by the unavailability of work crews and the restrictions being placed on international travel.

  • Solar energy: BloombergNEF has revised its global forecasts for 2020, saying that demand for photovoltaic solar panels will be in the range of 108 to 143 gigawatts, down from the range of 121 to 152 gigawatts that was forecasted less than a month ago.
  • Wind energy: with the blustery start of the year and widespread wind turbine installations last year, we expect an overall increase in wind energy consumption. In China, all wind projects need to be commissioned by the end of the year to qualify for Feed-In Tariff subsidies. The United States is also in a similar situation. The question is: to what extent will there be delays?
  • Liquid biofuels: we expect a decrease in liquid biofuels throughout 2020 despite a potential rebound of transport in S2 2020. Many biofuels blending mandates have been delayed especially with the decrease in low oil prices and the introduction of Brazil’s RenovaBio policy may also be disrupted.
  • Hydropower: hydropower energy accounts for almost 60% of renewable energy yet remains the largest uncertainty in 2020 as it is dependent on rainfall and temperature patterns.

Beyond supply chain disruptions that will ripple through construction, construction projects will also be slowed by the depreciation of many currencies against the US dollar. Australia, Brazil, Mexico and South Africa are currently experiencing a rapid depreciation, resulting in higher capital costs for projects under construction. According to Rystad Energy, increases could be as high as 36% for these countries, resulting in the potential shutdown of most projects not yet been commissioned.

While analysts from BloombergNEF, PV InfoLink, and IHS Markit say that overall a significant contraction of demand is likely this year, some companies are reporting record sales with consumers reportedly panic-buying solar and storage equipment to sure themselves up in uncertain times. This is particularly true for Smart Energy, which has said it has witnessed a 41% increase in sales and a 400% increase in battery inquiries over Q1 2020. According to Elliot Hayes, CEO of Smart Energy, “our growth is a by-product of economic uncertainty that is driving both residential consumers and businesses to look for ways to future-proof their savings, homes and businesses.”

Towards a greener future?

As all projects for 2021 are being planned today, not all construction projects will go ahead as planned when the recession hits.

1. Towards a decrease in investment because of pressure on public and private budgets?

The government and policy-makers’ reactions to such a pandemic are hard to forecast. Whilst some countries may show resistance to change and slow the shift towards renewable energies, other countries may demonstrate an aggressive approach to accelerate the transition. Ultimately, the pace of the recovery and shift will depend on how governments direct their economic recovery spending.

Some countries like Spain have announced that Feed-in-Tariffs (FiT) would be extended, others have created new ones to boost the demand for renewable energy (e.g. the United Kingdom has announced new FiTs to boost the solar industry), whilst in some countries like the United States FiTs are fading.

Many argue that including incentives for renewable projects (tax credits, investment grants, loan schemes, etc.) should be a top priority in upcoming stimulus packages. In the EU, the €1 trillion Green Deal climate package, crafted before the COVID-19 outbreak, is now being touted as a critical part of economic recovery. Yet, one wonders whether climate commitments will take a backseat in economic recovery plans with investments in clean technologies being either abandoned or scaled down.

One thing is for sure: climate change and other environmental, social and governance (ESG) issues are being increasingly recognized as key determinants of a company’s future value creation potential. And renewable energy is demonstrating higher ROI than fossil fuels. According to a recent study carried out by Imperial College London and the International Energy Agency clean power stocks generated higher returns over the past 10 years, five years and this year — in the UK clean power companies such as John Laing and Ceres Powers have outperformed peers such as BP and Tullow over the past five years.

2. Will the lower oil prices affect renewable energy penetration?

Government policies have been forcing utilities to retire coal-fired power plants — since 2010, the net loss of coal capacity in the US has fallen by 102,000 megawatts. Yet, the recent decline in oil prices could lead countries whose economies are built on fossil economies to see a transition to cleaner energy as unnecessary.

In fact, the UK-based think tank InfluencyMap recently carried out an analysis on the corporates lobbying in the face of the Covid-19. It found that, large oil and gas players have been the most active in seeking for direct and indirect support (stimulus funds, pollution regulations and the use of the strategic petroleum reserve to bolster prices). As reported by Emily Holden for the Guardian beginning of May, records show that fossil fuel companies have already obtained $50 million in loans.

But despite the stimulus money and the weaker pollution regulations, the oil and gas industry is more vulnerable than ever. “The pandemic exposes and exacerbates fundamental weaknesses throughout the sector that both predate the current crisis and will outlast it” stated the Center for International Environmental Law (CIEL). Long before the crash in prices, the oil and gas industry has been projected to peak as external pressure has surfed — not only from environmental activists and regulators, but also from central banks and hedge funds — for the oil industry to diversify into lower-carbon energies.

In short, fossil energy may be cheaper now, but fossil fuel projects are becoming even riskier. With the increasing carbon-conscious investing and the worries that many fossil projects may become unviable, the lower prices are not an immediate threat to renewable energy. An indication: despite an oil price crash in 2014–2015, the renewable energy investment had a historic run.

3. The rise of a new momentum?

As said previously, without government action, this crisis could considerably disrupt the momentum around renewable energy. Conversely, with government support and carbon-consciousness, it could well be the start of a new momentum.

In fact, in Australia experts advocate that renewable energy may well drive economic recovery. According to Kane Thornton, CEO of the Clean Energy Council in Australia, “there is still a strong pipeline of renewable energy and storage projects and enormous customer demand for rooftop solar and batteries. These will be critical in replacing Australia’s aging coal-fired power stations, meeting Australia’s climate change targets and ensuring affordable and reliable power supply.”

With Covid-19, renewable energy has also gained new momentum in some countries and sectors. The transition to renewable energy has been slow in the mining industry yet even the remotest mines in Africa are now starting to consider solar, wind and energy storage. According to Alastair Gerrard, CEO of Zest WEG Group Africa, which supplies a wide range of electric motors, “the last year or two has seen a significant uptake in interest and securement of renewable energy power projects in the mining industry — which on a positive note is occurring across the African continent and not only in first world territories.”

Finally, technologies may well emerge from this crisis such as floating offshore wind farms, marine technologies and low-carbon hydrogen production. Recently Australia set aside $300 million to jumpstart hydrogen projects, the Netherlands unveiled a hydrogen strategy in late March for 500 megawatts of green electrolyser capacity by 2025 and a German hydrogen strategy is expected soon.

According to Antoine Huart, President of France Territoire Solaire, solar energy would be the energy pillar of resilience in the post New World — “produced by automated, digitalized, decentralized and abundant installations located in areas as close as possible to needs, solar energy seems to have been invented to meet the challenge of resilience.” Just as Europe has relocated lithium-ion battery manufacturing, it is questionable whether Europe will relocate solar manufacturing, since China accounts for 70% the world’s solar supply.

Conclusion

Although the shift towards renewable energy may have been slowed down, the long-term trend towards the transition to low-carbon energy will remain unchanged.

The future of the renewable energy industry will be shaped by: incumbent lobbying; consumer demand; the speed, quantity and nature of government support and the divestments and investments made (in other words, will fossil fuel investments be divested to be invested in renewable energy?).

It is, therefore, essential that countries put renewable energy at the forefront of their recovery plans to build towards a more sustainable future — before the next climate-induced event triggers another global economic shock.

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

In these articles, we will analyze the impact over three different periods identified in our first article:

  • Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
  • Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
  • Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Introduction

In February 2020, the global manufacturing sector suffered its sharpest contraction since May 2009, as the spread of Covid-19 disrupted global supply chains and exerted a downward pressure on demand, production, and revenues. The organization of the manufacturing sector into global value chains — which has created dependencies largely beyond the control of individual businesses — has exacerbated the impact of the crisis, leaving most companies in the sector in a vulnerable financial state.

Against this backdrop of turbulence, what can manufacturers do in the short term to safely resume operations and get back on track? Will the Covid-19 crisis usher in the Golden Age of digitization in modern manufacturing? Which startups are best positioned to thrive in such an environment? In this article, we will share our insights of our discussions with different stakeholders on how they are responding to the crisis.

Phase 1: Quarantine period — Fighting for survival

For players across the board, Phase 1 consisted in protecting themselves from the pandemic and the risk of a — potentially massive — health related downside.

For corporates and SMEs, the priority was to safeguard their employees and to ensure business continuity. Most manufacturers were in ‘survival mode’, fighting to survive, focusing on lean operations, adopting digital tools for basic business processes, and cutting costs. As demand fell — unevenly across consumer, intermediate and investment goods — industry dynamics played a huge role in how businesses were affected. Manufacturing companies that were directly involved in the management of the crisis (medical supplies, basic necessities, etc.) fared better than verticalized players on the fringes of the ‘firefighting’ process (e.g. the automotive industry). While other players shifted parts of their business to support the war economy when the demand and supply of their existing products collapsed — in the US, Ford, in collaboration with GE Healthcare, 3M and UAW, manufactured respirators and personal protective equipment (PPE) to help fight the crisis in March and April.

For startups in the Industry 4.0 space, the impact of the virus was clearly felt on the sales cycles, with decision- making in SMEs and corporates being put on hold. Some startups therefore addressed other more dynamic verticals, such as the food distribution industry. “Some of our large food and drink customers are considering building their own additive manufacturing capabilities, to cope with the disruption in their supply chain for spare parts, and keep their manufacturing line running with parts printed on-site”– Omer Blaier, Co-founder & CEO, Castor.

For blue collar workers in manufacturing, it was an ‘interesting’ time. In some countries, such as the US, cost-cutting initiatives negatively impacted the workforce as the disruption of supply chains and social distancing measures put millions of employees out of work. In European countries, however, governments stepped in to pay wages for a limited period of time. This was done to avoid mass layoffs and to circumvent the bureaucratic complications that accompany the dismissal and hiring of workers. As operations came to a standstill, many firms became aware of the indispensability of blue-collar workers in the manufacturing industry. In the near future, this realization could mean a shift in the way manufacturing workforces are structured, with an emphasis on the upliftment of blue-collar workers. We could also see the middle management lose their bargaining power as of result of short-term cost reductions and the long-term increasing task automation — numerous recent studies show that operating without the middle management has increased the productivity of some manufacturers. This crisis will undeniably lead to organizational changes in the long run.

Phase 2: Charting the path to recovery

As countries begin to lift lockdowns restrictions, manufacturing businesses will be among the first to go back to work.

To prevent a second wave of infections, businesses will need to prioritize health over speed — an outbreak of infections would not only have a direct impact on the production capacity and the bottom line, but also on worker morale. Therefore businesses, especially manufacturers, are going to be obliged to find ways of resuming operations while respecting the hygiene and social distancing best practices. In this respect, businesses can draw inspiration from the world’s largest automobile plant, the Volkswagen plant in Wolfsburg, Germany. After closing the plant for more than 5 weeks, the company implemented 100 safety measures, determined in collaboration with the frontline workforce, to ensure a sustainable return to work. These measures include reducing the workforce (8,000 production line workers per shift instead of 20,000), social distancing measures, and strict disinfection guidelines.

However, a greater emphasis on health and safety measures will seriously reduce business productivity in the short term. This, in addition to low demand, will likely incentivize businesses to invest in digitization. Digital tools will help businesses to ensure business continuity and maintain a sufficient level of operations to serve the customers they retain. In light of social distancing best practices, several corporates are choosing to have their non frontline workers work from home — PSA, for example, announced a switch to remote work for all its white-collar workers after the deconfinement in France on the 11th May. In the US, the share of employees working remotely full-time in the manufacturing industry has jumped to 61% (up from 2pp before the crisis).

In this new work environment, the swift adoption of digital tools for communication, teamwork and managing business processes can greatly accelerate the return to work. Keeping business continuity in mind, the following categories of tools are likely to see accelerated adoption during this phase:

  • Remote communication and teamwork tools: as frontline workers cannot work remotely, there is an urgent need to improve the effectiveness of internal communication (among blue-collar workers on the field and between blue-collar and white-collar workers). While tools and workarounds (such as SMS, telephone calls or WhatsApp) are not designed for operational excellence, we expect an increased adoption of dedicated tools — such as Beekeeper, Kraaft (for internal communications) and Yoho (to manage health concerns) — to ensure workforce productivity and seamless communication between remote teams.
  • Support function tools: the digitization of support functions in the industry space — which is generally not the focus of innovation projects — could help businesses manage workforce, cybersecurity, and finance risks. A shift to remote work could imply greater reliance on the cloud, therefore VPNs and enhanced infrastructure security. As businesses implement health insurance and government-mandated policies internally, functions such as HR and compliance could also experience increasing digitization in the near future. Financial management will also be crucial as companies explore new business models and take stock of the fiscal conditions of their suppliers and customers.
  • Tools supporting core internal business processes and analytics: when factories resume their productions, the monitoring of production KPIs will be greatly facilitated. However, businesses operating in globally distributed value chains will be more affected, as employees may not be physically present to monitor quality and performance metrics. “Monitoring and maintaining the ongoing production process has become impossible for many companies. Digitizing global monitoring over the entire manufacturing cycle has become a critical need to regain control and end-to-end transparency.” — Eyal Kaufman, CEO, QualityLine.
  • Contingency planning and scenario modelling tools: in the short term, shifts in the global social and geopolitical climate, disrupted supply chains and changing customer preferences will require manufacturers to be agile and have visibility across the entire value chain. Companies will have to anticipate disruptions both upstream (plan for more flexible sourcing, replace hard-to-get parts, produce hard-to-get part in-house, etc.) and downstream (customize their value offering to meet more local needs). They also need to adapt to potential changes in the customer journey, encompassing shifting demands and adapting to new customer engagement models. To better understand our perspective on supply chain disruptions, you can read Raphaëlle’s article.

Prior to the crisis, corporates’ priorities regarding digitization were operational efficiency, capturing competitors’ market share and impacting share price and dividends. During Phase 2, however, the focus is now on ensuring business continuity, capturing emerging market shares and offsetting debt from their balance sheets. As a result, the digitization projects that focus mainly on improvement (of processes/ products, etc.) could be relegated to the background in the medium term — the severe financial impact of the crisis is making companies reluctant to embark on non-core projects, especially where the ROI is not clear.

Phase 3: The Golden Age of digitization in manufacturing?

Once we enter the ‘new normal’, businesses will need to focus on protecting themselves against future uncertainties (brought on by bigger threats such as the impact of climate change). Our hypothesis is that, with continued strategic investment in digitization — and subsequently, automation — they could make themselves ‘antifragile’.

Traditionally, executives in the manufacturing industry have inched cautiously towards digitization, although they recognize the competitive edge that it brings. This is due to the complications of project conception, change management and deployment at scale. During the crisis, however, some companies have demonstrated impressive agility in adopting new ways of working to ensure business continuity. Microsoft, for example, reported at the end of April that they had seen two years of digital transformation unfold in two months.

When it comes to digitization in the factory, change management (not technology) is the bottleneck.

The need for flexibility and resilience (in addition to focusing on productivity and quality) could be the driving force behind digitization. The case for digitization in the manufacturing industry is reinforced by the way technological advancements (such as data access, computing power, machine connectivity, business intelligence and HMI technologies) can impact business metrics (productivity, downtime, quality, flexibility, time to market). In an uncertain post-pandemic world, businesses will need to be agile to thrive, and end-to-end visibility across the value chain will be at the heart of those efforts. Specifically, businesses will need to have better visibility into the availability of raw materials, inventory, WIP, people and assets. This visibility will then need to be translated into timely decision making: “As a direct result of the crisis, companies are facing demand uncertainty and have constrained supply chains. They are looking for ways to be resilient and flexible in how they manage operations — the goal is to increase transparency and collaboration with both customers and suppliers while reducing operating costs. Investing in digitization to improve the productivity and proactive decision-making capacity of the white-collar workforce (supply chain managers, production controllers, quality inspectors…) with advanced analytics will result in massive efficiency gains.” — Tarik Benabdallah, CEO & Founder, Pelico.

On the factory floor, automation will still consist of optimizing the interaction between man and machine, and not of deploying robots. Until now, automation in factories has been less about replacing machines and equipment than it has been about harnessing captured data and making machines and human workers smarter and more efficient. Today, in a typical factory, robots perform ca. 10% of tasks, a number that could reach a maximum of ca. 25% in 2025. That is not expected to change in the short term — human agility and judgement are indispensable on the factory floor, especially when it comes to non-standardized processes in unpredictable environments. Robots are suitable for high volume situations requiring accuracy and speed, but fail when time to market and customization are the KPIs of interest to the factory. In fact, in the mid-2010s, Toyota replaced robots with human workers because the robots did not meet their accuracy and process improvement expectations. In addition, there is a skill gap when it comes to designing, programming, running, deploying, and maintaining robots which indicates that we are unlikely to see large-scale robot-led automation in manufacturing anytime soon. Manufacturers should focus on deploying robots where it is cost-effective and frees up capacity for human workers. This does not mean that a wave of robot automation is totally out of the question in the mid to long term. Players such as ABB (in collaboration with AI startup Covariant) are working on tackling tasks that typically require human intervention (early adoption is in logistics, but they foresee adoption spilling over into manufacturing too soon).

The future of work in manufacturing centers around the augmented frontline worker.

Companies will probably need to invest in training workers for the ‘reimagined organization’. The crisis will highlight systemic HR inefficiencies and the accelerated adoption of digital tools will redefine many jobs. Historically, new technology and automation have played an instrumental role in the evolution of jobs and work. Industry leaders recognize the latter, and the reskilling and upskilling of the workforce has been a hot topic for businesses and governments in the face of Industry 4.0 for some time now. As companies scramble to digitize and automate to ensure business resumption, they also face the challenge of adapting their processes and reskilling/upskilling their workforce to prepare for the post-pandemic world. According to Jorim Rademaker, CEO of Manual.to, “In an Industry 4.0 setting, the frontline worker needs to become increasingly interoperable. Rising automation, IoT and big data analytics, put strain on the human operator, who is at risk of becoming a bottleneck. Facing increasing demands and complexity, the human operator needs easy, effective and engaging digital tools, encompassing training, performance support, and information tools. An aging workforce, and an influx of generation Z workers introduce additional challenges. It is in this rapidly changing world that operator-centric digital knowledge sharing tools like ours — Manual.to — offer groundbreaking and sustainable advantages.”.

Conclusion

The manufacturing sector is one of the hardest hit by the crisis, but it is also one of the best placed to leverage digital transformation to reinvent itself and emerge stronger in the post pandemic world. What the near future holds for manufacturing businesses will depend on the robustness of government intervention, the duration of the crisis, and their agility to bounce back.

The central role played by frontline workers has been highlighted during this crisis, and many corporates may now realize the urgent need to augment their workers in order to be better equipped for the road ahead. While increased digitization and automation will destroy some jobs (impact on middle management and gatekeepers such as IT), it will also reform others (jobs on the factory floor).

Advice to the manufacturing startups: if you can, offer services free of charge to help fight against Covid-19. It is harder to get budgets for software rather than hardware for safety but it is good to open positions. The startups that adapt their value proposition (according to the evolving needs of their customers) while having a quick ROI will come out of the crisis with a stronger foothold in the market. Startups whose value propositions are flexible enough to explore new market segments should also explore this option.

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

In these articles, we will analyze the impact over three different periods identified in our first article:

  • Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
  • Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
  • Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Introduction

In just a few months, the coronavirus outbreak has triggered a global sanitary crisis and is expected to have a lasting impact on the entire organization of our societies.

But let’s rewind a bit: it is 2019, most of the world’s economies are still growing, the Dow Jones is reaching an all-time high and global VC activity is projected to reach $295bn (its second best year ever after the record $322bn for 2018). Digital transformation is one of the key macroeconomic trends that investors like us are watching, as we believe that corporates and individuals will increasingly benefit from digital productivity tools in the coming years.

Fast forward to today. Many organizations have either partially or completely closed their offices and have hastily reorganized to cope with the crisis. But what role have digital tools had in this reorganization? What impact will coronavirus have on organizations’ digital transformation efforts?

Phase 1: The forced march to run business operations remotely

The Covid-19 outbreak has put a large number of organizations in a state of shock, defined by:

  • Uncertainty: the inability to anticipate what will happen next — will customers stick around? Will there be enough cash at the end of the month? — which is the worst thing that can happen to a business
  • Inability to sell: a lower demand for both B2B and B2C companies due to the lockdown restrictions
  • Supply chain disruption: the inability to purchase materials/parts/inputs as before — especially for those dependent on China — leading to slowdowns and shutdowns.

Companies have therefore gone into ‘emergency mode’ to keep their operations afloat while managing their cash efficiently.

According to our discussions with our network, those who have best dealt with the situation are the most digitized players: startups and large players who had already migrated to the cloud, implemented remote work policies or could run business 100% remotely. Conversely, the most affected by the crisis are those for whom remote meetings are not really feasible, distribution channels are purely physical, change management is complicated or IT systems and processes are outdated and complex. Among the latter are mainly industrial players, who have been forced to shape digital transformation frameworks in a matter of weeks instead of years.

In short, Covid-19 has dramatically accelerated digitization for many companies — the number of daily Zoom sessions has skyrocketed from 10 million in December 2019 to 300 million in April 2020. It is estimated that before the pandemic, only 7% of US workers had access to a ‘flexible workspace’ benefit, or telework, according to Pew Research Center. Today, 42% of workers who did not work from home are doing so, according to CNBC’s All-America Economic Survey.

But don’t be misled by these figures, this forced transition has mainly consisted of (1) subscribing to video conferencing apps (2) massively deploying VPNs (3) moving to the cloud. In a word, this is more a matter of putting a digital band-aid on a wooden leg than a structural change in the way decisions are made. While these changes have had a huge impact on the way corporates organize themselves and the way they perceive remote work, they are only a trigger for a larger wave of digital transformation to come.

Phase 2: Avoiding the workplace as much as possible, unless there are no other options

Western economies are now looking at deconfinement and thinking carefully about how people are going to move around. For businesses, this phase will be long (at least 18 months), uncertain, and will have a lasting impact on corporate roadmaps and organizations. In concrete terms, it is likely that most corporates will face:

  • Uncertainty: the level of uncertainty as to what will happen next will remain high
  • Economic recession: consumer behavior (B2C & B2B) and purchasing power will change, causing a global economic recession
  • Remote work will be the new norm: for most organizations, remote work will become the norm as it is the simplest solution to ensure the daily well-being of employees

As a result, it is likely that enterprise roadmaps and digital customer experiences will be impacted in the next 18 months, with 2 main consequences:

1. The impending economic crisis will reduce overall corporate spending and the risk of adversity.

We expect managers and business leaders to have limited budgets and not be willing to engage in new/uncertain innovative projects that will not be considered essential for recovery in phase 2.

While ServiceNow’s CEO estimates that $7 trillion could be spent on digital transformation by 2023, it is likely that decision making will more than ever be driven by rapid and measurable ROIs. While this has always been seen as an implicit requirement, we believe it will become more explicit for decision makers: corporate digitization will have to focus on productivity gains and serve their economic recovery.

Overall, this means that startups and software vendors that are able to quickly demonstrate clear value will be strengthened while others, perceived as ‘nice to have’, will be weakened. For the ‘winners’, sales cycles and adoption may even be faster than before.

Concretely, this doctrine will have an impact on the type of digital tools adopted by corporates with:

  • The rise of new communication tools connecting frontline workers (blue collar workers, salespeople, etc.) to other stakeholders (managers, customers)
  • The rise of vertical solutions allowing obvious productivity gains for essential functions (e.g. robotics in industry/logistics)
  • The rise of horizontal software for organizational efficiency (RPA, AI tools replacing low added-value tasks)
  • The increase in capital and operating expenses for both IT infrastructures (move to the cloud) and physical infrastructures (local outsourcing, 3D printing, etc.).

2. The efforts made by organizations in Phase 1 to run remote operations will continue and remote work will become the new norm.

Now that many organizations have discovered that remote work actually works, Phase 2 will be more about ‘how to adapt the organization to operate remotely?’ than on ‘is it possible for my organization to work remotely?’. As a result, we can expect a perpetuation of the digital tools that enable remote work and digital communication for most of categories of workers.

Again, this will obviously be easier for companies where the physical presence of employees is not mandatory for business continuity. Specifically:

  • Red: for workers whose daily job involves non-substitutable equipment (industry, logistics, retail), physical presence will be mandatory and strict health and safety measures will have to be taken. These workers will continue to demonstrate that they are essential in many organizations and are likely be recognized as such.
  • Orange: for workers whose daily job involves interaction with people who either (1) are not equipped with digital tools (e.g white collar -> blue collar interactions on industrial sites) or (2) perceive face to face meetings as something mandatory (e.g b2b business developers), it will be more of a case-by-case situation. In general, we can expect a greater adoption of digital solutions to move from face to face to digital meetings.
  • Green: for workers whose daily job can be done 100% remotely (service industry, support functions…), there will be no clear incentive to return to the workplace — it would be more a question of resuming old habits than a necessity. Moreover, it is likely that a large majority will consider this to be unsafe or dangerous.

Phase 3: Increased agility & versatility towards running businesses 100% digitally

Hopefully in a few years a vaccine will have been found to protect the world’s population against Covid-19. By then, Phase 2 will have lasted months, if not years, and individuals and organizations will have learnt to work remotely and adapt quickly to sudden shocks.

Organizations will still have antibodies from the Covid-19 period and will not forget that resilience is an acquired trait rather than an innate one. They will have experienced digital changes at a fast pace and will be better able to assess the digital tools they need to become more agile and achieve real productivity gains quickly.

The benefits achieved in Phases 1 and 2 are expected to continue in Phase 3, mainly because digital transformation is mostly about UX, and UX is mostly about comfort for both users (ease of use, increased individual productivity) and organizations (increased collective productivity).

Conclusion

Digital transformation was already taking place at fast pace. Now, it seems to be a matter of life or death for organizations. The transition to digital and more fluid processes is accelerating for the greater good. It will more than ever make a difference between organizations that can anticipate and surf the waves of the future, and those that will drown under in the ocean of corporate rigidity. For startups, designing the most efficient surfboard and supporting customers will be a matter of survival. Let’s ride!

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

In these articles, we will analyze the impact over three different periods identified in our first article:

  • Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
  • Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
  • Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

In our last article, we delved into the impact of Covid-19 on the transportation of people. In this article, we will analyze its impact on logistics and supply chains. From the other side of the world to your country, or from the warehouse to your home, logistics and supply chain players are adapting. Although, the sector is operating at a slower pace, it is perhaps the only market that is still fully operational — which makes it quite unique. That said, this crisis reveals how globalized our entire economy has become. The question is: how will Covid-19 reshape our global supply chains?

Phase 1: Quarantine period — Fighting through the sanitary crisis

1.1. Resilient urban logistics operations keep many retailers afloat

As a result of the crisis, food & grocery delivery has become the fastest growing segment of urban logistics. According to Nicolas Breuil, Head of Marketing, Brand & Communications at Stuart, “our business with small and local food marketplaces, such as Epicery, Ollca or Rapidle, grew tenfold in March, while our business with supermarkets only doubled.” Not only do people prefer to shop online because it is safer, but they are wanting to support local shops.

Giant marketplaces with their own logistics options are also experiencing an increase in activity, as well as a decrease in operational failures. For instance, JD.com, which is managing to operate 24/7 thanks to its own logistics circuits and drivers, has seen its stock peak at $46.15 on April 17th. While its competitors, Alibaba and Pinduoduo, are forecasting a significant negative impact from the crisis as they rely exclusively on third-party sellers and fragmented distribution channels.

Finally, the physical stores which had not yet ridden the e-commerce wave were forced to implement “quick and dirty” solutions. “Stuart has partnered with iZettle [a Swedish payment startup acquired by Paypal in 2018] to help small shops like butchers and chocolate shops to stay afloat. Orders are made by phone, iZettle allows them to pay by SMS and we take care of the last-mile delivery.” added Nicolas.

1.2. Long-haul logistics are chaotic but digitizing at a forced march

Global trade and supply chains are going through a massive shock which is striking from both the supply and demand sides. Companies, whether buyers or suppliers, are struggling to keep goods on the move at a time of global lockdown — especially with the contamination time lag between the US, Asia and Europe. “Most of our customers are overwhelmed. There is no flexible solution to absorb the peak of demand, other than the increase in workforce, which would cause additional sanitary risks.”, according to Vincent Jacquemart, CEO of iFollow.

Given that the situation changes daily, technology is playing a growing role in rebuilding the trade and supply chain and making it more shock-proof. We are seeing players digitizing at a forced march — even less digitized ones such as freight forwarders, which provide the essential link between exporters and shippers. According to Brieuc André, COO of Ovrsea, a French digital freight forwarder, “the freight veterans, who used to be digital sceptics, are now facing major issues as technology is a competitive advantage in this crisis. March has been the best month ever in terms of new customer acquisition”.

1.3. Opportunities for Supply Chain risk management solutions

According to Heiko Schwarz, CSO of Riskmethods, one of their prospects (a leading automotive supplier) had its 80 procurement employees spending their days reading newspapers to see if any of their suppliers were affected. Global supply chains are still quite opaque, and many companies do not have the means to assess the risk of business disruption.

For the first time, sales, marketing, logistics and procurement teams are having to work closely together to get a complete picture of the demand, manufacturing and supply to adapt and recover from the unanticipated supply chains disruptions that are occurring. “In four weeks, the subscription base for our Coronavirus daily updates grew from 0 to 1,000 supply chain professionals. People need this transparency as soon as possible. And it has paid off: our sales cycles have significantly sped up while the average basket has increased a lot! It’s the first time in my career that I’ve seen a marketing campaign that pays off before it’s even finished.” shared Heiko.

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

2.1. With fiercer competition, versatile players will win

Deliveries will be in full swing at the end of the quarantine period. All pending deliveries will be secured, non-essential businesses will turn to online sales to recover as best they can, and in cities, restaurants and physical shops will likely turn into micro-fulfillment centers for last-mile deliveries in parallel with their operations. This expected growing demand for urban logistics, combined with the increasing number of urban fulfillment centers (enabling more stacking due to an increased density) will lead to increased revenues and margins, and in the end fiercer competition. Will it start a price war? Which players will achieve significant economies of scale and establish themselves as market leaders?

While they are currently affected by quarantine, the safe-mode period should also be a glorious time for food delivery platforms (Just Eat, Uber Eats, Deliveroo, etc.) with growth in both demand and supply — a large number of restaurants have been onboarded during quarantine. Some actors are even starting to deliver more than just food. This is the case of Meituan, the Chinese delivery giant, which delivers more than 10,000 products in addition to food, such as Huawei phones or even Sephora cosmetics. However, one may wonder whether food delivery platforms will start delivering parcels in Europe, given how the cost of European labour would significantly increase delivery prices.

In the long-haul segment, the plummeting of oil prices (oil prices were actually negative the second half of April) will probably revive road freight with very aggressive or even dumping strategies. Given the huge volumes of oil in storage, prices are likely to remain low for several months: rail freight may not be able to retain its new loaders onboarded during the quarantine.

2.2. Integrated players will get an edge

As JD.com proved during the quarantine phase, being more integrated ensures fewer operational failures. E-commerce enablers will be seen expanding horizontally or establishing new partnerships to provide a more integrated offering to the end customers. “We are currently talking with large e-commerce players such as Shopify, Magento and Prestashop — who also want to cover last-mile delivery “, Nicolas from Stuart.

Companies enhancing end-to-end visibility and transparency will also be flourishing. Byrd, for example, brings together fulfillment and delivery partners on one platform to provide a single logistics partner to retailers. “Over the last few weeks, we’ve seen a surge in entering leads, and for the first time requests from physical shops who now also want to go online and have even lesser capabilities to do the fulfillment in-house” shared Alexander, CEO of Byrd.

Public authorities have a role to play in the emergence of these alternative supply chains, allowing small retailers to remain independent of giant marketplaces. In France, Ma Ville Mon Shopping offers a viable alternative to Amazon for local shops, both in terms of marketplace and delivery service (operated by Stuart). The Loire-Atlantique Chamber of Commerce and Industry even deployed the solution free of charge in Nantes during quarantine.

2.3. A time of opportunity for warehouse automation solutions, but not for AVs all around

Given that volumes are not expected to decrease after quarantine and that managers will not be able to increase the density of workers within the warehouses, it is likely that there will be a wave of warehouse automation. Vincent, from iFollow, told us that they were currently working with a major parcel company operating in France to equip one of their hubs with robots by June. “They needed a short-term solution to keep their operations running with fewer people on site without having to freeze their entire supply chain.”

The question is whether other parts of the supply chain will become more autonomous. While JD.com deployed drones and autonomous robots in February and Neolix is currently using unmanned vehicles to supply hospitals in Wuhan with medical equipment, the use cases are mostly specific to hospitals. Even if AV players place a lot of hope in first and last mile delivery to become the growth engine of autonomous vehicles, one may wonder if logistics players will invest in such solutions in the midst of the economic crisis, especially since there is no necessary need outside of warehouses and it could be subject to regulatory controls.

2.4. Risk assessment as a new driver of supply chain decisions

For manufacturers with fast production cycles and lean supply chains — such as in the automotive sector, but also in electronics, semiconductors, chemicals, pharmaceuticals, consumer packaged goods, etc. — the penalty cost for not supplying even one hour can be huge. It therefore has become essential to be able to accurately forecast short-term evolutions so that operations can restart at the right time to meet demand. “It’s a question of choosing the right supplier, but also of managing the supply according to the forecasted demand and avoiding out-of-stocks situations. Increasing the buffers would be unbearable in terms of costs, which is why industrial companies will have to implement advanced optimization tools to have the right inventory on the right product” said Jean-Baptiste Clouard, CEO of Flowlity.

While the supply chain risk management market has entered its slope of enlightenment during quarantine, mainstream adoption is expected to take off when lockdown is lifted. Manufacturers will wonder how quickly recovery will occur and how reliable suppliers will be — which ones will fail unexpectedly? For weakened industrial players, choosing the right partners will become a matter of life and death. In addition to assessing the quality, price and availability of items, the risk of financial bottlenecks for suppliers will have to be assessed at an early stage in order to put appropriate countermeasures in place.

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

3.1. The time to take stock of the damage for the least adaptable players

Today, the lagging large corporates are being hit hard by their reluctance to adopt ambitious transformation plans. “The freight forwarding market today is made up of 40% of medium and small players. Very few are digitized, and they probably had to face cash issues more quickly than the large players. We expect a strong concentration in the market in the coming years.” plans Brieuc, from Ovrsea.

In the manufacturing market, some upstream tier two and three suppliers — typically medium-sized companies operating with 2–3% margins and low cash reserves — will have to be acquired by their customers simply to keep the plants in operation. Many of them will also be at risk of bankruptcy, threatening the entire supply chain. In the retail market, the same is likely to happen for small and local shops.

This will contribute to the economic crisis that is already hitting the world. Cuts in R&D budgets will continue to be announced, while development roadmaps will probably focus on core products and geographical areas. Being able to scale back or adapt one’s business model will be a key skill to maintain profitability and even compete with less flexible players. “This period requires agile solutions that can provide fast returns on investment — and today, 95% of automation solutions are huge and customized automation systems, with ROI of up to 10 years. Business models will need to adapt, otherwise these large companies might see their pipe dry up in the next few years” explains Vincent from iFollow.

3.2. Supply chain diversification will be limited by the economic rationale

In the long term, manufacturers will be rethinking how they orchestrate their network of suppliers. The manufacturing of critical spare parts will either be relocated closer to the major manufacturing plants or manufactured in house (thanks to additive manufacturing for instance). “Our customers have experienced an accumulated risk due to a concentration of suppliers in China. In the long term they will try to diversify in different geographical areas. However, betting on a single supplier is sometimes motivated by economic reasons, and as we are now in a recession, I think that saving money will also be a priority,” expects Heiko from Riskmethods.

Amazon closing its warehouses to non-essential products during the quarantine phase triggered a wave of independence among its third-party sellers. Although many restaurants and retail shops are onboarded on giant marketplaces, these players may very well begin to question their dependence on intermediaries which capture a significant share of their margins after the crisis. “We are already seeing restaurants considering developing their own distribution channels. They are afraid of becoming too dependent on a single platform and losing not only their margin, but also the customer relationship and knowledge” shared Nicolas from Stuart.

For e-commerce, risk mitigation will involve not only sales channels and delivery partners, but also diversified warehousing sites to ensure continuous access to customers worldwide. “In recent weeks, we have been approached by major American consumer product brands that typically had only one warehouse in Europe. They are concerned that a resurgence of the virus in Autumn could deprive them of market access, so they are already looking to diversify their distribution network” shared Alexander from Byrd.

3.3. The period is full of opportunities for logistics startups to seize

Logistics and supply chain startups have been the most active during this crisis, especially during quarantine. If these players manage to adapt to the coming economic crisis, they could become key players in tomorrow’s value chain. But to do so, startups need to focus on cash management. As the gross margins of logistics startups are low compared to most industries, unpaid invoices could quickly turn into difficult liquidity positions. Building a healthy customer base and growing it more quickly (by offering freemium options or robot rental for instance) will be paramount to avoid bankruptcy. Value propositions might have to revolve around reducing costs rather than increasing revenue or quality of service. But with their easy “plug and play” solutions, which require little investment and change, logistics startups could well establish themselves in markets long dominated by traditional players. In short, crises are a good time for frugal innovation.

Above all, it is a time of opportunity to sustainably increase revenues while increasing margins. Already in recent years, players involved with the shipping and delivery of goods have been constantly raising their prices. With the increased pressure on logistics, this could further strengthen the trend. The diversification initiative by Meituan is a good example of how a vertical delivery player can increase both revenue and margin by expanding into more profitable market segments.

Conclusion

Supply chains are acting as a safety net for the entire economy. After lockdown is lifted, we expect the urban logistics players to retain the most customers, freight forwarders to strengthen their positions in the supply chain with the increase of freight rates, and risk management solutions to finally become mainstream, bringing the transparency and predictability needed for economic recovery.

In the long term, the exponential growth of e-commerce will increase the density of the world’s logistics network, which could be at the expense of the environment — international freight transport accounted for more than 7% of global emissions in 2010, not counting urban logistics.

Although awareness and behaviors have changed over the last 10 years, 2008 showed how damaging recovery plans can be. So, the question is: who will win? Consumer social and environmental consciousness or economic recovery at any cost?

To help our portfolio companies navigate through the current “fog of uncertainty”, we have decided to write a series of articles in which we’ll delve into the impact of the Covid-19 sanitary crisis on our areas of expertise: energy, mobility and industry 4.0.

In these articles, we will analyze the impact over three different periods identified in our first article:

  • Quarantine period — Fighting through the sanitary crisis (10–15 weeks in the UE)
  • Safe-mode period — Learning to co-exist with Covid-19 (after quarantine)
  • Period of recovery — Development and distribution of a vaccine at large scale (from 2021)

Who would have thought that over 3.9 billion people worldwide could be confined in their homes and that most long-haul transport could be frozen? It’s undeniable, we are in the middle of a major health crisis that, depending on its outcome, could lead to the biggest economic crisis in our recent history.

However, the travel industry is not at its first crisis. The 1990–1991 Gulf War reduced annual airline revenues by 25% (with the impact lasting almost a year) and the 9/11 terrorist attacks cut them by 20%. Yet, the Covid-19 lockdown is hitting the long-haul transportation industry 5 to 6 times harder than the latter. In just a few weeks, the world’s busiest airlines have grounded nearly all the planes in their fleet and seen their number of flight departures drop significantly (by 78% in Europe and 53% in Asia excluding China in only 6 weeks, see graph below).

Number of departures at major airports. Source: Lufthansa Innovation Hub.

Mobility being one of the sectors in which we invest here at Aster — we have notably invested in Swiftly, Karos, Wluper and EasyBike — we have decided to delve into the impact of Covid-19 on the future of long-haul transportation. In this article, we will focus on air travel, train and bus operators exclusively, excluding cars and ships from this analysis. The question is: will people still travel by plane, train, and bus when the “new normal” takes hold?

Phase 1: Quarantine period — Airlines, bus and train operators facing travel restrictions

The travel restrictions imposed by many countries has resulted in an unprecedented decline in global air traffic: over 90% of Lufthansa Group’s fleet (Europe’s largest air carrier) is grounded.

“In only one day, buses were nearly all grounded and train operators down to 7% of their usual volumes”, according to Matthieu Marquenet, CEO and cofounder of Kombo (a digital platform for booking multimodal bus and train trips). More generally, the entire travel ecosystem has been affected, from OEMs (Airbus, Alstom) and their suppliers (Safran, Thalès) to hotels (Accor Hotels) or travel retailers (Lagardère).

In these difficult times, many operators have been requisitioned to support the war economy by:

Commercial Aerospace and Air & Travel are the two industries experiencing the largest market capitalization declines.

Transport operators will suffer from a massive drop in revenue in 2020 due to quarantine with a decline in holiday bookings and a rise in cancellations and passenger refunds. Revenues will also be impacted in 2021, as most operators have issued vouchers to manage short-term liquidity, which will lead to long-term liquidity disruptions. Tier 2/3 operators will especially be impacted by the cash flow uncertainty, as most do not have more than a 3-month working capital level.

In response, operators have taken urgent actions to cut operating expenses and improve balance sheet resilience. The operators most at risk are those that were already vulnerable to shocks (like Flybe for the airlines), not-so-profitable or had weak balance sheets.

Phase 2: Travelling while coexisting with Covid-19

Even once lockdown and travel restrictions are lifted, the industry will suffer massively from the fear of a second pandemic peak. A very influential paper from Imperial College London speculates that governments will need to turn lockdown measures on and off in order to keep demands on healthcare systems at a manageable level. Having just reopened its borders, Singapore is already suffering a second pandemic peak.

According to the World Economic Forum, the contraction in airline revenues due to trip cancellations and country-specific restrictions could cost the industry at least $880 billion. Several sources agree that international traffic will not return to pre-crisis levels before 2022.

During Phase 2, we will see even more Tier 2 and Tier 3 players go bust and many acquisitions or recapitalizations flourish. States will most likely have to intervene to support Tier 1 operators such as Air France. In the US, the Congress has already launched a $50 billion rescue package for American airlines. Not to mention the weaker players, the startups seeking to raise funds or join forces with large players, for whom it will be even more difficult to cope with the liquidity crisis. Beyond the liquidity issues, operators will have to make safety measures their number one priority. While the outlook seems very bleak, this crisis will also be an opportunity for some to stand out in a new competitive landscape and develop new travel products.

An interesting way of looking at Phase 2 is to look at how China is recovering. After quarantine, business travel resumed for small gatherings as well as domestic tourism. Hotels have returned to 30% of their pre-crisis levels (up from 7.4% in the first week of February) and air travel to 42%. However in Europe, 73% of travel companies surveyed by Roland Berger project that holiday budgets will be lower this year and 99% that French people will stay in their home country this summer. The industry will pick up again, but competition will be fierce: Ryanair has already announced that they will be lowering their prices to beat their competitors.

In the past, it took 6 months for air travel to reach pre-crisis levels after the SRAS outbreak in 2003 (see graph above), but this crisis will certainly last longer. In Phase 2, business travel will be limited, due to the cancellation of major events and conferences, and remain more local, thus boosting short-haul trips.

Phase 3: Sanitized and responsible travel will be the new normal

In this new reality, we will witness a dramatic restructuring of the long-haul transportation industry. From our conversations with our startups and some industry leaders, this is what the “New normal” could entail:

1. Why travel when you can do everything remotely?

The Covid-19 crisis will accelerate many trends going forward, especially the growing concern for climate change. After travel restrictions are lifted, we will probably see many people opting not to travel, motivated by guilt and concern for the environment — especially as companies have discovered the practicality of flexible working and remote conferencing. However, this will probably only be true in Europe: in Asia, most of the air traffic growth is projected to take place over the next 20 years, while in the US there is no real alternative to air travel.

The tools used by remote teams to stay connected (Zoom, Slack, Teams, Asana, Dropbox, Instagantt, etc.) will increasingly be used for other activities than work while long-distance travels will be replaced by options such as online museum visits (with Boulevard), VR travel (with Google Earth VR) or even virtual diving (with theBlu).

2. Travelling? Yes, but what about the planet?

This crisis will trigger a new wave of investment in the sustainable travel industry, namely in:

  • High speed rail: climate change awareness will most likely lead to a shift from air travel to rail, with 4-­hour high-speed train journeys replacing short-haul flights. Matthieu Marquenet from Kombo predicts that “after the crisis, train and bus trips will explode compared to planes, also because of the liberalization of European rail end of 2020 that will drive prices down”. To surf on this trend, they have just launched Komb’Home, a new app that rewards people for staying at home with post-crisis travel discounts. Alstom, one of our corporate sponsors, is investing heavily in this sense: sustainable rail, network electrification and hydrogen trains. According to the European Commission, 2021 should be “the European Year of Rail” and the industry should reach €11bn by 2022.
  • Greener aviation: the aviation industry will move towards a greener future by investing more in green synthetic fuels, liquid hydrogen, energy efficiency, route optimization and electric aviation (EVTOL and ultra-light power density batteries). In the medium term, this green pressure will jeopardize aerospace suppliers and their aftermarket revenues by forcing airlines to replace their current aircrafts with greener ones.

3. Will travel experiences ever be the same?

Just as 9/11 changed security checks, Covid-19 will likely permanently change the way we travel.

  • Focus on safety and health: we will probably have to wear a mask, carry an immunity passport and undergo a health check. In France, the SNCF has already announced that they will reinforce their cleaning services and offering hydroalcoholic gel on trains. Jean-Pierre Farandou, CEO of SNCF, believes that “wearing a mask should be mandatory. It’s the only option for trains, and even for all [urban] public transportation”. According to Nabih El Aroussi, CEO at Moove Tech and ex-founder of Traveldoo (Expedia), “corporates are realizing that business travel is not just about getting from point A to point B quickly, but also about ensuring safety”. “Moove Tech already offers features to track and assess the sanitary safety and environmental footprint of employees’ travel.”
  • A soaring demand for travel insurance: Fearing the resurgence of a virus, people will be more willing to pay for cancellation insurance fees and book through travel agencies.
  • Domestic travel will be back: Many more people are expected to steer clear of complicated international travel and instead explore their own countries.
  • All-inclusive resorts will undergo a serious overhaul: Social interaction and physical mingling are inherent pieces of the all-inclusive holiday experience. We therefore expect people to opt for more “premium” and intimate travel experiences (e.g. with PerfectStay), choosing private rooms rather than hostels, or for the wealthy, private jets rather than crowded flights. Jean-Pierre Farandou also mentioned that “if the winner of this crisis is the individual car, it would be a disaster”.

4. Optimizing operations to stay alive?

The crisis outbreak will force long-haul transportation companies to rethink their operations. Railway operators will invest in digitization to improve productivity, optimize asset management (through predictive management) and enhance their passengers’ experiences. As for airlines, they will certainly invest in tools enabling them to increase productivity (some startups are already specialized in airport operations such as Airport Labs, Adveez, Assaia or Innovatm) and enhance passenger experience (travel booking experience with Mindsay or check-in fluidity with Passnfly). According to Anthoine Dusselier, CEO at Tarmac Technologies — a startup optimizing aircraft ground operations — “today, there is room for improvement in the way airlines manage their ground operations, and we believe it will become more critical than ever in the coming months”. Tarmac is helping major airlines streamline their ground operations and reduce delays, enabling them to cut costs and increase customer satisfaction, hence revenues.

Conclusion

What is certain in this uncertain world, is that in the long term, people will continue to move. Maybe we will travel less, maybe we will travel differently, but we will not stay confined forever.

Like all crises, the Covid-19 health crisis will trigger creative destruction and innovation: remote working will be definitively established, distance partying/networking/gathering will become fashionable, long-haul transport will be reduced, electric vehicles will fly, fuel will be more environmentally friendly, hydrogen trains will be on rails and health safety will be part of the new travel experience.

The successful startups and companies will be the ones that seize these new opportunities by pivoting, creating new products or features, or even reaching out to new customers. But to do so, they should optimize their cash management, as the road ahead may take longer than expected.

We are on the verge of a huge shift in the way we move.

Car ownership has long been perceived as a symbol of independence and played an important role in marking one’s success. However, times are changing.

Today, it’s becoming increasingly easier to get around cities in private vehicles without having to own one. Car renting, carpooling, carsharing, and other alternative car ownership platforms have led to billions of new mobility patterns, which is in turn shaping the automotive industry. And for younger people, buying a car is beginning to be viewed as both a hassle and a waste of money (not to mention an environmental disaster as more people are living in cities!)

Mobility being one of the areas we are passionate about at Aster, we wanted to share the European startup landscape of New Car Ownership that we put together.

Myth #1: Blitzscaling is a recipe for success in the world of MaaS

A bike graveyard in China

Source: Photo by Aly Song on Reuters

Myth #2: The e-scooter is the cash cow of micromobility

The first generations of e-scooters have struggled in reaching profitability

Source: The Promise and Pitfalls of E-Scooter Sharing (BCG, 2019)

Myth #3: Transportation is about to become “Spotified”

Myth #4: Transportation is now a private player playground

Photo by Aditya Chinchure on Unsplash

Conclusion

Have you heard of other MaaS myths you’d like to point out? Want to share your opinion on opportunities in the market? What about our landscape, do you know of a company that can be included? If so, feel free to reach out!