Going vertical: how emerging technologies will fuel a new value chain

As advanced air mobility (AAM) companies move from the initial concept to large-scale mobility platforms, a new kind of value chain will emerge, one that will be very different from the traditional aerospace value chain. To capture value in this space, leaders will need a solid understanding of how value pools will evolve over time and clear strategies for where to play. The change could unfold in a number of ways: check out the exhibit for a possible scenario. In addition to income distribution, organizations will also need to understand the margins involved. Certain points along the value chain will have comparatively lower incomes but higher margins due to higher entry barriers (eg batteries).

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The AAM value chain differs from the traditional aerospace business value chain in several ways. For starters, pilot spending is likely to be a much larger percentage of the value chain, at least initially. AAM planes typically have a higher pilot-to-passenger ratio, with most vehicles being able to carry three to six passengers, while a domestic commercial airliner can accommodate around 160 passengers.

Additionally, propulsion systems such as motors, batteries, and motors are likely to represent a smaller share of the value chain in AAM than in today’s commercial aerospace. AAM doesn’t need high-temperature combustion engine technology that requires multi-million dollar rebuilds every two years. Electric powertrains have a simpler design and are less expensive than hydrocarbon-based alternatives.

Finally, mobility services could represent a larger part of the AAM value chain, due to the higher degree of intermodal coordination required (i.e. ensuring rapid transitions between travel to the vertiport , take-off and landing, and use of another mode of transport to the final destination). Additionally, typical AAM trips will be shorter due to initial technological limitations, further increasing the ratio of mode change to transit time.

Here are three ideas that can help leaders prepare for the changes ahead.

Insight 1: Automation has the potential to dramatically reduce costs and unlock a larger market.

Pilots are one of the most important value and cost drivers for the AAM industry, accounting for around 15-25% of total value. One way to reduce costs, once regulations and technology permit, is to move the pilot from the vehicle to a ground control center in 1: 1 pilot-to-vehicle operations. This will begin to shift the value chain from pilots to vehicle control centers, and it will allow mobility providers to generate income through an additional passenger seat. Over the long term, the 1: 1 operating ratio can drop to a driver-to-vehicle operating ratio of 1: 5, or even higher, depending on regulatory developments, potentially achieving near full range and lowering costs. piloting. However, we estimate that 60,000 new electric vertical take-off and landing (eVTOL) pilots may be needed by 2028, which could create a challenge for operators.

Insight 2: Mobility services can become a checkpoint, charging fees comparable to today’s carpooling platforms.

Connecting vehicle operators with consumers via a mobility platform could be a future checkpoint1 if the platforms can acquire a customer base large enough to achieve network effects and offer intermodal integration. In this case, our estimate of 20-25% value creation is comparable to current e-mailing services, which generate more than 20% value. This value varies from city to city, which could also be the case for future AAM offers.

Additionally, as our recent AAM Global Consumer Survey shows, the main motivation for consumers to consider AAM services is to save time. The ability to access vertiports quickly and efficiently will or will destroy eVTOL’s time-saving value proposition. Thus, integration into the wider mobility ecosystem will be crucial.

Insight 3: Infrastructure (including recharging) can represent a significant percentage of the value chain.

We estimate that the ground infrastructure needed in a city like London or New York could require capital expenditures of $ 35-45 million, with annual operating costs of $ 110-130 million.2 Existing funding is unlikely to cover the full cost of the infrastructure, so operators and end users may need to bear these costs (potentially 15-25% of the value chain). So who will cover the remaining costs?

If operators could make infrastructure profitable by attracting retail stores and restaurants as tenants, this could encourage greater investment in infrastructure. However, if the infrastructure cannot be operated profitably and turns out to be a catalyst for overall activity, a larger share of the investment may fall on manufacturers (to sell their vehicles), on operators (to provide the service), to the public sector, or on a partnership between them.

As the AAM industry gains traction, organizations looking to capture value in this space will need to assess their competitive advantages to determine where they should play in the AAM value chain. Successful actors will identify future checkpoints and develop a clear understanding of how changes in the value chain could affect their strategies.

1. A checkpoint is a part of the value chain that is unlikely to become a commodity and usually requires specialized capabilities. Owning these checkpoints can give actors market power over other parts of the value chain.
2. This would include an average-sized network of around 60-75 landing areas of varying sizes (eg three “mega-clubs”, eight hubs and four ports).

Torus johnston is a consultant in the McKinsey office in Boston, Benedikt Kloss is a partner in the Frankfurt office, Adam mitchell is a consultant in the Toronto office, and Robin riedel is a partner of the San Francisco office.

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