Going vertical: How emerging technologies will power a new value chain

As advanced air mobility (AAM) businesses move from initial concept to at-scale mobility platforms, a new type of value chain will emerge—one that will be quite different from the traditional aerospace value chain. To capture value in this space, leaders will need a strong understanding of how value pools will shift over time and clear strategies for where to play. The shift could play out in a variety of ways: see exhibit for one possible scenario. In addition to the revenue breakdown, organizations will also need to understand the margins involved. Some of the points along the value chain will have comparatively lower revenue but higher margins due to higher barriers to entry (for example, batteries).

As the advanced air mobility sector gains momentum, the value chain will evolve. Here's one way it could play out.

The AAM value chain differs from the traditional commercial aerospace value chain in several ways. To begin with, pilot expenses are likely to make up a much larger percentage of the value chain, at least initially. AAM aircraft typically have a higher pilot-to-passenger ratio, with most vehicles capable of carrying three to six passengers, while a domestic commercial airliner seats about 160 passengers.

In addition, propulsion systems like engines, batteries, and motors are likely to account for a smaller share of the value chain in AAM than in today’s commercial aerospace. AAM has no need for high-temperature combustion engine technology that requires multimillion-dollar rebuilds every couple of years. Electric powertrains have a simpler design and are lower cost than hydrocarbon-based alternatives.

Finally, mobility services could make up a larger share of the AAM value chain, due to the higher degree of intermodal coordination required (that is, ensuring fast transitions between traveling to the vertiport, takeoff and landing, and taking another mode of transport to the final destination). In addition, typical AAM trips will be shorter distance due to initial technological limitations, further increasing the ratio of mode switch to transit time.

Here are three insights that can help leaders prepare for the shifts ahead.

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

Pilots are one of the most significant drivers of value and cost for the AAM sector, accounting for an estimated 15 to 25 percent of total value. One way to reduce costs, once regulation and technology allow for it, is to move the pilot from the vehicle to a control center on the ground 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 earn revenues from an additional passenger seat. In the long term, the 1:1 operation ratio may go down to a 1:5 pilot-to-vehicle operation ratio or even more, depending on regulatory developments, potentially reaching close to full autonomy and reducing pilot costs. However, we estimate that 60,000 new electric vertical take-off and landing (eVTOL) pilots may be required by 2028, which may create a challenge for operators.

Insight 2: Mobility services may become a control point, charging fees that are comparable to today’s ride-hailing platforms.

Connecting vehicle operators with consumers via a mobility platform may be a future control point1 if platforms can acquire a sufficiently large customer base to achieve network effects and offer intermodal integration. In this case, our estimate of 20 to 25 percent value creation is comparable with today’s e-hailing services, which generate value of more than 20 percent. This value varies from city to city, which might be also the case for future AAM offerings.

Furthermore, as our recent global AAM Consumer Survey shows, consumers’ top motivation for considering AAM services is to save time. The ability to access vertiports quickly and efficiently will make or break the time-saving value proposition of eVTOL. Thus, integration into the broader mobility ecosystem will be crucial.

Insight 3: Infrastructure (including charging) may account for a major percentage of the value chain.

We estimate that the necessary ground infrastructure in a city such as London or New York could require capital expenditures of $35 million to $45 million, with $110 million to $130 million in annual running costs.2 Existing funding is unlikely to cover the full cost of infrastructure, so operators and end users might be required to take on these costs (potentially 15 to 25 percent 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, it may encourage greater investment in infrastructure. However, if infrastructure cannot be operated profitably and turns out to be an enabler for the overall business, a greater share of investments may fall on manufacturers (in order to sell their vehicles), on operators (in order to provide the service), on the public sector, or on a partnership between them.

As the AAM industry gains traction, organizations that want to capture value in this space will need to evaluate their competitive advantages to determine where they should play on the AAM value chain. Successful players will identify future control points and develop a clear understanding of how shifts in the value chain could affect their strategies.

1. A control point is a component of the value chain that most likely will not become a commodity and typically requires specialized capabilities. Owning these control points can give players market power over other parts of the value chain.
2. This would include a moderate-size network of approximately 60 to 75 landing pads of different sizes (for example, three “megahubs,” eight hubs, and four ports).

Tore Johnston is a consultant in McKinsey’s Boston office, Benedikt Kloss is an associate partner in the Frankfurt office, Adam Mitchell is a consultant in the Toronto office, and Robin Riedel is a partner in the San Francisco office.

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