Airline Strategy post Covid-19

Updated: 6 days ago

(Published in Aviation Business ME Magazine - Issue April 2020) www.aviationbusinessme.com

What strategy will airlines apply post covid-19 and beyond How will the airline industry looks like in near future? In my 25 years career as management consultant or Cx executive, I have never seen a crisis quite like this one. The airline industry has been hit extremely hard by the COVID-19 crisis—even harder, perhaps, than by the events of 9/11 and the 2008 global financial crisis put together. With unprecedented consequences, many airlines have grounded all, or almost all, of the planes in their fleet. Several are now flying passenger aircraft as freighters. Most of the commercial, network, and operations teams are still scrambling to repatriate passengers and decide which flights to keep. It is really a case of shock and awe surveying the battlefield the global airline business now resembles. I don’t believe anyone who thinks they can predict exactly how the industry will look a few years from now; frankly, a crystal ball would be more useful. In the coming months, we have to pick our way through the reopening of borders and the lifting of quarantine restrictions. After that, we are in for a heavy dose of recession. It’s all going to make recovery precarious for those that survive. So, if we are going to have a new world order for airlines, can we say anything meaningful about how it might look? For sure, there are plenty of known unknowns and there are certain to be many more unknown unknowns along the way. The past is a poor guide to the future, so there’s little point in clinging on to that for any sense of security.

Airlines next 3-4 years will meet economic slowdown That the market will be smaller, running out to at least 2023-2024, is in broad agreement. Economic slowdown and the need to rebuild passenger confidence are going to be dampeners on demand. More uncertain, unless an effective vaccine or cure for the virus is found relatively quickly, is the duration and impact of social distancing. It appears that this factor will have a pervasive influence on our lives for some time to come, making travel more awkward, acting as a brake on airport capacity (in turn influencing flight capacity) and limiting many leisure activities, which are themselves motivators for travel.

Airlines biz. travelling appears to be changed permanently. Added to these market drivers, airlines are reducing fleets, with many retirements and downward shifts in capacity, in particular the end of four engine aircraft. We are witnessing the disappearance of the largest long-haul aircraft in the shape of Airbus A340s and A380s, Boeing 747s and even some 777s (two engines). Many older short-haul aircraft are also permanently leaving fleets. Along with outright airline failures, there will be a big dent to available seats. Market composition is another uncertainty, particularly the question of how much business-class traffic will return. Recession will hit demand, with business failures in multiple sectors of the economy, while survivors will keep corporate travel budgets in check through financial necessity. Advances in video conferencing that have led to broader adoption in recent months, will have a permanent negative impact on demand and also provide an excuse for many businesses to demonstrate their green credentials by cutting executive travel.

Aircraft configurations will change to meet the new demand Premium travel will not be gone for good, though. There will continue to be value in face-to-face meetings. In some markets, cultural status attached to business-class travel will remain, premium leisure and increased concern to have more space for perceived health benefits could be sources of growth. However, a structural reduction of business-class demand is probable and in the short term, airlines that have been reliant on this will have to accept some pricing pain to fill their fixed long-haul cabin capacities. Further ahead it is likely that aircraft configurations will need to change and business models revised to accommodate a reduction in average unit revenues.

Short haul low-cost airline carriers will gain more ground The kind of industry structure that might emerge is another challenging question. I’ve highlighted the move to smaller average aircraft size in long-haul fleets and the shrinking of fleets overall for network carriers. This suggests that the amount of hub-and-spoke traffic could witness a reduction in the coming years. Is this a new opportunity for long-haul low cost? I’m not convinced, as the model is financially weak and faces many challenges. However, the way in which network carriers function could shift quite dramatically, with smaller-capacity aircraft, lower premium traffic and potentially fewer routes. Further pressure to reduce costs and improve flexibility in operations seems to me to be essential. Short-haul low-cost carriers are likely to gain more ground, though they may meet increasing political pressure for environmental reasons on their shortest sectors where surface alternatives exist.

These are incredible turbulent times for airlines, there are many questions and as yet, little in the way of answers. It’s a new world order that will develop based on trial and error, testing airline management ability to demonstrate thinking outside the box and entrepreneurial flair. Companies that take a data-driven, action-oriented, and digitally supported approach will have the best chance to emerge stronger from the COVID-19 crisis. If carriers are not ready for this, they had better hand over to someone who is!

© Copyright 2020 by 1BlueHorizon Group  -  All rights Reserved
1BlueHorizon
® and 1BHG® are trademarks of 1BlueHorizon Group