COMMENTARY: Why The Pandemic Could Be An Airline Industry Opportunity
It should be apparent that the airline business, particularly those parts of the industry that move passengers, is in the fast-moving consumer goods business. As such, brand loyalty, desirability and the ethos that surrounds a particular service or product are vital, and the airline industry is generally good at emotively delivering that objective. To support that, operational excellence in delivering the lowest cost unit commensurate with product offering at a competitive price is a critical ingredient.
If that is true, then why is the airline industry so bad at making consistent profits? There is no simple answer, but this industry has an unsatisfactory track record in providing shareholders with a consistent return. Not all of those poor performances can be placed at the door of global pandemics. The industry is a barometer of business confidence and global trading. COVID-19 has had a devastating and tragic impact on human life and the business repercussions are profound, but are there other, more significant factors at play?
I have found a constant irritant in the failing airlines that I have been brought in to turn around. It is an itch pervasive throughout organizations, irrespective of location or continent, and it lies with management, particularly middle management, which is the strategic conduit between the desires of the shareholders, or the board, and the throngs of hard-working staff who ultimately have to deliver. More often than not with failing airlines, there is a lack of trust between staff, shareholders and management, and a blame culture: It is always someone else’s fault.
Staff and customers are taken for granted and past “restructuring plans” have concentrated wrongly on the why and what, as opposed to the who and how. Management fatigue often plays a part too. The incumbent management is simply worn out by frequent leadership changes, a lack of decision-making and the pressures of running an airline that fails to deliver consistent profits, often citing the competition as the prime reason for that hardship.
A key factor in the success of turning around failing airlines is ensuring management become a positive conduit, demonstrating brand values, vision and ethos. This leadership should engage the workforce toward a common goal.
Successful airlines drive down costs while maintaining, if not improving, the customer value proposition. They do not suffer fools gladly and prefer to deliver shareholder value by balancing two extremes: the need to disrupt the market while creating harmony for those who have already converted.
As a leader, never become complacent. If you are unable to drive your costs, the inevitable price difference between you and the competition must be validated through product differentiation. The consumer must be able to perceive and experience a discernible difference in what they are paying for.
With the COVID-19 pandemic, the financial situation for most airlines is getting worse by the minute. There have been failures and there will be more. While lockdown relaxations are allowing passengers to fly again, it will no doubt take years to regain lost markets.
Balance sheets are coming under increasing pressure and, assuming short-term liquidity problems can be overcome, there is a fundamental issue that debt will be added to the balance sheet. This bleak outlook requires a very different approach to how business was managed pre-COVID.
Turning to the many airlines that were already struggling, my question is: How are they going to manage the future? What is going to be the most discernible earth-shattering difference that a failing airline is going to implement? We all know that revenue must be ahead of cost, but many airlines have not been successful in applying this basic principle. One should really look in the mirror and ask: Why?
“Necessity is the mother of invention,” Plato said. Today we have a great opportunity to reset the dials. The world is in a spin. We need to apply opposite rudder, stabilize and pull the stick, but how many airlines will be able to perform that essential life-saving maneuver?
Peter Davies is the founder of UK-based Airline Management Group. He has served as CEO at five companies and is chairman of Airlink. The views expressed here are his own.