Planning airline recovery during coronavirus outbreak
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Over the past few weeks worldwide (and past few months in Asia), the aviation world has been grappling with the changed reality amid the coronavirus COVID-19 crisis. As world closed borders, airlines were forced to cancel flights in bulk, now resolving to grounding better part, if not whole, of their fleets and letting people go on indefinite and often unpaid leaves, making obscure promises of coming back from this stronger than ever. But what does this recovery from the coronavirus crisis actually entail? And what will the post-Coronacrisis world look like, once travel picks up again?
AeroTime News spoke with Dimitrescu Bogdan, aviation expert and the co-author of “Coronavirus Recovery Plan for Airlines”, to discuss how the virus has instantly changed aviation, the most prominent mistakes air carriers are doing, and the critical steps airline needed to not only survive the crisis, but emerge from as winners.
“The airlines that were mainly concerned with shareholder’s interest and growing equity value will come out of this crisis damaged the most.”
While the aviation industry has proven its resilience during crises many times before, some airlines CEOs are now saying that the current one, caused by the COVID-19 outbreak, is something never seen before. How do you see this crisis? How is it similar, and how does it differ from the ones seen in the past?
Indeed, the magnitude of this current crisis is unprecedented, due to the level of world connectivity, globalization and interdependence of markets. Closing borders, interdiction of fundamental human rights such as the freedom of movement, closure or suspension of a large array of businesses, has overlapped the 1 year grounding of the Boeing 737 MAX which affected over 30% of the worldwide airlines. The entire world will be going through an economic recession and a lot of airlines will fail.
However, just like the karma concept, history repeats until we learn the right lessons. The airlines that were mainly concerned with shareholder’s interest and growing equity value will come out of this crisis damaged the most.
The airlines which learned from past crises to actively dedicate their mission to improve the lives of their employees and their customers will go through this specific crisis as through any previous major one (be it 9/11 or the 2008 economy crash). They will have an unique opportunity to transform disaster into success. It is time for the valuable airline managers to shine and time for the others to fail the test.
Now more than ever, the mixed team of owners-managers-unions-employees will have to run as efficiently as possible.
As an aviation expert, do you see any mistakes airlines are making at the moment that will likely become an obstacle for them to re-emerge from the crisis in the future?
Some airlines are taking a “wait-and-see” position, which is detrimental at this stage. This forced grounding time must be used smartly, first to ensure survivability through the crisis, and second, to reframe the airline’s mission, operations, fleet, sales approach and customer’s dedication to enable it to come out of the crisis as a leader in its (perhaps, new) segment of the market.
“The global recession will affect the immediate budgets of everyone, but most importantly, it will add to the resistance to flying/travelling to most people, due to potential waves of infection and contamination. While leisure travelers will slowly resume their vacations closer to home, they will prefer to reach their destination by car, in order to retain control of their ease of movement.”
Some airlines have high expectations for bailouts from the owners or their governments, however, any financial aid will not solve the existing issues of the airline. Any refinancing model of the re-start at the end of the pandemic must be closely modeled and negotiated with banks and investors, to accurately reflect the limitations of the new business plan.
If you were an airline’s CEO, what most important steps would you take right now?
I would ensure survival (liquidity for at least the next 90 days), take specific measures to reduce losses, and together with my team, re-define our airline’s “Why?” in order to implement a plan to better serve the new needs of the passengers after the crisis. The company’s new structure will have to be flexible to handle any type of similar crises while the customer’s satisfaction will prevail.
Can you share a couple of examples of what airlines did in the past to emerge from a crisis as winners?
Southwest Airlines (LUV) is one of my favorite airlines. The management built a company culture in which everyone believes strongly, including their passengers. By empowering their employees to take initiative and do the right thing for their passengers, the company came out of the 9/11 crisis as a true leader. Southwest Airlines (LUV) did not lay off any of its people at such an uncertain time and offered full refunds to passengers as requested, even if the policy was risky for their fragile cash position.
In your book you write that business travelers will be the first ones to take up flying once travel restrictions are lifted, to be followed by workers and immigrants, and the leisure travelers being the last ones. Can you elaborate a bit further on that? What prompted you to take this conclusion?
The global recession will affect the immediate budgets of everyone, but most importantly, it will add to the resistance to flying/traveling to most people, due to potential waves of infection and contamination. While leisure travelers will slowly resume their vacations closer to home, they will prefer to reach their destination by car, in order to retain control of their ease of movement. Some of the pre-crisis workers/immigrants will be looking at resuming their previous work (outside of their countries) where more opportunities will abound, so they will be one of the categories to move more frequently. The business travelers will constitute the early entrants into the new Post-Coronavirus market, as the different economy setting will enable lots of deals and start-up activities which will mandate coordination of production, sales and logistics activities and meetings with new business partners.
How, in your personal opinion, will broadly speaking EU aviation look like once the crisis is over?
I believe the existing strategic alliances will shift, their terms and conditions of acceptance will change and members will change sides. We will see more cooperation between different and competing airlines in order to survive in the harsh climate coming ahead. I expect low-cost airlines to merge with legacy carriers to create a new hybrid type of operation.
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