Inside airline recovery: Six key strengths to survive Covid-19

posted on 4th June 2020
Inside airline recovery: Six key strengths to survive Covid-19

Airlines are struggling for survival at the moment as Covid-19 continues to ravage the global travel industry. However, travel restrictions are beginning to ease in many parts of the world, meaning services could begin to restart. Cirium head of product management (air operations) Jim Hetzel reviews the six key factors that he believes will help drive the resurgence.

Airlines have played a pivotal role in both the spread and containment of Covid-19 and few sectors have suffered more than global aviation.

Travel restrictions around the world have had an unprecedented impact across the entire aviation industry, infiltrating every segment of the market with a ricochet effect across the wider travel and tourism networks.

Numerous regional travel restrictions and the dramatic downturn in consumer confidence have seen demand for air travel dry up.

While all eyes remain on airlines as they continue to fight for financial support, and their very survival, there’s no doubt that the industry will take off again.

At Cirium we’ve been assessing closely the internal factors that airlines can control, identifying six key strengths that will aid recovery.

Geographic dependency
The first is a carrier’s geographic dependency. With no sure way to predict where the recovery will happen first, airlines with a mix of domestic and international routes have the greatest flexibility to respond.

Short-haul flights, predominantly run by low-cost airlines and domestic flag carriers, are likely to be first to market when travel restrictions lift.

Cirium data shows that in China, more than 30 per cent of domestic capacity returned between February and April, as many countries in Asia have passed what is hoped to be the peak of the pandemic.

Network diversity
As some markets recover sooner than others, airlines with operations spread across multiple regions will be at an advantage to bring services back online market-by-market.

This could see carriers re-evaluate their planning mix in line with demand, comparing hub and spoke routes with point-to-point opportunities to understand which are essential to business profitability.

Operational capacity will also impact planning, with airline operations dictating what is available based on what carriers are confident they can support.

Airlines with a variety of planning strategies will be better positioned to quickly manipulate their schedules and consider how to leverage global alliances, and their member networks, to provide new service offerings to their customers.

Market profile and traffic mix
The type of travel that returns first will also drive airline recovery along a particular path. Everything points towards the leisure market rebounding more quickly than corporate travel.

In the short term, this is likely to benefit low-cost carriers, which rely on leisure and visiting family travellers, while airlines that operate predominantly business routes may see a slower return.

Even when corporate travel does recover, the shift to remote working and rise of virtual teleconferencing apps is likely to influence priorities.

Combine this with concerns around large gatherings associated with the meetings and conference sector, as well as corporate duty of care, and the business travel

segment may remain depressed for some time.

Progress in digital transformation
Agility will be key in adapting to these rapidly changing market conditions. Those airlines that have embraced digital transformation and moved closer towards data fluency will be able to make informed decisions about how to adapt; for example, which routes to reopen first, which aircraft to bring out of storage and how to reconfigure their network.

This data-driven decision-making will be more important than ever post-recovery. Many airlines will have to rethink their data management strategies to accelerate automation and digitise legacy technology. One key area for airlines is in the automation of applying waivers to their own tickets, which will improve customer service and their operations.

Availability of staff and crews
Early retirements, furloughs and lay-offs threaten airlines’ ability to meet future capacity demands. Without the right people and skills, their operations will be severely limited.

In countries where government support for airlines is conditional upon a commitment to forego furloughs and layoffs, it will be a quicker to bring employees back to work as needed to meet the demand.

Liquidity
Finally, airlines are currently focused on cutting costs and protecting cash flow – where possible seeking government subsidies to help them survive until they can recover passenger revenues.

The relative strengths of their balance sheets will determine their ability to position themselves for a return to profitable operations.

Low-cost carriers operate leanly in normal times, so are likely to have fewer cash reserves available to ride out the crisis.

Many airlines are looking at their ratio of owned versus leased aircraft to optimise operating costs. How they handle the other factors already covered could be heavily dependent on what percentage of their fleet requires regular lease payments.

In summary, there is room for transformation right now. Airlines that have a good handle on these six internal factors will be in a favourable position to take these chances and adapt when external factors lighten.

No matter what, the industry is facing new challenges and the road to recovery will require bold thinking and tough decision-making at times. The ‘new normal’ will drive innovation and may even uncover solutions to longstanding legacy issues within the industry.