The COVID-19 crisis has had an unprecedented impact on the aviation industry. The situation is worse than any other recent sector recession or shock. The industry is currently facing a liquidity challenge due to the severe flying restrictions. Even after lockdowns have started to lift, the industry will also face the challenges of operating under at least some degree of social distancing rules.
“Too Big to Fail” – Six themes from the financial crisis of 2008 that are relevant to the airline sector
It is uncertain how long airlines can survive an extended period of near complete grounding of their fleets. The collapse of the airline business model is akin to the situation banks faced in 2008. While the causes of the respective crises were different, we see some common themes based on Teneo’s work with banking clients, that apply to the airline sector.
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Transforming airport operations to meet the needs of customers during and beyond the post-COVID recovery period
As the industry looks towards longer-term recovery and a gradual return to passenger air travel, airport operators will need to adapt the passenger journey to comply with likely ongoing guidelines on social distancing. Some of these changes, particularly in process, have already been partially adopted, but will need to be strengthened as passenger volumes begin to increase and airports get more crowded. Some of these changes can be achieved through increased adoption of technology – which will take longer to implement, but will make business sense if they can further improve efficiency and reduce costs even once social distancing is ended.
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Developing a structured approach to managing communication with multiple stakeholders
Airlines have had to make difficult decisions across the board regarding dividends, executive compensation, temporary measures for pilots and cabin crew and customer refund policies. There are multiple stakeholders to manage with conflicting agendas. We are also seeing increased political involvement as requests for state bailout of aviation are escalating. Teneo has advised several clients that have received state support, and understands how reputational management is critically important in these situations as politicians respond to public perceptions.
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Key recovery considerations for aviation businesses during the global crisis
Aviation businesses may have stabilised operations during the first few weeks of the crisis, but as it becomes clearer that the COVID-19 pandemic will have huge impacts on our economic and social future, aviation businesses need to create the right structures to respond to these changes and remain relevant and sustainable in the post-COVID world.
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Teneo Aviation Toolkit: Developing a digital covid-19 response
Airlines need to become more agile to manage recovery and thrive in the “new normal” post crisis. While airlines normally operate in a volatile environment with capacity fluctuations, fuel price spikes, and demand swings, they will have to get used to an environment far more volatile than before. Second and third waves of virus outbreaks may bring renewed disruption, with uncertain economic recovery and changing consumer behavior. Most airlines are not currently set up to operate in this way.
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Responding to Covid-19: Demand Recovery
The demand recovery trajectory is uncertain due to potentially extended travel restrictions but also economic impact and behavioral changes in customer travel. Optimizing capacity allocation during the ramp up period and longer term will be critical to financial recovery. Understating demand will mean lost opportunities but overstating demand will be costly. Teneo has developed an approach to forecast demand recovery that reflects the unprecedented levels of uncertainty the aviation sector faces.
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