Part 2 - Medium term impact of Covid-19
From a business perspective it’s the uncertainty of Covid-19 that’s the issue; by nature our brains have become adept at overestimating threats and underestimating our ability to handle them, resulting in a tendency to focus on a single narrative and make decisions on that basis.
Prior to Covid-19 Airline business models were based on expansion strategies designed to support the predicted demand in passenger numbers, however within a matter of months airlines are now scrambling to survive.
The airline's immediate response is to seek government support, an understandable reaction given the circumstances, however survival is contingent on how adaptable Airlines are in re-evaluating their business model, pivoting and implementing change.
In today’s blog we examine the Medium-term issues that airlines need to explore as part of their recovery phase.
Reviewing the Business Model
Retention Planning - Maintenance
Reviewing the Business Model
For airlines to survive they will need to reorganise and re-invent themselves, examining alternate concepts to those previously employed.
Zero Based Thinking is one such concept and would be prudent for Airlines to consider given this current climate. One key element of the zero based principal is to assess current spending versus what costs should be, to support their new re-imaged organisation.
This is achieved through an engagement and collaborative process, exploring the airlines flexibility, adaptability and building on the strength of its people, realigning resources to invest in growth, profitability, sustainability and ultimately rebuild customer confidence.
An airlines complete strategy, footprint and model needs to be reviewed and a blueprint developed to fit the “new normal”.
One such impact of Covid-19 relates to Short-hop flights (under 480 km) in Europe. These service offerings are increasingly under attack from the flight shaming movement on the grounds of environmental impact and it’s likely that many low-cost short-hop routes may now disappear, with a shift to high-speed rail travel both from an environmental and cost perspective.
Determining future air travel demands is not only based on the duration of the travel ban restrictions, but also elements such as airline failures, government intervention and consolidation.
How airlines manage social distancing and sanitisation concerns and how they advertise what steps they plan to introduce into their operations, will play a vital role in rebuilding customer confidence, especially as opinions are split on the “seat separation” concept.
Given the current reluctance to touch surfaces, passengers may be fearful to touch Inflight Entertainment (IFE) screens leading to the increased use of their own digital devices. Alternative revenue generating opportunities through the use of certain technologies needs to be explored. Airlines could promote the use of ancillary services via mobile apps such as checking in, controlling IFE, pre-order and payment of inflight food/beverages, development of inflight shopping channels, etc.
Other elements for consideration as part of scenario planning are:
Impact of potential common international standards
Easing of government restrictions
Passenger confidence and demand
Route profitability and resource levels
Part of an airlines restructuring program will need to focus on fleet optimisation. Proven route sectors will recover quicker and any pre-Covid 19 “pilot routes” will need to be removed from the equation.
Operational downsizing is a new reality facing airlines and focus needs to be placed on matching aircraft size relevant to route sector and expected yield.
It’s anticipated that the business sector will rebound relatively quickly, as commercial travellers will wish to re-establish their business. Whilst the short-haul sector will be the first to recover once travel restrictions are lifted, the timelines surrounding long-haul flights remain uncertain.
Some operators will use this opportunity to bring forward the retirement of older wide-body aircraft types, as the associated long-term storage costs and future operating economics may not warrant their reactivation.
Other key areas to factor into the equation:
Which Aircraft to recommission first ?
Potential early lease termination of lease agreements
Utilising Aircraft in long-term storage for spares
Defer new deliveries
Explore cancelling aircraft options
Retention Planning – Maintenance
In a time where managing cash flow is critical, priority needs to focus on proactively managing the fleet. This is to accurately forecast and optimise the economic outcome of future major maintenance events once operations resume.
Once airlines began to ground aircraft, the priority was placed on gaining access to storage facilities which could provide the necessary engineering support. However, with airlines now focusing on fleet optimisation, determining which aircraft will remain in short-term parking, or placed into long-term storage, becomes a strategic decision. This is based on the cost of not only those associated with the storage function, but additional CAMO, MRO and other engineering related activities.
Once travel restrictions are lifted and aircraft re-enter service, airlines need to proactively manage their fleet to mitigate exposure to unnecessary maintenance related costs. This can be achieved through the development and implementation of a number of strategies. It ultimately requires realigning departmental thinking in defining what operational and maintenance related costs “should be”, as opposed to historic related norms.
Cost saving can be achieved through:
Effective aircraft utilisation
Fleet scheduled maintenance events
Work scope management policies
Engine swap strategies
MRO and 3rd party service providers GTA re-negotiation opportunities
Green-Time engine strategies
The next in the blog series, will discuss the Long term impact of Covid-19 on the Airline community.
To explore the best the best route to recovery for your Airline, please contact email@example.com