By Bruce Spear, Taylor Cornwall and Khalid Usman
Bruce and Taylor are partners in Oliver Wyman’s transportation practice. Khalid is senior vice president of the firm.
After 8 months of reduced service due to the coronavirus pandemic, airlines around the world are suffering, suffering a different call to evaporation than anything they have faced in past recessions. The overall capacity of the sector has dropped by 57% compared to October 2019, and even positive (short and medium radius) continues to drop by 46%, according PlaneStats. com through Oliver Wyman. The quarter of the moment was the worst financially in the history of the airline industry. The effects of the third trimester do not show much improvement. And now the industry is on its back to an increase in the number of COVID-19 instances worldwide and a number of new blockades in major cities.
Where maximum crash demand resulted in a sharp drop in intake that eventually recovered in a few months, COVID-19 instead triggered a start-and-stop recovery attempt that is likely to unbalance customer operations. airlines for years. Airline executives wake up each morning to be informed that the number of cases is increasing, restrictions imposed by the government, and customer considerations about the resumption of normal operations. All of them are able to generate calls to get discounts that have implications for airline operations and planning.
To address uncertainty, carriers had to adopt new methods that would allow them to move as temporarily as the virus, and in addition to cutting capacity, as carriers did at the start of the pandemic, their maximum recent measures involve adjusting their schedules, operations and cargo structures to take advantage of opportunities, minimize currency consumption, and remain agile enough to respond to a meaningful recovery request. Until a vaccine is widely available, survival will depend on how long carriers can walk on water and how long their coins last.
Rewrite the playbook
Amid the sharp drop in business and long-distance travel, network operators are focusing on the recreational market, pitting them more than ever against cheap operators. The largest airlines in the U. S. But it’s not the first time They are even to call opportunistically, recently adding about two dozen new routes, usually to sunny destinations, in a nod to winter getaway traffic.
Airlines, as they try to become more agile, want to reconsider the way they run their businesses, resulting in particularly shorter planning cycles, in some cases cutting the procedure from six months to six weeks or less. They have also become unnecessary. This has led some operators to turn to new device learning methodologies and leading unconventional indicators, such as the number of COVID-19 instances, verification rates and adjustments in public and government physical fitness policies.
In an effort to avoid widespread cuts, airlines are also modifying some of their prices to better accommodate fluctuations in calls. For example, pilots and flight attendants have accepted part-time contracts or discounts on the guaranteed minimum wage, which is helping to lower prices when they are not flying, although they are consistent with allowing airlines to grow rapidly as emergency calls resurface. They are also looking for opportunities to outsource purposes at airports and headquarters, which can improve flexibility. Unlike the charge relief that has accompanied past recessions, variability would possibly not result in the lowest charge consistent with seat-mile or flight time. The strategy is designed to minimize money outings and align prices with demand.
In addition to pursuing demand and reducing money consumption, airlines are accumulating money to weather the storm. To accumulate reserves, they postponed aircraft investments and deliveries, borrowed assets opposed to major ones, added loyalty programs, and turned to government loans. U. S. and European carriers have jointly raised more than $50 billion since the pandemic started. Still, will it be enough for it to last until the return is requested?It is based on COVID.
New tactics to bring demand to life
Instead of waiting for the virus to run its course or a vaccine, airlines and airports have come together to experiment with new tactics to make passengers travel by air today. ON-site COVID-19 testing is currently being tested at an increasing number of airports. adding Heathrow in London, and on U. S. flights. to Hawaii. Several countries now require COVID testing, either administered on arrival or through the presentation of recent results.
But it’s not just the worry of contracting the virus that helps prevent others from abandoning planes, but potential passengers are also involved in trips being cancelled at the last minute or, worse, being stranded at a destination after giving positive for COVID. Government restrictions are often replaced, increasing anxiety. To combat this, some airlines are testing insurance policies for coronavirus-related outages.
One of the most ambitious approaches is the creation of “bubbles”: designated routes between a set of markets with a low number of COVID cases and verification systems with a low number of positive aspects. These protection runners allow airlines to ensure that they are not interrupted and that passengers will be safe from start to finish, not just on board the aircraft. The challenge is that good fortune depends on government policy and public compliance to keep the infection rate at a modest level. Japan has created a bubble that includes Laos, Malaysia, Cambodia, Taiwan and Myanmar; Australia has one with New Zealand and is in talks with Japan, South Korea and Singapore.
After COVID
Today, airlines are understandably involved in short-term survival, but they will also have to plan for demand recoil. Will they be in a position? Once other people are able to fly, many carriers may find the same as not being able to get their service up and running fast enough. This is possibly because too many aircraft have been put out of service, or too many authorized pilots and mechanics want recertification or have discovered employment outside the industry. Airlines and governments do not forget that the decisions made today may have ramifications for the speed of recovery.
While the government has allowed some airlines to postpone primary layoffs for months, this is virtually over, and large-scale airline bankruptcy and layoffs are back on the table. The United States, about 32,000 airline employees were fired just after the expiration of the Coronavirus CareS (Aid, Relief, and Economic Security) Act, which featured payroll coverage, which expires on September 30.
Even for bankruptcy-avoiding carriers, many will end up with weak balance sheets and limited capital for expansion, which will have to be a source of fear for governments around the world, given the role aviation plays in global economic growth, according to an August report. through the United Nations World Tourism Organization, COVID-19 has put up to 120 million tourism-related jobs at risk and economic damage is expected to exceed $1 trillion by 2020. The United Nations Conference on Trade and Development predicts that the pandemic threatens up to 2. 8% of global gross domestic product growth.
The more COVID-19 weighs on the economy and suppresses the order for air travel, the longer it will take for aviation to make a significant contribution to the global economic recovery. While industry and governments have temporarily responded to assistance carriers during the first nine months of the pandemic, they will still be cut off even after the world begins to recover.