Short term liquidity is top of mind for the majority of businesses since the onset of the Covid-19 pandemic, for the aviation industry it is particularly acute. Airline failures in these unprecedented times are inevitable, and we have already seen a number of airlines go into liquidation, some one could argue should do so in any event, and others along with businesses in the aviation supply chain, are at the very edge of insolvency.
Those airlines with strong leadership and deep pockets will survive providing they are able to shore up their balance sheets with some form of additional liquidity, a combination of loans, equity or government funding (will the airlines ever have to repay the taxpayer?) and crucially keep their costs down. It is interesting to note that many of the Low Cost Carriers are significantly better placed from a cash position than their legacy airline counterparts. As airlines ramp up their operations and the operational expenses that are thereby incurred, they must ensure sufficient cash is available from all sources including importantly from ticket sales. However if seat load factors (SLFs) are only achieved through stubbornly low ticket prices, is there not a danger of second or third wave of airline failures?
Whether it is consumer confidence in travelling again or the simple human desire to “escape” the suffering of the penal servitude of lockdown, an initial rise in booking volumes is pleasingly emerging. The return to air travel was always going to be consumer led, enveloped by the complexity of the international travel restriction that are slowly lifting where the virus appears to be in decline. However a quick scan through the travel websites reveals an unsurprising trend – tickets are on sale, and prices are in decline, particularly and understandably short haul. Airlines are trying to pull the punters through to fill seats which appears to create the potential of a race to the bottom – conveniently forgetting, or deliberately ignoring, the fact that we are already there.
We of course all know the science behind revenue management, added to which I believe our industry is a stalwart of the FMCG society. Our customers will assume that not only the good old days of relatively cheap flying is back but now even cheaper. What a misnomer, and if the industry believes it?
I am afraid that for the management teams of many airlines the difference between how they saw their poor financial results and mis-managed their airlines pre-Covid-19 and now — is the virus itself. If your cost and revenues were askew pre-Covid-19, what thunderbolt has struck that requires a change of modus operandi? It is bad enough to have your head in the sand, even worse if you then deliberately add water and cement!
Poor management and leadership skills have almost certainly driven many airlines to bankruptcy over the years, the current pandemic will hasten that demise; thus the issue today is how quickly can we alter our cost base to reflect the “new normal” and what brand values do we need to nurture to entice and tempt passengers back into the air? It cannot simply be outpricing your competition. That has often been achieved through folly or chasing capacity or often both! The capacity question has been resolved, at least for the short to medium term, with many aircraft grounded, some of which may never fly again. Moreover it will be difficult for the smaller operators where their fixed cost base cannot be dissipated across sufficient available seat kilometres (ASKs) to make the base cost price even more competitive than before. Reducing cost by simply flying less is one option, but that needs to be balanced with a significant disproportionate reduction in overheads. Furthermore, for any airline to survive the cash challenge in the coming years radical restructuring is inevitable, indeed desirable, and will require insightful and practical implementation skills to make the transition.
Producing plans with all the concomitant graphs and analysis is one thing, implementation is quite another. Do not be fooled by those that say we need to go for the low hanging fruit, that’s obvious – it is the high hanging fruit that you need to strive for and that requires leadership and skill and a recognition that everyone is effectively in the same situation. What is going to differentiate you?