CAPA 15-point Airline Survival Toolkit for 2019
Airlines making money: preparing for a Gathering Storm.
As the world economy starts to stutter, and Brent crude oil prices creep up towards USD70 again, the financial climate threatens to make life difficult for airlines which aren't prepared for it.
CAPA's 2,000 word "15-point Airline Survival Toolkit for 2019" contains key money saving, loyalty and revenue generating actions that airlines can take, as the long period of global economic improvement starts to wind down.
Whether or not there is a downturn, or however deep it might be, the 15 points are valuable measures that every airline should be exploring.
The range of adaptations that can and should be made fall into three categories: 1. Resetting the corporate mentality to ensure readiness to adapt across the entire airline; 2. Commercial opportunities; and 3. Operational/financial opportunities.
Preparing for a gathering storm
Over recent years we’ve been through a period of relatively benign external inputs, with low fuel prices supporting lower fares and a solid global economy supporting demand. This has propelled the industry into a period of unprecedented profitability (although US airlines, mostly operating domestically, have accounted for around half of this).
The period of high profitability is unlikely to continue as oil prices, currently in the mid-USD60s/barrel for Brent Crude, creep up and as business and consumer confidence – at least, outside the US – slips rapidly.
The entire aviation system is undergoing a technology-led upheaval of volcanic proportions, challenging conventional norms and demanding new solutions to new problems (and opportunities)
IMF: economy is weakening “faster than expected”
The IMF recently issued a warning that the global economy is weakening “faster than expected” and downgraded GDP growth forecasts for 2019, and the European Central Bank has “substantially” revised downwards its economic growth projections for 2019, implying a slackening of demand in markets which have become increasingly price sensitive.
At the same time, the entire aviation system is undergoing a technology-led upheaval of volcanic proportions, challenging conventional norms and demanding new solutions to new problems (and opportunities).
Airline management’s role is to prepare for and manage the airline prudently through good times and bad; in a downturn this means minimising the impact on profitability while remaining competitive.
Industry stakeholders expect...
To put it another way, if a downturn is inevitable at some time in the next two years, industry stakeholders will expect management to be properly prepared.
A broad range of tactics can be employed, aimed both at containing costs and at generating new revenue streams – as well as making preparation for post-downturn recovery.
For airlines to address this effectively, a broad range of tactics can be employed, aimed both at containing costs and at generating new revenue streams – as well as making preparation for post- downturn recovery.
In this respect, maintaining a strong customer relationship as cost cuts are made and focussing on the importance of brand integrity throughout will be key to a speedy recovery. It takes only a moment to undermine brand loyalty and a year to recover it.
The CAPA 15-point Survival Toolkit
This 2,000 word 15-point CAPA Survival Toolkit report sets out some key strategies available to management to deploy in a downturn. It is broken down into three sections:
1. Resetting the corporate mentality to ensure readiness to adapt across the entire airline;
2. Commercial opportunities; and
3. Operational/financial opportunities.
As a taster, here are a few extracts:
- An intensifying competitive environment and complex operational changes call for a level of corporate agility like never before
- Retaining customer loyalty is elusive but vital, as frugality prevails
- Ancillary revenues tend to be more resilient than up front air fares
- Maintaining or growing a frequency benefit will be most effective where competitors don’t have the flexibility to downgauge
- Where an airline operates a group of carriers, ensure resources are deployed effectively across each group member airline
- A comprehensive re-assessment of alliance and partnership strategies is needed
- The worst possible time to be levering up the balance sheet with expensive new aircraft is during a recession
- Airlines are always surprised at how much ‘waste’ there is!
- The ability to bounce back once conditions improve will be rewarded by longer term market strength
- Review what fixed costs can be turned into variable costs
- Ensure open communication with unions
In addition to a range of invaluable action steps, the report makes the point that looking beyond the downturn will also be an important ingredient - "The ability to bounce back once conditions improve will be rewarded by longer term market strength"
If you have constructive suggestions on what other actions are available, please do let us know - and join us in Dublin, 2/3 May, to review them in detail.
The report is available for download here and will form the framework for CAPA’s agenda at the annual Powerscourt Airline Leader Summit, to be held in Dublin on 2/3-May-2019.