Emerging stronger and bolder from the crisis

With the Covid-19 pandemic increasingly moving out of people’s daily lives and immediate attention, it is time for airlines to leave crisis management behind. Instead, the focus of airline boardrooms throughout the world needs to be on coming out of this challenging time as a stronger, leaner and more capable organization, one that has been tested and tried rigorously, but ultimately showing that the aviation industry is crisis-proof.

Going into the summer of 2020, even the most optimistic projections for the recovery of the aviation industry were rather grim, projecting demands below 2019 levels up until 2025. In reality, these projections were beaten by a wide margin, mostly driven by the rapid recovery of the US and European markets while the Asian market lagged behind as a consequence of a delayed reopening and stricter Covid-19 related immigration measures.

Now that the industry has beaten the odds, it is necessary to reflect upon the lessons learned throughout the last few difficult years and use them as guiding principles to return to the growth mindset that was so prevalent in the industry prior to 2020.

Here are five key areas in which airlines must now excel:

1. Be Digital

The post-Covid economy is filled with its own unique set of challenges and opportunities. Labor shortages make FTE-heavy processes costly and inefficient, while one upside of the pandemic has been the pace at which digital solutions have become commonplace in otherwise change-resistant demographics and markets. These two factors go hand in hand, and capitalizing on them is a way to both cut back on organizational inefficiencies on the airline’s side and to improve upon many stages of the customer journey.

Take airline apps for instance. This is a field in which the variance in quality and functionality is arguably even greater than pre-pandemic. Those airlines that realized early on that their apps are the key to providing more capable self-service offerings to customers were able to more flexibly adapt their rebooking and cancellation policies. US airlines – widely thought to be at the forefront of digitalization – have since mostly discarded change fees, in what is essentially a customer-friendly move, aided by a capable digital environment.

Digitalization offers opportunities to airline employees as well, and these go far beyond using software to facilitate conference calls. Take for instance crew information management: during the pandemic, policies, rules and regulations – especially those regarding immigration and health procedures – were ever changing. Traditional knowledge management and information distribution systems were struggling to keep up with the wide array of updates crucial to operations. A single piece of information could be the difference between operating and cancelling a flight, a single update could make or break crew rostering, a single regulatory procedure amendment stood between a regular layover and hotel room quarantine. Ensuring that crews are well-informed at all times and receive the “back-office-support” necessary to safely carry out their tasks amid a jungle of regulatory red tape was – and still is – crucial. Digital solutions in the fields of crew briefings, knowledge management and CRM have given airlines that were early adaptors of these technologies the edge over their competitors. This is a trend that will continue.

2. Be Loyal

Loyalty is a two-way street. Customers have returned to the skies, demand is back and fares are up. Now is the time that airlines have to give back to their most loyal customers. Frequent flyer program status extensions and lowered (re)qualification requirements were appropriate during the crisis, but now the value proposition that airlines offer must be made clear once more. Say it loud, and say it clear: fly with us, you will be rewarded.

It is no secret that the general trend in the world of airline loyalty programs has been towards revenue-based accrual and dynamic pricing, making it increasingly difficult for passengers to earn outsized rewards and to get a great deal redeeming their miles. From a revenue management perspective, this is great news for airlines. From a loyalty perspective, this leads to passengers adopting a free-agent mindset, foregoing long term loyalty as they feel increasingly alienated. For airlines in competitive markets with little to no real product distinction, the lack of a rewarding frequent flyer program also leads to price wars, sacrificing long-term yields for the sake of short-term load factors.

After every major crisis in the aviation industry, airlines had to fight to win back their customers, and then some. Once again, it is time for that fight. Frequent flyer programs can carry their own weight in the times of credit card deals and a diverse portfolio of non-aviation partnerships. The times of loss-making programs written off as marketing expenses are over. Loyalty programs run as profit centers can afford to reward their most loyal customers even more than before. There is simply no reason not to in today’s environment.

3. Be Present

The pandemic has shrunk airline networks to a bare-bones operation for a good while. Only the most profitable routes were left operating, frequencies were slashed and passenger aircraft were flying cargo routes as demand dwindled. Now demand is back, and airlines need to seize this opportunity to recalibrate their network and grow back into the right markets. Airlines need to be present in those markets that matter the most for the future, and not where they were present before the pandemic.

One example for this is the shift in premium cabin demand. Whereas pre-Covid the majority of business and first-class seats were filled by road-warriors on corporate accounts, we now have a more balanced demographic. The business traveler is still the most significant, of course, but the willingness of leisure passengers to pay a reasonable premium for a better travel experience has increased noticeably. Couple this with the fact that many companies now have a better idea of which meetings can be done via video call and it now becomes reasonable to assume that the suit-and-tie crowd’s share of the pointy end of the plane will not be the same as before the pandemic. Therefore, airlines must now evaluate whether an aircraft with a premium-heavy configuration is best utilized on yet another London Heathrow rotation or to launch a leisure route to the Maldives.

Being present in certain markets also means having the right answer to the competitive environment. Take a close look at what your competitors are doing, because it is probably not the same as it was before the pandemic struck. The same approach to competition will not work, as the competition has fundamentally changed as well. Re-evaluating value propositions and strategic targets in fleet and network planning are essential in order to plan not just for the immediate future, but for the years beyond. By asking the right questions you can ensure that your airline is equipped to react to structural and competitive changes in your most important markets.

4. Be Flexible

As we know from our airline clients, flexibility is important., We have already briefly touched upon this when talking about change policies in the context of digitalization and self-service offerings. But what about the airline organization itself?

Crisis management and change management are two closely related fields. Airline employees and executives have gone through plenty of both over the last two or so years. The pandemic has put airlines through challenge after challenge, testing the capability and willingness for all the different stakeholders to adapt to less than ideal situations. This is where the proverbial cracks in the foundation usually begin to show, and it is these cracks that can provide the best lessons learned for any organization. The most effective way to get rid of the “don’t fix it if it isn’t broken” mindset that all too often stands in the way of innovation is to break something. Now that the pandemic has done the breaking, it is up to the airlines to do the fixing – the right way. Rethink organizational structures, trim down convoluted processes and empower employees and management to succeed. The age of micro-management and compartmentalized corporate setups is on the way out – Covid has just shown it the door a little faster.

The pandemic has required airlines to think quickly, act and react fast and to resort to measures previously thought of as unconventional. Now that we are thankfully returning to normality, we must not let these new skills and important lessons fall into obscurity. The “Covid skillset” is a tool worth perfecting, as the next challenge for the aviation industry is a matter of “when” and not “if”.

5. Be Bold

A new generation of managers and executives is climbing corporate ladders on the way to airline boardrooms from Frankfurt to Chicago, from Tokyo to Dubai. With them come fresh ideas, ways of thinking and a newly placed value on flexibility. These are all powered by a positive attitude towards change and a strong drive for innovation. It is the responsibility of the current leadership to embrace the next generation, creating an environment in which the ideas can prosper in the future.

Now is also the time to be bold with product offerings and value propositions. As previously discussed as part of loyalty, merely competing on price can have detrimental impacts on yields. Service and hard product differentiation is crucial in competitive markets. Falling behind in these fields early on will condemn an airline to competing on price point. Improving the customer experience with bold innovations should be a priority for every airline looking to make the most out of the post-Covid demand recovery.
Being bold is a good note to end on, since it also sets the tone for the other four things an airline must get right; be bold in adopting digital innovations, be bold in rewarding loyalty, be a bold presence in key markets and be bold to be flexible.

Author: Victor Kis, Associate Consultant and member of the Solution Group Organization & Strategy

To learn more and discuss how your organization could benefit from Lufthansa Consulting’s expertise in airline strategies, please contact us.