Airlines with almost their whole fleet grounded, are struggling to survive. It’s about time to ponder and to create new strategies. However, customers may have changed their product demand.
Airlines: Their cash, their survival.
Obviously, airline’s business is to transport passengers and/or cargo from one place to another. However, situation forced airlines to keep almost their entire fleet on ground. In some cases, all of them. Then, Airlines are burning money everyday. Lufthansa, for example is losing $1 million a day! Thei first task is to keep their savings as longer as possible. It’s is as difficult as to try to stop time.
Some measures will allow airlines to alleviate, just a little, their costs. Some airport managing companies such as Aéroports de Paris, London Heathrow managed by Spanish company Ferrovial, or Amsterdam’s airport, have suspended airport taxes. With exception for Spain in all airports managed by AENA. Besides, to allow airlines to keep their SLOTS given to fly between airports, European Comission has suspended the rule which results mandatory to use at least 80% of them. This will prevent Airlines of flying empty trying to keep their SLOTS. However, almost all mitigating measures will be done by airlines.
As mentioned before, any port in a storm for airlines will be keeping their cash savings. Depending on how “fat” before the crisis they were, will allow the airline to keep their cash for a little longer. In other words, structural costs, debt in short to medium term, and excess of staff. The amount of cash has to be translated into time, so Lufthansa’s group, one of the most solid in cash terms before crisis commenced, around $4.7 billion, requested state aid to Germany.
Government intervention has been considered of crucial importance for some airlines. Air Europa which drags a great debt before storm, secured a credit from the Spanish state to hold their heads above water level while they’re looking forward their acquisition by IAG as a rescue boat. Acquisition which is still pending from European authorities to be cleared. On the other hand, Air France and KLM has secured €7 billion aid from their respective governments. Alitalia, is the most remarkable cases after being nationalised.
State aids look like panacea initially, but they are a double-edge sword. Aids have many dealt conditions implicitly attached. Firstly, there is no doubt they are big credits, in high risk conditions and must be given back. In other words, they are a financial cost which will affect to airline’s operating margin. Even more in a not favourable context. Secondly, but not least important, state’s intervention. This could come up with many options such as to impose decision more political than technical, or to give a seat in the council of the airline. In any case, it could be “uncomfortable” to allow an outsider interferes in airline’s decisions.
With this concerns CEO of IAG, Willy Walsh, has seriously considered other option before asking for certain state aid. Lufthansa, on his side is considering to choose between insolvency and state aid.
Post COVID-19 scenario.
The economy’s predictive signs for this year were not very promising from the beginning of the year. A downturn was also expected in some countries though. Some airlines reported profit warnings for this year. The Chinese virus increased the economic downturn, and airlines were caught by surprise.
Some airlines are not expected to survive to this crisis. And for those who do it, will have to deal with a very weak demand. There will be less airlines to fight for a little cake. In many interviews and webinars, the airline CEOs concurred in the fact that we are facing to an unprecedented crisis in the whole civil aviation history. There is a certain level of confusion in how to act to an unknown scenario.
According to some analysts, air traffic will commence to raise in June. However, other scenarios were taken into account with different tendencies. The most favourable one would end this year a 15% below corresponding 2.019 result. How the airlines are going to face their sales strategy? How’s the customer going to behave when this crisis has passed? There are some questions what commercial departments wondered nowadays. The passengers are afraid of being infected instead of feeling fear to fly, so new necessities have to be taken into consideration by commercials in the airlines.
The new passengers.
From an economical point of view, there will be many jobs cuts thus travel expectation for many people will be reduced and airlines will lose possible customers. Putting this matter aside, let’s focus on some other matters which airlines never have taken into account before.
People, during confinement, have been working with telematic tools. They had to get used to it and maybe from now on they’ve found the way to avoid flying. A very important matter is how they will fly. Maybe passengers who need or want to fly, demand a more aseptic service, and their decision to choose the airline will be based in either the airline is “COVID-FREE” or not. Maybe passengers would not look for an airline with access to internet but to avoid being infected. Airlines will make great investments in to adapt to this new environment to their customers. The Low cost high density cabins could be affected.
We all payed attention to some recommendations such as leaving the middle seat free. In other words, airlines would leave 33% with no chance to put it in the market. To be able to be profitable, airlines would need to pass on to the ticket price. Then we should wonder how many passengers would be willing to pay the extra charge. The distance would never be the recommended one of 1.5 – 2 m between passengers… Michael O’Leary, president of Ryanair Group, rushed to make a statement about this measure, saying it would not be feasible for Ryanair to fly with middle seat blocked.
New cabin seat configurations have been disclosed to media. Some seats appeared alternatively looking to the front and to the rear and with screens as a divider. However, this screen could slow a possible evacuation, and then, to reduce the maximum certified number of passengers an airplane can carry. Its installation must be taken into account. Besides, it looks like a good solution, but its installation also needs more room than the conventional seats, so we would back to the previous paragraph… wasted space implies higher costs per seat. It needs to remind to install new cabin configurations requires great investments by airlines. It’s not like empty your living room and put new sofas instead the older ones. It needs technical documentation from the aircraft manufacturer, to install new wiring and collectors to organise toilets, galleys and In Flight Entertainment (IFE). If passengers are not demanding this kind of services, or if this demand is temporary, it would open a hole in airline’s financing. One more.
To avoid personal contact is the most effective measure. Using Individual Protection Equipment (IPE), such as masks and gloves, is generalised. Airlines have protection kits for passengers before boarding the airplane. However, it’s very common to find boarding cards from one hand to another or security screenings which not really avoid personal contact or need people very close to each other.
On board, in flight service have been drastically reduced to a minimum. In order to reduce airplane’s weight and to help with environment, many airlines moved their paper press to electronic one before Covid-19. Now, the appearance of brochures or magazines is even more reduced. Regarding meals and drinks, is also been reduced to a bare minimum, and they are given in closed boxes to avoid direct contact.
Emirates, made a procedure to do quick test before boarding to all passengers. This was tested on a flight from Dubai to Tunisia last April. Other airlines, for example, has improved some other measures like Iberia which has been successfully tested biometric boarding. However, airports have a lot to say about it. Airlines cannot make all the investment by themselves. Installation of infrared detection equipment to watch body temperature, screens between staff and passengers or airport health controls need to come from the airports side. It is a coordinated effort by all players involved.
Passengers got used to uncomfortable measure along history depending on the threat of the moment. Since 2.001, security measures have evolved and changing to prevent terrorist attacks. Now, health measures must to be taken to protect passengers from an invisible threat. It’s not only for their safety but because they demand this to feel safe to fly. Security measures are mandatory and on the other hand, health measures are most of them recommendations, and still not being regulated. This allows to airlines a certain free decision on how to apply these recommendations and to improve their own in order to differentiate from other airlines to bring customers to their “COVID-FREE” airline. Ironically, for low cost airlines is their cost based philosophy. Until now, low cost airlines follow the statement: “if it’s not mandatory is expendable”. Maybe, from now on Low cost airlines need to reconsider their service. A passenger may not see very favourable seeing flight attendants trying to sell masks or gloves on board, for example. However, if ticket price is low enough, fear we mentioned before could be appeased…
Airlines have adapted to customer’s necessities along years after turbulent periods of time. If not, they joined to big airline cemetery.
According to IATA statistics, passengers as time passes, expressed an increasing desire to fly again. This gives a hope to a moribund business. Maybe to offer extraordinary services are no longer needed, or these new services need to be removed sooner or later and everything go back to normality once passengers have forgotten their fears.