How To Register A Flight Plan

The airline manufacture has been hit extremely hard by the COVID-19 crisis—even harder, perhaps, than by the events of nine/eleven and the 2008 global fiscal crunch put together. With unprecedented consequences, many airlines have grounded all, or almost all, of the planes in their fleet. Several are at present flying passenger aircraft as freighters. Most of the commercial, network, and operations teams are still scrambling to repatriate passengers and decide which flights to keep. Meanwhile, executives are in touch with governments, employee representatives, and suppliers to formulate responses under very dynamic circumstances.

When flying through such turbulence, it's disquisitional to focus on the horizon. Therefore, we propose a data-driven, action-oriented, and digitally supported "flight program" to assistance airlines sally stronger from the COVID-nineteen crisis.

Our flight programme for the new normal takes into account diverse air travel demand scenarios (which are in part a function of the duration of the COVID-19 Crunch) and airline market structure scenarios (shaped by, for example, airline failures, government intervention, and consolidation). (See Showroom ane.)

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Elapsing of the COVID-19 Crisis

The most critical question today concerns the duration of the crunch in lite of government responses and the progression of the virus. While nosotros would all like to believe that the crisis will resolve within a matter of weeks, the reality is that we don't nevertheless know how long it will last. What'due south more, the duration is likely to differ by region and by state.

So, for now, nosotros are because various scenarios and observing key indicators to learn which of those scenarios are most probable to occur. For case, nosotros are tracking the spread of the virus by country and gauging the responses by governments, including the blazon and duration of travel restrictions and the specific conditions under which they might be relaxed. We are likewise monitoring indicators that measure consumer sentiment, such as internet searches. Likewise, we wait that governments might begin imposing specific limitations for inbound and outbound passengers, including requirements before boarding (like to the security measures put in place after terrorism events), such as mandatory health screenings or certificates.

Demand Recovery Scenarios

Closely related to the elapsing of the crunch is the question of how speedily—and to what extent—air travel demand will recover. Data from previous crises, such every bit the SARS epidemic and the events post-obit nine/11, shows how long information technology has taken the industry historically to render to precrisis levels. However, forecasts for the current crisis indicate that the duration and impact will be much more severe than any we've seen before. In mid-March, the International Air Transport Clan (IATA) forecast a loss of $252 billion in revenue—44% of 2019 revenue. As a result, the industry may have to manage structural need changes (such equally the land of the economy—depression, recession, and rebound) and megatrends (such as the dramatic rise in remote working, more locally oriented supply bondage, and a focus on sustainability). In addition, wellness concerns might initially adjourn passengers' inclination to wing.

We await to encounter differences, in terms of duration and touch, between business concern and leisure travel for both short-haul and long-haul trips. For business demand, we look a relatively quick rebound (in both short-haul and long-booty) as business travelers try to reestablish their businesses. However, the level of rebound will depend on the state of the economic system and any long-term structural impact of remote working practices, which has even so to be determined and which will have to be assessed with consumer research. For leisure demand, nosotros may see a distinction between short-haul and long-haul. For brusque-booty, we wait that many passengers will desire to go away on trips afterward being housebound for weeks or months, once they are reassured that flying and traveling are condom again. Long-haul leisure usually takes more time to programme, so it is likely to rebound more than slowly.

Our flight plan for the new normal must take these differences into account, especially when making network and fleet decisions, every bit well as planning for the initial rebound afterward markets reopen. For now, we are tracking five potential scenarios: one, at this point, seems highly unlikely to occur; the other four are all possible, with the prolonged U-shape being the almost likely, in our view. (See Exhibit 2.) We are too tracking the indicators necessary for any given scenario to become reality. This model allows us to forecast the demand outlook as accurately and dynamically as possible.

Under any scenario, the airline industry will be forever changed.

Market Structure

An important component of our flight plan involves assessing the market construction in the airline industry subsequently the COVID-19 crisis. Which airlines will survive, and what will they look similar? What will exist the role of governments? Exercise we await to see any consolidation?

Again, nosotros must consider different duration scenarios. Simply we believe that, under any scenario, the industry will be forever changed, much every bit information technology was after 9/11 and the 2008 crisis.

To predict the market place structures that could arise given the different duration scenarios, we start take into business relationship airlines' starting positions in terms of liquidity and residuum sheet strength. Then, to predict viability, we gene in potential government support as well as any given visitor's ability to adapt the cash-out.

Predicting which airlines that governments volition choose to proceed to back up for more than a few weeks or months is complex. For case, it might exist challenging to encourage governments to invest in airlines that are based in other countries—such as carriers that are part of airline groups. Governments may well want to support investment in their own state'due south airline while ensuring that they exercise non back up (whether directly or indirectly) airlines elsewhere. They may also need to consider the question of fairness when multiple airlines in a particular state require support. And across authorities back up and market place concentration (every bit a event of some airlines declining considering they could non gain support from governments or other investors), in that location might be some consolidation opportunities, particularly equally the industry rebounds.

We await the changes in regions, and the countries within them, to differ significantly, largely because of the variation in governments' responses to the crisis and the types and levels of support they offer. For example, in Europe, several countries have announced support for airline employees, which is helping companies to drastically reduce their employee costs. Similar support has been, or likely will exist, offered (whether to employees directly or to companies) in the Middle East and some Asian countries. The US is offering a rescue package for all carriers that comprises a mix of payroll grants and loans.

We too expect airlines to differ inside each region in terms of financial health, probability of benefiting from government back up, and both willingness and ability to participate in consolidation or fragmentation.

In Europe, for case, several airlines that are office of an airline group were in relatively stiff health equally the crunch started. These companies are likely to receive government support because of their importance to the economy, and they could be the ones driving consolidation efforts. We too expect that smaller flag carriers, which have an important economic role across employability, will continue to receive either directly or indirect regime back up during the crisis, but we think that those airlines are unlikely to drive consolidation as buyers. Larger low-cost carriers (LCCs) were in strong wellness going into the crisis and may not crave back up (or, if they practice, may demand the support of multiple governments). For small airlines and tour operators, the level of support volition depend to a greater extent on whether respective countries provide back up to employees more broadly and whether those countries want or demand to avert favoring one airline over another.

We call back that, in North America, there will probable be different outcomes for a wide diversity of airlines—large network carriers (such as Delta Air Lines, United Airlines, and American Airlines), nationwide LCCs, smaller airlines, and independent feeders. (Compass Airlines is the first independent feeder to announce that it will cease operations; it will practise so by April 7).

Taking all these factors and hypotheses into business relationship, we have defined three potential market structure scenarios. One is an extreme version that could play out in Europe and Asia if the crunch continues for longer than expected. In that scenario, the industry regresses with a drastic reduction in the number of airlines, leaving a number of national carriers (with government ownership) and only the strongest LCCs.

A Successful Flight Programme for the New Normal

Armed with scenarios and data, and able to suit for the nonstop flow of updates, our flight plan will help airlines succeed in the new normal. Though it is sufficiently dynamic to suit to new circumstances, information technology offers stable guidance when it comes to cardinal, structural changes in the size and shape of an airline.

According to the flight program, airlines should take the post-obit deportment:

They should start past determining the optimal size and dimensions of their networks and fleet, and they should exercise then within the adjacent few weeks. They should make large decisions—including which fleet types to recommission beginning and which routes are about probable to recover—on the basis of several demand and market structure scenarios and while optimizing for complimentary cash flow. Digital support tools tin can provide network and fleet teams with the data-driven, granular simulations that help companies make the right large decisions on curt discover.
At the same fourth dimension, airlines should consider M&A and consolidation opportunities. Nosotros expect that leading airline groups will be reviewing options, including potential divestitures and the sale or purchase of minority disinterestedness stakes.
The next step is to resize and restructure the operating model and organisation using a zero-based arroyo, which tin exist done in a matter of weeks. For example, BCG helped one global network carrier to redesign the unabridged organization—including procedure redesign, organization size, and construction—in four weeks. The same approach tin too be applied to procurement (in guild to manage external providers) and applied science. This work adds value that will remain well later on the crunch is over.
Airlines should also prepare for ramping up, once airports and countries reopen. Our work with several leading carriers reveals that the period of ramping upward will be even more challenging and dynamic than the 1 for ramping down. Network redesign (which typically occurs from 4 to 13 times a year, with time to subsequently validate and paw over the schedule to resource providers) will now likely have to exist done weekly. What'southward more, the time betwixt developing and implementing the plan may be only a week or 2—and will have to be accomplished despite the displacement of aircraft and staff. Designing this process, and again leveraging digital tools to make the right tradeoffs, volition be a major claiming that airlines volition need to address as presently as possible.
Finally, of class, finance teams volition need to be closely involved to protect cash levels, capture revenues as soon as possible, and delay greenbacks-outs as much as possible. Airlines should establish a project management function to manage greenbacks until the environment stabilizes and regular financial processes and routines can be implemented over again.

These are turbulent times for airlines, all the same the industry'southward response so far has been nothing brusk of impressive. Companies that accept a data-driven, action-oriented, and digitally supported approach will accept the best chance to sally stronger from the COVID-19 crisis.

Authors

Jason Guggenheim

Managing Director & Senior Partner, Travel & Tourism Global Leader

Atlanta

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