The rough road to recovery

September 18, 2023 by Eric Bradley

According to data¹ sourced from the World Economic Forum (WEF), at its lowest point, the global aviation industry had accrued losses of 4.5 trillion dollars, and almost 63 million employees lost their jobs due to the effect of the Covid-19 pandemic.

Since the pandemic has faded away, international borders have been reopened and tourists are eager to get back in the air.

We might need more than just a bandaid

Ordinarily, this resurgence would indicate boom times ahead for the industry. In the short term, everything seems to be fine, but it is a superficial healing that is taking place. In the long term view, the patient may still succumb to devastating internal injuries that are hidden from sight.

Obstacles to recovery include:

• Replacing 63 million people is not an easy task. You might expect that people who were forced to leave the industry would simply return when the pandemic was over, but many of them entered into new contracted roles outside the industry and can't return. This is just one of many reasons why former airline workers are not returning to their old jobs.
• Fuel prices remain high, but customers have become accustomed to low fares. Every airline that has attempted to raise fares in order to cover costs has paid a high price for doing so, because the industry became too competitive when things were going well.
• Demand for air travel is predicted to increase by 100% within the next five years. While this rapid expansion would normally be a good thing, it is happening at a time when pilots are retiring faster than they can be replaced.

Remedies available

The good news is that the recovery phase doesn't necessarily need to be painful. There are plenty of positives we can grab onto, and provided the industry can rise to meet the challenges ahead, the prognosis is one of hope.

Some airlines are already making great progess in addressing the problems mentioned previously. For example, to solve the pilot shortage, airlines have increased pilot salaries to help retain and attract experienced Captains, while simultaneously reducing academic qualification requirements for newly hired First Officers.

Of course moves like these are the very definition of "bandaid solutions", and though they are very positive moves, the extra money that needs to be spent to accommodate them means sacrifices will need to be made in other areas of the business. That could mean fewer unskilled jobs, reduced service quality, or other problems.

Now that there are enough provisions in place to take care of the short term, we should turn attention to finding sustainable long term solutions to help keep the industry strong and growing.

Here are some suggestions to get us started:

• Avoid the temptation to chisel. We must never lose sight of the fact that travel is a service based business. Customers choose which airline to fly based on perception of the value the airline delivers. This is where cabin crew have a chance to shine. Treat the customer like a king, and he may not notice quite so much how his legs are crammed into an economy class seat.
• Focus on collecting genuinely useful feedback. Few people enjoy being the bearer of bad news, so survey questions that just ask for ratings will generally tend to receive overly generous responses. This helps nobody. Survey questions should focus on how service could be improved to make the experience better for the customer. This way you will collect genuinely helpful suggestions so you can improve service and tailor the customer experience closer to what is expected, instead of just getting undeserved accolades that lead to false perceptions.
• Follow the money. Sometimes the simplest business rules are the best. Look at where you are making the most profit and give extra attention to it. You don't need to cover every route. Regionals will be happy to snap up that business opportunity. And if a competitor takes over the route, you know in advance they won't profit from it. If they do profit from taking over a route you've abandoned, it gives you an opportunity to study what they're doing differently so you can apply the lesson to the rest of your business.

Key Performance Indicators

IATA data indicates the industry is currently in a stable position, with revenues above pre-pandemic levels for both passengers and freight².

This good news is offset by the rising cost of fuel, a situation that has not been helped by escalating tensions in the Middle East and the outbreak of war in Eastern Europe.

Even with the expenses of high fuel costs, the amount being spent on fuel is still significantly less than half the amount of revenue flowing in. This indicates we can expect to see continued profit growth provided that no further disruptions occur.

The indication suggested by the data is that the key to improvement is to focus on investment into technologies that will help alleviate the pain of high fuel prices.

Innovations in aircraft design, engine efficiency, and fuel technology have the potential to significantly reduce a major pain point for the industry. A potential bonus of innovation in these areas is that it may help reduce concerns about the environmental impacts of air travel, which can be regarded as a win for everyone.

Citations:

1. WEF (2022), Towards resiliance and sustainability
2. IATA (2022), Travel Recovery Rebuilding Airline Profitability