Covid-19’s Impact On The Airline Industry: The New Reality
How is the COVID-19 pandemic impacting the industry and how will airlines adapt to the new reality – becoming a leaner, optimized, resilient and sustainable business?
The COVID-19 crisis is significantly more impactful than any other crisis that the industry has ever experienced before. Aviation has been witnessing drastic reduction of fleets, dramatic decline in demand, numerous people suspended, accelerated closure of airlines and aviation as we will likely be seeing a completely different industry after this.
McKinsey estimates that the Covid-19 crisis had a direct impact and magnitude of 6x decline in available seat-miles and a massive decrease of 17x in terms of passenger load factor, when compared to the previous major crisis: the 2008 global financial meltdown.
This is however not the first time the aviation industry has faced hardships and challenges. Historically, pandemics such as for example SARS has shown to have a V-shaped impact on our industry. Aviation has historically recovered rapidly from outbreaks and pandemics in previous crisis we have seen, yet this is different. In order to survive, airlines will need to reshape and reinvent themselves for a new reality after Covid-19.
THE ECONOMIC IMPACT
The economic impact on the travel market is predicted to be enormous. A recent report from McKinsey quantified a decrease of about USD 400 Billion as a direct result of diminished travel demand, translating to a loss of about USD 900 Billion in economic output.
Most airlines will see a lifeline need for financial support during these times with dampened load factors. For instance, government financial aid packages become a crucial measure for many airlines to remain in afloat.
Airlines will also have to adapt to a new normal in the travel industry that will emerge as result of the crisis. This involves new health procedures and protocols, new travel restrictions and requirements, and, perhaps more impactfully, a new mindset and travel willingness from passengers.
The economics and business models of commercial aviation will be reshaped, without a doubt. Fleet and network structures will be reevaluated, and cost base structures deeply scrutinized.
ADAPT & EMERGE
There are several different approaches how various airlines will adapt and emerge out of the crisis. This will primarily depend on their respective economic, regulatory, and social environments.
A common theme for airlines would be cost efficiency and operations excellence. Airlines will have to re-visit business models and create cost savings in every aspect of their operations, crew management being a key area for them.
For the short term, airlines have aggressively embarked on ramping-up their cargo operations by converting some of their passenger aircraft into freighters as well as increasing the reach of their cargo network worldwide.
For the longer term, reviewing fleet composition and network is vital for airline’s sustainability. Many airlines have deferred or cancelled their standing aircraft orders or have converted them to more efficient and lean aircraft.
The airline industry is constantly changing, and airlines worldwide are more than ever challenged by extreme global competition, the need for agile operations in addition to mounting cost pressures.
Crew Base Management in select outstations is an innovative operational measure and a cost optimizer that is proven to directly support the airline’s cost transformation efforts, operational stability, risk mitigation, amongst other key benefits.
Reviewing and re-evaluating operational cost structures and business models are key and essential to ensure a lean, optimized, and sustainable operations. Airlines will look for ways to keep fixed costs down, and OSM Aviation’s services and people will be in increasing demand.
A RETURN TO NORMALCY
A recovery means a return to normalcy. The industry is on track to recover by gradually bringing back flying capacity. However, this is not enough to return to the profitability levels required. Getting the passenger confidence in flying again is crucial for such recovery along with working with the wider supporting industries such as hotels and tourism to ramp-up the demand and re-establish consumer confidence.
Airlines all over the world have been reviewing and reevaluating their business models to enhance their cost base and increase operational efficiency. The industry is in dire need to reinvent itself and leverage on the most innovative and creative solutions for business optimization.
OSM Aviation will take part in that mandate and support airlines with their transformation efforts towards a leaner, optimized, resilient and sustainable business.
‘THE WINNER TAKES IT ALL, LOOSER STANDING SMALL’
Winners and losers are not necessarily playing the same game and by the same rules. Some airlines that were in very difficult situations have managed to ‘re-boot’ and emerge as a more cost-efficient and operationally-viable airline post the pandemic, whilst other very successful and profitable airlines have taken a major hit because of the crisis and will be less competitive on the other side.
Some winning airlines will take it all (increased market share with a new competitive position) and some losing airlines will be eventually standing small (with a very reduced fleet and significantly reduced market share).
OSM AVIATION REMAINS A SUSTAINABLE BUSINESS
Like any business in the aviation industry, OSM Aviation is facing unprecedented challenges in the wake of the virus outbreak worldwide. All our customers have been dramatically impacted and hence we have been obliged to readjust our organizational structure, workforce and some of our strategic directions to adapt to the current market conditions, support our clients and align ourselves with the recovery of the industry.
OSM Aviation has proven agile in finding new income streams and has introduced several new business areas such as:
•Consulting Services within HR, Recruitment and Restructuring
•Power Staffing, replicating the OSM model to other industries by providing talents to companies in need of short-term capacity and skills.
•Ferry Flight and complete Aircraft Delivery Services
OSM Aviation have been focusing on ensuring that we remain a sustainable business and as such recovers alongside the industry. Our unique Crew Management solution has been very well received in the industry and we are in active discussions with many key airlines to be part of their future business plans and operations.