THE POST-COVID-19 FLIGHT PLAN FOR AIRLINES - Boston ...
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THE POST-COVID-19 FLIGHT
PLAN FOR AIRLINES
By Dirk-Maarten Molenaar, Fernando Bosch, Jason Guggenheim, Pranay Jhunjhunwala,
Hean Ho Loh, and Ben Wade
T he airline industry has been hit
extremely hard by the COVID-19
crisis—even harder, perhaps, than by the
duration of the COVID-19 Crisis) and air-
line market structure scenarios (shaped by,
for example, airline failures, government
events of 9/11 and the 2008 global finan- intervention, and consolidation). (See Ex-
cial crisis put together. With unprecedented hibit 1.)
consequences, many airlines have ground-
ed all, or almost all, of the planes in their
fleet. Several are now flying passenger Duration of the COVID-19 Crisis
aircraft as freighters. Most of the commer- The most critical question today concerns
cial, network, and operations teams are the duration of the crisis in light of govern-
still scrambling to repatriate passengers ment responses and the progression of the
and decide which flights to keep. Mean- virus. While we would all like to believe
while, executives are in touch with govern- that the crisis will resolve within a matter
ments, employee representatives, and of weeks, the reality is that we don’t yet
suppliers to formulate responses under know how long it will last. What’s more,
very dynamic circumstances. the duration is likely to differ by region
and by country.
When flying through such turbulence, it’s
critical to focus on the horizon. Therefore, So, for now, we are considering various sce-
we propose a data-driven, action-oriented, narios and observing key indicators to
and digitally supported “flight plan” to learn which of those scenarios are most
help airlines emerge stronger from the likely to occur. For example, we are track-
COVID-19 crisis. ing the spread of the virus by country and
gauging the responses by governments, in-
Our flight plan for the new normal takes cluding the type and duration of travel re-
into account various air travel demand sce- strictions and the specific conditions under
narios (which are in part a function of the which they might be relaxed. We are alsoExhibit 1 | Flight Plan to Succeed in the New Normal
EXPECTED IMPACT
Virus progression and Demand recovery Market structure Flight plan in the
government response scenarios scenarios new normal
National government action Consumer sentiment and behavior Financial health of airlines at onset Design for the new normal
for citizens with specific impact and actions taken to manage
• Overall and by segments • Start with optimizing or
on travel through the crisis (for example,
(business vs. leisure and short- restructuring the network
liquidity management)
• Virus severity and spread haul vs. long-haul) and by market and fleet
Level and type of financial support by
• Specific travel restrictions • Impact of COVID-19 on • Follow with a whole-airline
governments, banks, and investors
megatrends, such as ways of transformation using a zero-
• Announced or expected duration working and sustainability M&A, joint ventures, and based approach (for example,
of restrictions partnerships commercial, operations, and
• Level of trust and safety concerns
• Conditions for reopening support function sizing)
(for example, health screening) M&A activity
Financial restructuring (government
support vs. capital injection)
Industry-wide action (for example,
government lobbying and support
to rebuild consumer confidence)
With vision for end state in mind,
prepare for rebound
Airline actions to influence
Source: BCG analysis.
monitoring indicators that measure con- chains, and a focus on sustainability). In
sumer sentiment, such as internet searches. addition, health concerns might initially
Also, we expect that governments might curb passengers’ inclination to fly.
begin imposing specific limitations for in-
bound and outbound passengers, including We expect to see differences, in terms of
requirements before boarding (similar to duration and impact, between business
the security measures put in place after ter- and leisure travel for both short-haul and
rorism events), such as mandatory health long-haul trips. For business demand, we
screenings or certificates. expect a relatively quick rebound (in both
short-haul and long-haul) as business trav-
elers try to reestablish their businesses.
Demand Recovery Scenarios However, the level of rebound will depend
Closely related to the duration of the crisis on the state of the economy and any long-
is the question of how quickly—and to term structural impact of remote working
what extent—air travel demand will recov- practices, which has yet to be determined
er. Data from previous crises, such as the and which will have to be assessed with
SARS epidemic and the events following consumer research. For leisure demand, we
9/11, shows how long it has taken the in- may see a distinction between short-haul
dustry historically to return to precrisis lev- and long-haul. For short-haul, we expect
els. However, forecasts for the current crisis that many passengers will want to get away
indicate that the duration and impact will on trips after being housebound for weeks
be much more severe than any we’ve seen or months, once they are reassured that fly-
before. In mid-March, the International Air ing and traveling are safe again. Long-haul
Transport Association (IATA) forecast a leisure usually takes more time to plan, so
loss of $252 billion in revenue—44% of it is likely to rebound more slowly.
2019 revenue. As a result, the industry may
have to manage structural demand changes Our flight plan for the new normal must
(such as the state of the economy—depres- take these differences into account, espe-
sion, recession, and rebound) and mega- cially when making network and fleet de-
trends (such as the dramatic rise in remote cisions, as well as planning for the initial
working, more locally oriented supply rebound after markets reopen. For now,
Boston Consulting Group | The Post-COVID-19 Flight Plan for Airlines 2we are tracking five potential scenarios: we factor in potential government support
one, at this point, seems highly unlikely to as well as any given company’s ability to
occur; the other four are all possible, with adjust the cash-out.
the prolonged U-shape being the most like-
ly, in our view. (See Exhibit 2.) We are also Predicting which airlines that governments
tracking the indicators necessary for any will choose to continue to support for more
given scenario to become reality. This than a few weeks or months is complex.
model allows us to forecast the demand For example, it might be challenging to en-
outlook as accurately and dynamically as courage governments to invest in airlines
possible. that are based in other countries—such as
carriers that are part of airline groups. Gov-
ernments may well want to support invest-
Market Structure ment in their own country’s airline while
An important component of our flight plan ensuring that they do not support (whether
involves assessing the market structure in directly or indirectly) airlines elsewhere.
the airline industry after the COVID-19 cri- They may also need to consider the ques-
sis. Which airlines will survive, and what tion of fairness when multiple airlines in a
will they look like? What will be the role of particular country require support. And be-
governments? Do we expect to see any con- yond government support and market con-
solidation? centration (as a result of some airlines fail-
ing because they could not gain support
Again, we must consider different duration from governments or other investors),
scenarios. But we believe that, under any there might be some consolidation oppor-
scenario, the industry will be forever tunities, particularly as the industry re-
changed, much as it was after 9/11 and the bounds.
2008 crisis.
We expect the changes in regions, and the
To predict the market structures that could countries within them, to differ significant-
arise given the different duration scenarios, ly, largely because of the variation in gov-
we first take into account airlines’ starting ernments’ responses to the crisis and the
positions in terms of liquidity and balance types and levels of support they offer. For
sheet strength. Then, to predict viability, example, in Europe, several countries have
Exhibit 2 | Five Demand Recovery Scenarios in a Highly Uncertain Future
Flown revenue
Flown revenue
Flown revenue
Flown revenue
Flown revenue
2021 2021 2021 2021 2021
Time Time Time Time Time
Scenario Rapid bounce back Slower, but recovery Gradual recovery Structural change; Double-dip recovery
(V-shape) within 2020 (U-shape) stretching into 2021 industry growth rate stretching into 2021
(prolonged U-shape) reduced (L-shape) (W-shape)
Likelihood Low Medium High Medium Medium
Time to recovery ~3–6 months ~6–9 months ~12–18 months ~12 months to stabilize ~12–18 months
Virus severity Quick containment Gradual decrease in Slow, gradual decrease Slow, gradual decrease Spread of virus decreases
and spread (rapid drop in new rate of new cases and in rate of new cases and in rate of new cases and but then rapidly increases
cases and deaths deaths deaths deaths (new strain)
Government Successful containment; Lockdown for several Lockdown for several Lockdown policies for a Policies relaxed then
actions for relax policies and months; travel months; travel long period; travel rapidly reinstated at sign
citizens reassure public discouraged; borders discouraged; borders discouraged; borders of resurgence
gradually reopen slowly reopen slowly reopen
Consumer • Leisure and business • Consumer confidence • Consumer confidence • Leisure travel reduced Confidence returns only
sentiment and traffic bounce back quickly returns quickly takes time to return; by fear; sustainability issues to be hit once more, for
behaviors • Consumer confidence • Business and short-haul • Businesses maintain • New ways of working a more prolonged
recovers quickly leisure travel first, strict policies persist; strict policies period, as safety
• No structural change to followed by long-haul • Economic recession remain concerns persist
behavior leisure • Travel distributor failures • Economic depression
• Travel distributors ramp • Widespread failures in
up operations travel distribution
Source: BCG analysis.
Boston Consulting Group | The Post-COVID-19 Flight Plan for Airlines 3announced support for airline employees, extreme version that could play out in Eu-
which is helping companies to drastically rope and Asia if the crisis continues for lon-
reduce their employee costs. Similar sup- ger than expected. In that scenario, the in-
port has been, or likely will be, offered dustry regresses with a drastic reduction in
(whether to employees directly or to com- the number of airlines, leaving a number
panies) in the Middle East and some Asian of national carriers (with government own-
countries. The US is offering a rescue pack- ership) and only the strongest LCCs.
age for all carriers that comprises a mix of
payroll grants and loans.
A Successful Flight Plan for the
We also expect airlines to differ within New Normal
each region in terms of financial health, Armed with scenarios and data, and able
probability of benefiting from government to adjust for the nonstop flow of updates,
support, and both willingness and ability our flight plan will help airlines succeed in
to participate in consolidation or fragmen- the new normal. Though it is sufficiently
tation. dynamic to adapt to new circumstances, it
offers stable guidance when it comes to
In Europe, for example, several airlines that fundamental, structural changes in the size
are part of an airline group were in relative- and shape of an airline.
ly strong health as the crisis started. These
companies are likely to receive government According to the flight plan, airlines should
support because of their importance to the take the following actions:
economy, and they could be the ones driv-
ing consolidation efforts. We also expect •• They should start by determining the
that smaller flag carriers, which have an im- optimal size and dimensions of their
portant economic role beyond employabili- networks and fleet, and they should do
ty, will continue to receive either direct or so within the next few weeks. They
indirect government support during the cri- should make big decisions—including
sis, but we think that those airlines are un- which fleet types to recommission first
likely to drive consolidation as buyers. Larg- and which routes are most likely to
er low-cost carriers (LCCs) were in strong recover—on the basis of several
health going into the crisis and may not re- demand and market structure scenarios
quire support (or, if they do, may need the and while optimizing for free cash flow.
support of multiple governments). For Digital support tools can provide
small airlines and tour operators, the level network and fleet teams with the
of support will depend to a greater extent data-driven, granular simulations that
on whether respective countries provide help companies make the right big
support to employees more broadly and decisions on short notice.
whether those countries want or need to
avoid favoring one airline over another. •• At the same time, airlines should
consider M&A and consolidation
We think that, in North America, there will opportunities. We expect that leading
likely be different outcomes for a wide va- airline groups will be reviewing options,
riety of airlines—large network carriers including potential divestitures and the
(such as Delta Air Lines, United Airlines, sale or purchase of minority equity
and American Airlines), nationwide LCCs, stakes.
smaller airlines, and independent feeders.
(Compass Airlines is the first independent •• The next step is to resize and restructure
feeder to announce that it will cease opera- the operating model and organization
tions; it will do so by April 7.) using a zero-based approach, which can
be done in a matter of weeks. For
Taking all these factors and hypotheses example, BCG helped one global
into account, we have defined three poten- network carrier to redesign the entire
tial market structure scenarios. One is an organization—including process
Boston Consulting Group | The Post-COVID-19 Flight Plan for Airlines 4redesign, organization size, and struc- and again leveraging digital tools to
ture—in four weeks. The same approach make the right tradeoffs, will be a
can also be applied to procurement (in major challenge that airlines will need
order to manage external providers) and to address as soon as possible.
technology. This work adds value that
will remain well after the crisis is over. •• Finally, of course, finance teams will
need to be closely involved to protect
•• Airlines should also prepare for ramp- cash levels, capture revenues as soon as
ing up, once airports and countries possible, and delay cash-outs as much
reopen. Our work with several leading as possible. Airlines should establish a
carriers reveals that the period of project management office to manage
ramping up will be even more challeng- cash until the environment stabilizes
ing and dynamic than the one for and regular financial processes and
ramping down. Network redesign routines can be implemented once
(which typically occurs from 4 to 13 again.
times a year, with time to subsequently
validate and hand over the schedule to
resource providers) will now likely have
to be done weekly. What’s more, the
time between developing and imple-
T hese are turbulent times for air-
lines, yet the industry’s response so far
has been nothing short of impressive. Com-
menting the plan may be only a week panies that take a data-driven, action-
or two—and will have to be accom- oriented, and digitally supported approach
plished despite the displacement of will have the best chance to emerge stron-
aircraft and staff. Designing this process, ger from the COVID-19 crisis.
About the Authors
Dirk-Maarten Molenaar is a managing director and partner in the Amsterdam office of Boston Consult-
ing Group. You may reach him by email at molenaar.dirk-marten@bcg.com.
Fernando Bosch a managing director and partner in the firm’s Amsterdam office. You may reach him by
email at bosch.fernando@bcg.com.
Jason Guggenheim is a managing director and senior partner in BCG’s Atlanta office. He is the global
leader of the firm’s work in the travel and tourism sector. You may reach him by email at guggenheim.
jason@bcg.com.
Pranay Jhunjhunwala is a managing director and senior partner in the firm’s London office. You may
reach him by email at jhunjhunwala.pranay@bcg.com.
Hean Ho Loh is a managing director and partner in BCG’s Singapore office. You may reach him by email
at loh.heanho@bcg.com.
Ben Wade is a managing director and partner in the firm’s London office. You may reach him by email at
wade.ben@bcg.com.
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