Three principles for airlines to thrive in the “next normal”

Preparing for an uncertain future

The COVID-19 pandemic has had an enormous impact on the airline industry: Consumer spend in the travel sector as a whole was down 18.6 percent in Q1 YoY, while the airline subsector was down 24.6 percent.¹ While there are a range of recovery scenarios, airlines will need to prepare for continued volatility if the virus follows a wave pattern (peaking again in multiple geographies) or if cascading outbreaks with feedback loops limit recovery.

The COVID-19 pandemic will force the airline industry to make a series of challenging choices in a highly uncertain environment, many of which will cut deeply into the heart of their brand promises to customers, employees, and partners. The decisions made in the near term will likely determine how successful the entity is in the long term. Now is the time for resilient leaders to take decisive actions to thrive in a changing competitive landscape.

Companies also need to consider the possibility that the airline industry never returns to “yesterday’s normal”—they must prepare for an uncertain “next normal.” Airlines will need to make decisions today to prepare for an uncertain future. These decisions will likely have a significant impact on the human experience (HX) delivered by the company. Humans are the lifeblood of companies, as customers, employees, and partners. Since companies that focus on the human experience are twice as likely to outperform their peers in revenue growth over a three-year period, these decisions will be supremely important to a company’s success.

Airlines that want to emerge from the downturn stronger should develop a multifaceted stance: Aggressive balance sheet and operational improvements that free up resources to survive the current crisis, combined with intelligent reinvestment into forward-looking human experience (HX) enhancements—including customer, workforce, and partner experience—that can drive sustained revenue growth and capture market share. Airlines should bear three principles in mind to develop recovery plans:

1. Maintain a human-centered mindset to capture market share
2. Challenge orthodoxies to rethink the business
3. Reinvest to compete

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Maintain a human-centered mindset to capture market share

Airlines have taken drastic actions since the outbreak of COVID-19: Making deep capacity cuts, terminating routes, grounding fleets, asking workers to take voluntary leaves, among others. Despite these hard choices, many airlines have focused on maintaining the trust of customers and employees. For example:

• Amended booking policies to allow for modifications and cancellations of plans, giving customers confidence to book
• Adjusted loyalty schemes to ensure that their most important customers maintain status 
• Cleaning aircraft more regularly and more deeply (for example, using fogging techniques)
• Allocating seats to maximize separation between passengers
• Proactively engaging the workforce to find volunteers to go on a period of sabbatical before considering reduced hours or furloughing positions
• Building platforms, and providing support, for their employees to transfer either to fast-hiring companies or frontline hospital work, taking advantage of elevated security clearance and medical training for some employees

These are all sound choices to build trust and brand. According to a March 2020 survey of 12,000 respondents globally, 90 percent agreed that brands should do “everything they can to protect the well-being and financial security of their employees and their suppliers, even if it means suffering big financial losses until the pandemic ends.”²

Deloitte’s Values Compass shows that values have shifted, with an increased emphasis on trust. Based on input from nearly 8,000 customers, the top values for airlines have shifted from “Try” and “Me” pre–COVID-19 to “Try” and “We” during COVID-19, which is driven by valuing trusting relationships more highly as the crisis unfolds.

As values and behaviors shift, the airline industry should maintain a human-centered mindset to define a differentiated passenger and employee experience and to maintain trust in the “next normal”:

• How do you ensure that employees and vendor partners on the front lines feel comfortable so that they can fully engage in their work and connect with customers?
• How might the pre-and postflight experience evolve? This could mean changes to the airport and lounge experience, including more touchless interactions.
• How might the in-flight experience change? Changes could mean additional in-flight services focused on sanitation or even reconfiguring aircraft.
• How do you ensure that the aircraft is sanitary and clean—and that the passengers know it? This change may be more challenging as load factors increase and there is increased pressure on turn times.

It’s important for airlines to meet these evolving expectations, because companies that focus on the human experience are twice as likely to outperform their peers in revenue growth over a three-year period. For airlines specifically, consumers are more than twice as likely to be loyal to a brand and nearly 1.5 times more likely to promote a brand if they are aware of the company’s consistent adherence to its purpose. This perspective implies that maintaining a human-centered mindset is not only important for those in the ecosystem, but can also help players outgrow the competition and capture additional share as the travel market recovers.

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Challenge orthodoxies to rethink the business

Airlines also need to balance the expectations of boards and shareholders. To manage these expectations in the near term, airlines have made very difficult decisions to rapidly reduce costs as demand has evaporated. Government grants and loans may buoy the airlines for a short time, but if demand remains suppressed for an extended period, airlines may be unable to cut their way through the recovery.

Airlines will likely need to fundamentally rethink the business from the ground up to match their cost structure to new revenue realities. To do this effectively, airlines must challenge closely held orthodoxies—from the network and partnerships to fleet, supplier relationships, and corporate overhead. As a starting point, airline leadership should ask some fundamental questions about their business in the context of the “next normal”:

• Do we need to operate from so many diverse hubs or regions? Would rationalizing the system be more cost-efficient and allow for more network connectivity? 
• Are our partnerships serving our needs? 
• Is the fleet optimized? 
• Are we engaged with the right suppliers (such as aircraft, engine, MRO, and credit cards)? 
• Is our corporate structure fit for the future demand profile, and can it deliver critical capabilities to support operations? 
• Is our real estate footprint aligned with operational needs? 
• Are we optimizing working capital and the cash conversion process? 
• Are we taking advantage of (and preserving) tax attributes, credits, tax refund opportunities, and government incentives and subsidies?

Airlines must fundamentally redefine their business rather than simply retooling it. These questions can help airlines challenge orthodoxies and take a deliberate approach to reshaping the business for the “next normal” while building trust and supporting the brand strategy.

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Reinvest to compete

Customer and employee expectations in the “next normal” will likely look very different. While further cost reductions may be required to develop a more sustainable industry, airlines should invest in the human experience to meet the evolving expectations of customers and employees.

Airlines will likely need to move from today’s “self-service” to tomorrow’s “touchless,” creating a more personal and hygienic customer experience. This new focus will also minimize the number of close interactions with airline staff. Similarly, secure applications and supporting physical infrastructure to manage security (such as biometrics) and passport verification can reduce engagement with agents and make the airport experience more efficient.

Creating more authentic connections with data will allow airlines to scale personal interactions. For example, empowering flight attendants with information on customers that have had flight disruptions, or have special requirements, can enable them to focus on authentically connecting with the right customers. Assisting contact center agents in real time by interpreting key words or even tone of voice to advise appropriate responses can drive a more consistent experience. Making personalized offers based on codified customer preferences and past behavior can further deepen the customer relationship and drive loyalty.

The underlying advanced analytics and AI capabilities that drive a touchless and highly personalized travel experience can also be used to drive network, fleet, and business process efficiency:

• Deploy dynamic network and aircraft allocation planning with enhanced analytics to determine the most profitable approach to recovery
• Actively manage workforce aircraft and gate allocations with dynamic scheduling
• Reduce fuel burn and delay impact with weather and ground activity analytics
• Increase aircraft flying hours by reducing out-of-service time by optimizing maintenance timing and location with predictive maintenance capabilities
• Automate business processes, tracking, and management for transactional areas, such as revenue accounting

Low interest rates globally and companies in distress also provide opportunities for inorganic growth and capability-building. At the airline level, this could mean more regional consolidation of small-to-medium-sized airlines to create a more viable entity. Likewise, it could mean a consolidation in the ultra-low-cost carrier space. At the supplier level, this could mean greater integration of flight training or MRO facilities into the airline group. This approach would give the restructured airline greater control over scarce resources (for example, trained pilots and mechanics), give more access to slots for implementing onboard product changes (such as new seats), and give some degree of control over the cost base.

Another approach could be to create a constellation of smaller branded airlines operating under a holding company. The holding company would manage common infrastructure, such as reservations systems, and would pool demand to drive procurement efficiencies, reducing overhead for the airlines. The airlines would get an enhanced network and be able to focus on what they do best—moving people and cargo.

Capital allocation is always a critical and difficult step in business development and growth, but this time is especially challenging. Airlines will need to build a balanced portfolio that enhances the human experience of those in the ecosystem while also driving operational improvement in a low-demand environment.

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Position to thrive in the “next normal”

Airlines should plan for a number of competitive scenarios to understand how to emerge as a leader from this crisis, and they need to employ these principles to help craft an innovative, cohesive, and effective recovery plan:

• Maintain a human-centered mindset to capture market share: Keeping the values of the humans in your ecosystem at the center of everything you do can ultimately translate to faster recovery and additional market share
• Challenge orthodoxies to rethink the business: Use this opportunity to challenge norms and fundamentally rethink the structure of your business
• Reinvest to compete: Look to reinvest in the human experience of those in your ecosystem through “touchless” technologies, advanced analytics, AI, automation, and M&A

These times are truly unprecedented. Like other industries, airlines have an uncertain future ahead, but those that proactively design their recovery with human-centered mindset will likely be in the best position to define their future and thrive in the “next normal.”

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