compass

Perspectives

How airlines and hotels can prepare for an economic downturn

Planning for an uncertain future

If another downturn is looming, what new strategies can help airlines and hotels this time? Our report explores four downturn readiness pillars to help your organization through the next recession.

American football made the forward pass legal in 1906, but its first practitioners used a rugby-style "shovel" toss. A year later, the Carlisle Indian Industrial School tried something different: an overhead spiral throw that permitted more distance and accuracy. That one innovation set one team apart from the rest—for one season. When the spiral pass became popular, it became ordinary. It still worked as intended, just as it does today. But no one thinks of it as a competitive differentiator.

And so it is with recessions: Even the businesses that did a superior job navigating one downturn may find the same strategies and tactics won't be as effective when another downturn looms.

With strong signs that another downturn may be on the horizon, the airline and hotel industries are facing that challenge right now. Some companies made bold moves 10 years ago when the global downturn put them at risk. Many of those decisions, such as certain cost-cutting and structural changes, are ones you can make only once. What tactics can these companies embrace now to emerge strong this time?

One of the biggest advantages airlines and hotels have now is time. But they have to approach this opportunity as a new game.

Companies need to think through not only which investments they'll make, but how their priorities might shift. Last time out, the focus was primarily on cost reduction as a means of survival. Where mergers and acquisitions (M&A) deals happened, they were driven by scale and efficiency. Heading into a new potential down cycle, companies have different options, and their investments and deals can be more forward-looking. Cost-efficiency is still in the mix, but the moves companies make today can also aim toward long-term growth.

While each airline and each hotel company will have to make its own decisions, we explore four key strategic pillars that can help focus a company's pre-downturn investments for resilience and long-term strength to build a better business strategy during a recession. This combination of enabling and strategic building blocks can provide a foundation of technology, talent, and operational capabilities that withstands the difficulty ahead.

Planning for an uncertain future: How airlines and hotels can prepare for an economic downturn

Lessons from the past

If present-day correlations point to trouble ahead, airlines and hotels can take a cue from another, more encouraging one: Smart steps offer more than mere survival. Companies that perform well in recessions tend also to be companies that perform well over the long term. That puts an additional premium on the steps these companies take right now, before the next recession in the tourism industry.

Applying the lessons: How to prepare for the next recession

Once you’ve decided to act, the next question is: What are your targets? Which investment priorities will help prepare today’s airline and hotel companies for the next downturn and beyond? There are four pillars to downturn readiness: two enabling ones and two strategic ones.

  • The enabling investment pillars are next-generation talent models that position a workforce to meet tomorrow’s demands and data-driven decision making that an organization can use to pivot more quickly and accurately.
  • They set the stage for the two strategic pillars: Customer loyalty that focuses on retaining customers with the most value and operational flexibility and responsiveness that equips a company with an elastic ability to respond to market and competitive challenges.

Working in concert, these are investments that can strengthen any organization and make it more resilient against a variety of shocks.

Start a plan for your business strategy during recession

The three major questions this document aims to address are:

  • What lessons can we apply from the last downturn?
  • Is there a case for preparing to apply them now?
  • And what does that preparation look like?

The four pillars we have identified—next-generation talent models, data-driven decision making, customer loyalty, and operational flexibility and responsiveness—draw on experience and current indicators to map out the kind of readiness that’s likely to help airline and hotel companies weather a coming downturn. What’s left to determine is the path from theory to action. In a downturn environment, choices are critical and speed is indispensable.

It’s not only time to act; it’s likely a good time to act. Companies that survived the last 10 years have laid a foundation that today gives them the chance to solidify their financial positions and make well-chosen investments.

Making those choices starts with a conscious decision to go beyond the standard playbook. That decision point is where the framework we’ve identified comes into play.

Whatever investment strategy has guided you through recent good times, potentially including low investment or even divestiture, the data suggest this is a time to amass value for the future.

Bear in mind that in addition to the many specialized steps we have examined, the more traditional cost-reduction strategies that apply in a downturn may also apply here. They may be less effective the second time around or they may apply in different ways—for example, using M&A to build skills and capacities rather than to drive cost-efficiency. The new strategies are additions, not replacements.

Leaders whose companies went through the last downturn can take a specific, explicit look at what steps the companies took then and evaluate the results that ensued. The principle that “not every play from back then will work now” is a strong general case. But the specific case of your own company’s experience can make it stronger.

Finally, take a look at current initiatives against the landscape of the four pillars defined here. It may be that elements of these strategies are already in place and moving forward with the four-pillar approach can build on what’s already happening instead of disrupting it. When you look at each of the pillars holistically, and the four of them together, through the lens of an approaching downturn, the choices ahead will come into focus.


Looking ahead

The global downturn that began in 2008 left a record of strategies that worked for some leading organizations. The analysis here has sought to identify some of those strategies that may have some effectiveness left in them for a second go—as well as new ones that arise from the last decade’s changes in technology and market conditions.

Just remember that Carlisle football team. The coach was Pop Warner and the star ball carrier was Jim Thorpe—both familiar names more than a century later. But neither would prosper in today’s game because yesterday’s innovations are today’s assumptions.

There’s another element of the playbook to consider: errors of omission. What sports fan hasn’t looked back sadly on the hockey goalie who was left in the net a shift too long, or the relief pitcher who came into the game a batter too late?

In travel and tourism, the move you regret not making is likely to be the enabling investment that would have provided a better foundation for the ones to follow. For example, adding streaming video or voice-activated smart speakers to a room is tangible and attractive—but only if the Wi-Fi is reliable. Tools that capture a new wealth of guest preference information are in vogue, but they are effective only if the guests can feel the difference on their next visits. Investments work better when they work together.

A capacity you’ll need a year from now is one you should be building today, if you don’t already have it. Making strategic investments requires identifying and earmarking the capital to be invested, which will only get harder if the economy makes things tighter.

pencil

Special thanks to contributors

Ira Kalish
Steve Jennings
Mark Pocharski
Tom Schoenwaelder
Guy Langford
Ashley Reichheld
Ramya Murali
Candice Irvin
Bryan Terry
Brandon Cox
Rezarta Haxhillari
Aaron Burgess
David Skoler
Marissa Lorch
Gudipudi Bhargav
Yuriy Dovzhansky

Fullwidth SCC. Do not delete! This box/component contains JavaScript that is needed on this page. This message will not be visible when page is activated.