The airline industry is currently suffering from major disruptions. The sharp contrast between the long-term effects of the pandemic and a growing demand for commercial flights has caught the sector rather unprepared. Customers want to get back to travelling now that the pandemic is turning into an endemic and society learns how to live with the virus with little left of restrictions around the world. While this is surely a welcome scenario, anyone performing a google search will have noticed that prices are spiking, and several customers are experiencing major inconveniences such as delayed or cancelled flights.

What makes things particularly complex is the fact that the causes of these disruptions are manifold, and they are occurring at several stages of the industry’s value chain, which involves several actors that have been suffering as a consequence of what has happened in the last two and a half years. Human resources management – or mismanagement in this case – is one of the core reasons for the current crisis.

As airlines struggled to keep up with the restrictions during Covid-19, many decided to let go substantial portions of their workforce to reduce costs. The effects of these actions did not become visible right away, as many airlines were operating a reduced number of routes, but they are becoming very clear now. As a result, several flights are not taking off due to a lack of personnel, whether it is ground staff responsible for desks and check-in or flying crew such as pilots and flight attendants. Furthermore, a direct by-product of understaffing are unacceptable fatigue levels, which in the airline business is not only a bad practice, but also against legal safety requirements.

The industry seems to be suffering from some a classic example of ripple effect, as the measures they adopted during the initial shock – the restrictions – have made organizations unprepared for a second shock – the removal of those very restrictions and the related demand increase.  The industry is proving to be extremely vulnerable due to both external events and structural weaknesses. The latter are especially evident when looking at supply chains, as over time airlines have become increasingly reliant on a number of outsourced services, creating concentrations of risk that they did not address appropriately. As for many other industries, Covid-19 did not create the fractures, but it exacerbated them.

The airline industry value chain includes several actors that provide a whole range of services. Customers might tend to view the whole industry as one large unit, but airline companies are but one link of a much broader chain that comprises airports, manufacturers, catering, ground personnel, air navigation providers, and maintenance services, to only name some. An in-depth look reveals that most of these actors have been destroying rather than creating value in the past decade, operating on net losses instead of profits, with airlines showing the worst numbers.

An analysis of 122 international airlines shows that only 28 were able to create value between 2012 and 2019. For the better part of the decade, the commercial aviation industry reported losses across every geographical region but North America, which started experiencing a downturn only in 2019. Differently, airports proved to be highly profitable, with every major region reporting profits with the exception of North America, curiously. Still, once the pandemic hit their high fixed costs and rather rigid business models inverted the positive trend, leading to heavy losses.

Other actors in the network generally obtained mixed results, with sole exception being cargo carriers, which kept performing well during the pandemic. The reason for this is that many airlines resorted to the cargo business as back-up to make up for the losses coming from commercial flights. Looking at more recent numbers from 2018 to 2021, it is possible to appreciate that the global market size of the airline industry shrank from over $800 billion to $471 billion in 2021. As a comparison, the air cargo industry peaked in 2021, experiencing an all-time high at $175 billion.

In this challenging environment of long-standing cracks in the industry and exogenous shocks, it is worth remembering that airlines – much like other similar sectors in the transport business – have made a very ambitious commitment to achieving net-zero emissions in the not-so-distant future. At the latest International Air Transport Association (IATA) Annual General Meeting, participants have committed to such goal by 2050, with a roadmap that includes several milestones to be met before the final date (the first one being in 2025). This industry-wide effort involves several actors of the value chain, for the production of more effective air control systems, sustainable fuels, infrastructure, and manufacturing components. This resolution was passed in late 2021, when perhaps airlines did not have a clear idea of the repercussions of over two years of disruptions.

If the plan looked ambitious back then, it is even more so now, since achieving this type of sustainability targets will require heavy investments into research and development from both governments and private organizations. In the current climate, it is more important than ever that airlines show true resilience, for their own sake and that of the environment. It is also with this goal in mind that this report will look at cases from different organizations in the aviation industry, trying to identify those success practices that are proving beneficial to airlines.

Singapore Airlines

Singapore Airlines (SIA) is one of the most successful organizations in the commercial aviation industry and it has been operating since the early 1970s. It flies to over 130 destinations all around the world, with a main focus on Southeast Asia, Europe, and North America. SIA’s flying experience is famous for its comfort, luxury, and high standards of its business class, and it owns a series a subsidiary that facilitate access to a range of services. These include SIA Engineering Company for manufacturing, Scoot for low-cost flights, and Tradewinds Tours and Travel for tourist packages and hospitality.

SIA suffered a 99.6% passenger decline from 2019 to 2020, due to the restrictions related to Covid-19, especially in Southeast Asia. As a response, the organization grounded most of its operations, continuing to operate at minimum capacity. A year later, the airline began to see some timid signs of recovery, as SIA’s flights went up to 51 destinations and Scoot’s to 19. It was in 2022, while most airlines are struggling, that passenger flows resumed to satisfactory levels, as the majority of customers went back to flying. Overall, SIA began to operate 71 destinations by April 2022, with an additional 45 run by Scoot.

Despite the difficulties on the road to recovery, SIA has become one of those airlines to weather the storm of the last two years, showing good levels of resilience. The airline certainly welcomed the decision by the Singaporean government in 2022 to relax its entry criteria in relation to Covid-19, allowing fully vaccinated individuals to move more easily and quickly. This is a key element in understanding success cases in this context, that is regulatory context. Those organizations that benefitted from favourable regulations had more room to operate and a better chance to stay resilient. This is very different from stating that governments alone should be responsible of the success or failure of an entire industry, but it would be inaccurate to ignore the role of institutions in supporting – or undermining – resilience efforts.

However, SIA did not let its fate be decided by external actors, and they took a series of actions to try to be in the best possible position to overcome the crisis. One regional manager for public affairs reported that senior managers were having up to four meetings a day early on when the virus began to spread across several countries. While they could not have planned exactly for an event of such a scale and magnitude, they proved to have a crisis management structure in place that helped keep sight of the unfolding events and adjust the plans they already had in place.

In January 2020 SIA’s CEO called a high-level crisis meeting at the organization’s headquarters, to better understand the scenario in front of them and evaluate their next steps. Their idea was not only to prepare the airline to survive, but to earn a competitive advantage as a result of their resilience strategy. As a first move, management decided to secure additional funding, as they envisioned heavy losses from the restrictions, and they had to made sure they had enough liquidity to keep the airline in business.

As investors purchased bonds, the organization was able to rely on an input of financial resources that turned out to be the key to survival at least in the early stages of the pandemic, when SIA was only operating a handful of flights. The ability to persuade investors was the result of two main factors: timing and reputation. Stakeholders were relatively quick in baling the organization out also because of its long-standing reputation, which provided assurances on the return of the investment. This reveals how upholding a high reputation is potentially a resilience strategy for times of crisis, much like having committed top managers that are willing to act decisively and quickly.

Good relationships between the organization and its network proved a winning strategy, whether they were investors, business partners, or suppliers. For instance, SIA was able to renegotiate delivery dates with Airbus and Boeing, while also winning new agreements such as the one with Malaysia Airlines that broadened SIA’s flight destinations.

However, at the moment, it would be unwise to suggest that the crisis is over. The Ukraine crisis has increased dramatically fuel prices and SIA is struggling to fill out positions just as other airlines around the world. The organization also suffers from structural weaknesses, such as a very limited domestic market compared to those based in larger geographical areas such as the United States or China. But the airline has proved relentless in its efforts to stay in the game despite of the external challenges, providing some key lessons for those who want to improve their resilience levels.

Delta Airlines

Delta Airlines is one of the most popular airlines in the United States and in the world. It flies to over 1,000 destinations across 60 countries in all continents, with a focus on North America and Europe. Differently from SIA, Delta can rely on a broad domestic market in the US, and it makes intense use of partnerships with other major airlines for overseas destinations. Some of these partners include Air France, Virgin Atlantic, China Eastern, and Aeromexico. The organization employs over 75,000 people and it prides itself over its workplace culture, also based on several acknowledgements from Forbes, Fortune, Glassdoor, and Indeed.

Delta took a hit during Covid-19 as the whole industry experienced financial losses. The airline’s operating revenue went from just above $45 billion at the beginning of 2020 to a little over $12 billion a year later. However, the organization has been able to put in place effective mitigation measures that allowed it to experience growth again this year, as the operating revenue in March 2022 was over $35 billion.

As in the case of SIA, Delta’s crisis management plans could not possibly cover everything that unfolded with the pandemic, and they had to adjust their response as events developed. One key to the airline’s crisis management success was communication. Teams began to intensify all those activities related to providing information to both internal and external stakeholders. Constant communication with employees, customers, and business partners allowed to mitigate the confusion that came with the pandemic.

On the other hand, Delta also had to take painful decisions to stay in business, such as freezing new hires, letting go of staff, and suspending $500 million in capital expenditures. These contractionary measures were deemed necessary by management to maintain acceptable levels of cash flows and stay in business.

Staying on top of the consequences of Covid-19 has taken a lot of time, resources, and attention, leaving little time for other important aspects of the business. As mentioned in the introduction of this report, sustainability is a very ambitious goal that might suffer from the full focus on pandemic mitigation efforts. Meeting the targets promised in the latest IATA Annual General Meeting could be an even bigger challenge than Covid-19 itself, since current sustainable fuels can be rather expensive and there is not enough capacity to satisfy the entire industry.

Ed Bastian, Delta’s CEO stated that: “The reason there’s a gap is not for lack of ideas, it’s not for a lack of technology or capability, it’s for a lack of capital. The energy companies aren’t willing to invest the billions of dollars in unknown technologies at scale that it’s going to take to convert resources to produce sustainable aviation fuels”. To get some perspective, according to IATA, in 2021 roughly 26 million gallons of sustainable fuel were available, but the whole aviation industry in the same year required 57 billion of it (sustainable or otherwise). The gap is striking, and this is a very clear criticality not only for the aviation industry, but for society at large. Planes are responsible for large quantities of emissions and their commitment towards a greener future is at risk because of a possible lack of resources.

On an additional note, it is worth remarking that Delta too benefitted from government support. The US government bailed out domestic airlines with aids amounting to over $25 billion, of which Delta received $5.4 billion in 2021. It is no doubt that in this case, as for SIA, institutional support was central to the recovery of the airline industry, which would have had a much more difficult time otherwise.

Still, the challenge is not over. Several strikes across the US are grounding thousands of flights, including pilots and flying crew staff, and Delta has not been spared. Pilots say that working hours and conditions need to improve significantly for them to be able to keep the industry going, and they have been picketing at several airports in the country as a protest. Delta cannot afford to hesitate in front of such malcontent among its staff, since similar strained relations have taken a very high toll on other players such as Scandinavian Airlines (SAS).

SAS management has progressively eroded its former good reputation in the past two years, getting into open conflict with its staff and proving to be very distant from flying crews. After two years of struggles, SAS has finally filed for bankruptcy, blaming the reason for such extreme action on the prolonged strikes, which management labelled as “reckless”. Other airlines facing the strikes, such as Delta, might want to address the issue in a more constructive way, since full frontal confrontation has not worked out well for organizations such as SAS.

Key takeaways

This report has shown a series of resilience strategies from two of the most successful airlines in the world. These could serve as an example for other organizations in the commercial aviation industry and beyond, as some of the mitigation measures in the cases could easily apply to other industries. Below, are some of the key takeaways from the two case studies at hand.

A crisis management team or committee is decisive in responding to a crisis. This might seem like an obvious statement but there is a great difference between having a team that is ready to get to work at the onset of a crisis, with predetermined roles and responsibilities, and having to waste time trying to understand who is in charge of what.

Communication is central to a crisis response. This should be agreed internally and be consistent throughout time. Organizations should always aim to tell the truth even in the most difficult situations or postpone further updates when information is not available. Delta proved quite consistent in how they communicated with both internal and external stakeholders, a strategy that has paid off.

Timing is key, and early horizon scanning can save an organization. Both SIA and Delta kept an eye on the unfolding events right from the start and were able to implement what they considered the best mitigation measures.

Support from external stakeholders is decisive in a crisis. There is no better mitigation to financial losses than receiving a new capital injection, but it takes work to persuade investors to help the organization during tough times. In this regard, having established a sound reputation will act as a resilience booster, which is often an underrated factor.

Having a good relationship with your business partners and suppliers will make your value chain resilient. Both SIA and Delta were able to rely on an extensive number of partners, with the Singaporean airline that even went on to expand in the past two years. A large network also helps diversify geographical areas and therefore spread risk across a larger network, which works as mitigation action. This is testament to how supplier relationships, as well as mergers and acquisitions can be effective resilience strategies.

Management should stay in touch with the rest of the workforce. CEOs do not fly planes, pilots do. At the same time, flying crews rely on management to create the right conditions for everyone to perform their job at their best and keep customers satisfied. The case of SAS shows that when management is distant or – even worse – hostile to the workforce, that creates the bases for failure.

Sustainability is the next big challenge for commercial aviation. Being able to meet the targets agreed by the airlines community will be adaunting task, which requires investment in the creation of new technologies and the scalability of current solutions such as sustainable fuels. Given the current financial downturn in the industry, it will not be easy to stay on course.

Institutional framework is a positive externality that benefits resilience. Both SIA and Delta received financial aid from their governments, which helped them keep acceptable levels of cash flows. Whilst organizations should not rely excessively on external help, it would be incorrect not to identify government support as one of the keys to the survival of both airlines.

Author: Gianluca Riglietti

If you liked this article, you might also want to read this one.