Dear Reader,
The global economic crisis has had a serious impact on industry, and in particular on the airline sector, and continues to do so. Meanwhile, even industry experts, who had begun to predict the first signs of economic improvement, are making more cautious assessments, or indeed are having to revise them. At industry events, aviation organisations, aircraft manufacturers and airlines paint a distinctly gloomy picture. The International Air Transport Association (IATA) has adjusted its airline financial forecast for 2009 to a global loss of 9 billion US dollars, nearly double the original estimate of 4.7 billion dollars it made in March. By comparison, losses in 2008 climbed to 10.4 billion euros. Boeing and Airbus anticipate a massive decline in orders during the current year. And when even successful, renowned airlines report record losses in the triple-digit-million range and face a battle for survival, there can be no doubt that this is one of the most severe crises the industry has ever encountered. A clear upward trend is forecast for 2010 at the earliest.
However, the aviation industry has certainly learned from the numerous crises in recent years to respond better and more flexibly to fluctuations in the economic cycle. Riding out the storm is an essential component of professional management in this business sector. Nevertheless, the industry continues to be confronted with new and increasingly complex challenges.
Among the current and future issues which the sector must definitely tackle is the volatile oil price, which experience has shown increases just as an economic upswing gets going. This will put further pressure on costs, particularly for airlines. On top of that, the politically and socially driven environmental responsibility of the aviation industry is forcing airlines to reduce their CO2 emissions. Comparable measures are also being considered for airports, which in turn face ever more complex demands, for example in terms of security. This is not a case of short-term trends but of substantial commitments that will make a significant impact on financial results and also create a set of entirely new problems for companies.
What, then, is the right tactic, given these scenarios? Squeeze costs and at the same time demonstrate strategic skill sounds like the perfect answer – but how exactly can this mammoth task be completed? Besides the usual, necessary measures such as adequate capacity adjustments or efficient cost-cutting programmes, airlines – in particular – would be well advised to focus more than ever before on professionalizing their corporate management
At many airlines, corporate financial controlling functions are not state-of-the-art and consequently respond too reactively to fast-changing market conditions. Professional risk diversification, competent forecast planning and faster controlling processes are essential for optimum management of a company. The prerequisite is consistent, ongoing process fidelity and process monitoring based on key performance indicators. Corporate controlling must evolve from an essential administrative unit to a firm component of corporate strategic planning. Early recognition and monitoring of decisions in politics and industry are becoming increasingly important in this context. Constant changes in regulations on the part of the authorities or new technologies demand a prompt response and immediate action by one’s own airline.
Moreover, the aim – especially in times of recession – should be to consolidate rather than to experiment. Airlines should focus first and foremost on their strengths and continue to build on these in order to overcome the current crisis and not head straight into the next one. In the present climate, survival takes precedence over the often over-hasty introduction of new, supposedly more sophisticated and well-thought-out products. The important thing for an airline is to focus on improving and securing efficiency, mainly in its flight-related core business. Identifying areas where short-term changes can be made, for example by exploiting online sales potential, optimizing the distribution channel mix or professionalizing pricing and revenue management, while keeping the focus on the main target groups, will safeguard business and create the basis for you to simultaneously manage the major issues of the future.
The aviation industry remains a fascinating yet very complex sector that is always highly susceptible to fluctuations in the global economy. We will continue to support you with all our longstanding experience and expertise in this branch of industry in order to secure the long-term success of your business.
Sincerely yours
Werner Schuessler
Airline Restructuring Services by Lufthansa Consulting
