Managing through COVID-19: Insights and measures for airports
Dr. Karsten Benz, Professor for Aviation Management at Frankfurt University, explains that, in order to secure a successful future for as many airports as possible post COVID-19, flexible and immediate action is mandatory.
Stock markets collapse, businesses have to close and public life is restricted due to the COVID-19 virus. It’s a humanitarian crisis and there are drastic restrictions designed to minimise the spread of the virus. They may vary from continent to continent, but one thing they have caused already: A large part of commercial air traffic has come to a standstill.
The contact-contagion-containment-control requirements are essential in limiting the impact. But travel bans and plummeting demand have darkened the future of an industry already stressed with massive overcapacity, yields dwindling down and nationalism gaining ground in Europe. While air traffic has historically been cyclical, it has never before been hit by an incident of this magnitude. It means that there is almost no passenger business.
Consequences of the COVID-19 pandemic
“Airlines are fighting for survival in every corner of the world” stated IATA Director General, Alexandre de Juniac. Overall, IATA estimates that the coronavirus outbreak will lower airline revenues by $252 billion in 2020, and a similar situation arises for airports. The ACI Europe assessment of the impact of the pandemic is for a loss of up to 900 million passengers in Europe in 2020, representing a €20 billion hit in revenues.
Nearly all airlines have cut capacity drastically. Lufthansa has grounded 95 per cent of its fleet, while Ryanair has ceased operation until June. Flybe went out of business and the rescue of Condor – the German leisure carrier – has turned even more into a tour de force. As a consequence, airports are being forced to suspend terminal and runway capacity. Frankfurt has closed one of its four runways, Manchester Airport has consolidated operation into one terminal, and London City Airport is closed until the end of April. So far it is unclear how long communities will stay less connected as the drop in travel demand may last for months.
Use the time to reach out for new business models or joint ventures as travellers needs might change drastically when the crisis is over
Several airlines do not have the cash position needed to survive such a demand slump, even for a longer period. In a worst-case scenario, quite a few airlines will be forced into bankruptcy by the end of May. This will reduce the need for airport terminal and runway capacities in some regions to zero. First-level airports like Heathrow have sufficient reserves to weather the crisis, and airports in public ownership will have even more. The same applies to airports specialising in cargo, which appear to have become the winners of the crisis due to the lack of sea freight capacity and booming e-commerce trade. The situation is quite different for regional or privately-owned airports. There is a risk that the current lockdown will have long-term consequences.
To manage through this crisis, there are critical measures (the Four-C-Tactics) that airport boards and respective shareholders must observe and apply over the next months.
Tackling the COVID-19 crisis
Airports must reassess their airline customer needs and quickly adjust the terminal and runway systems by closing down facilities. Halt investments and negotiate with unions about at least reduced working hours and pay cuts.
Model the CAPEX position scenarios over the next six, nine and 12 months of disruption and create clear contingency plans for each scenario. Use this time to perform maintenance work, and possibly assess how the airport’s operation could be much leaner. Lacking of economic viability and facing a cessation of airlines operating, the obligation for airports to stay open must be addressed by the airport management. Wherever it makes sense, employees must be able to move between sites and airports – it must be possible to deploy employees from administration and passenger areas in the less depressed cargo business.
Business continuity must be addressed from a total airport perspective, looking at not just airport operation but also other service providers – including security services, ground handlers, retailers and catering companies.
Connecting to customers is essential and the COVID-19 crisis implies a huge chance to have customer needs as the top priority.
In the aviation segment it is essential to increase airline customer loyalty and therefore to share business scenarios with the carriers, challenge assumptions and request visibility on their plan. As resources in passenger handling are pooled to minimise capex, passengers who still want to travel should be kept up to date.
Run your airport in a survival or skeleton mode and be ready for travel to come back
In the non-aviation sector, demand slump is also having a drastic footprint in the balance sheets of car rental companies, restaurant operators and duty-free dealers. All of them have already reacted to the crisis by closing sites, reducing car fleets and other measures to cut costs. Use the time to reach out for new business models or joint ventures as travellers needs might change drastically when the COVID-19 crisis is over.
Airports by their nature are complex facilities that involve a wide range of stakeholders who often have differing objectives. During crisis the airport management team should communicate regularly to stakeholders about what is done when and why.
Considering the human aspect, protecting your team should be a top priority. Consult with work councils to have a work-from-home arrangement in place for administrative staff, which both safeguards their health and reduces on-site presence to an absolute minimum. For staff that are critical to operations – create fixed crews that work in shifts, adding virtual handovers and enough time gaps between shifts to reduce person-to-person contact and enable sanitisation.
The spread of COVID-19 is leading to considerable restrictions at airports. As a result, passengers are affected as many airlines have imposed travel restrictions worldwide and cancelled flights. Although it stays within the responsibility of airlines to provide information on their minimum flight schedules, airports should be able to deliver consistent information on disruptions and extra sections, for example, for repatriation. It is evident for airports to align with local authorities about the general rulings for health and care.
To ensure that crisis management has the best chance for successful outcomes, it is essential to engage shareholders at any stage. Create a thoughtful plan before going for any cash infusion from shareholders. Several industries that are critical for the restart of the economy will ask local governments for support, and most certainly it is determined on how viable the business plans are and whether a solid perspective for the future exists.
Fewer destinations also means that the justification of many airports as a part of the ‘critical infrastructure’ will be questioned
Run your airport in a survival or skeleton mode and be ready for travel to come back. Airport managers should spend time to create a restart plan and make sure operational procedures are well documented to support a seamless start up when air traffic rebounds. This means assuming strong leadership with the main goal to have a business after we leave the COVID-19 tunnel. It will require decisiveness, including cutting spending, securing a critical flight operation and rescaling the workforce to a new normal. As different approaches are being taken by national authorities (for example, shutting down air travel versus requiring quarantine on arrival), the ripple effect of these measures will continue for quite some time.
Managing the COVID-19 crisis is evident. While environmental issues were in the foreground until recently, it is now an issue of social cohesion that characterises an airport’s contribution to the society. Airports, together with the respective carriers, can set a mark in the crisis by bringing stranded vacationers back home from their holiday destinations and providing medical care after landing. Cargo facilities on airport can also be used to secure logistics for not only medical equipment but also other goods as supply chains especially from Asia will remain disrupted for the next months.
Looking ahead to the future
Beyond this period of need, however, one should not overlook a crucial detail regarding this COVID-19 pandemic: Unlike other outbreaks seen in history, it is likely to cause a global recession. For many airports and airlines, the containment and control of the virus – and there is no guarantee of when this will happen – might seamlessly lead over to a new crisis as economic conditions worsen. This means, from my point of view, the aviation industry could experience something more comparable to a ‘U-shaped’ recovery, rather than the ‘V-shaped’ one which was notified after the SARS outbreak in 2002/03. Individual countries and regions will come back online at different rates and at different times, reducing the chance of a quick, global rebound. If business travel demand recovers at a slower pace and settles at a lower level overall, airlines can be expected to reduce their fleets and thin out route networks. Fewer destinations also means that the justification of many airports as a part of the ‘critical infrastructure’ will be questioned. The European Commission’s requirement to stop public subsidies for airports as of 2024 still applies, so this crisis could be an opportunity to rethink size and scope of airport infrastructure as part of public services in Europe.
On a positive note, some analysis suggests that a strong economic recovery could take place in 2021 resulting from fiscal and central bank stimulus. One may also cite the beginnings of a recovery in China’s domestic airline market. However, for now, it is evident that the industry is faced with an extraordinary situation. Flexible and immediate action is mandatory.
Dr. Karsten Benz currently serves as Chairman of the Supervisory Board DRONIQ, and teaches at the Frankfurt University as Professor for Aviation Management. Benz also works as Senior Advisor for AlixPartners. He has been in the aviation industry for more than two decades and worked at C-Level in leading transformation and tapping new revenue streams. After finishing his studies in Cologne, he was hired by Lufthansa to be responsible for network planning and implementing multinational joint ventures.