No one model will emerge victorious from Covid and airlines should instead focus on three key drivers, suggest turnaround king Stefan Pichler
A lot of questions have been asked in recent weeks regarding which airline business model will come out on top in the wake of the coronavirus crisis, with carriers announcing various restructures and focus shifts.
But some airlines could be falling into a dangerous trap by focusing too much on their respective models instead of looking at the simple business facts that dictate survival and success.
That is according to Stefan Pichler, a retired airline CEO known in the industry for his successful turnaround strategies and for transforming carriers from loss-making businesses into highly profitable outfits.
“People, to make their lives easier, always put airlines in boxes,” Pichler said on BAA talks a new talk show hosted by Linus Benjamin Bauer, managing director of Bauer Aviation Advisory.
“In reality, the newest market entrant is always the biggest market challenge to everyone else because the newest entrant has the lowest cost. It’s very simple. In an industry which has not learnt the cost of capital in the last 25 years, which is marginal in terms of profitability, which is asset heavy, which has high risks, the company with the lowest cost always has an advantage – full stop.”
Pichler said that a large airline might have a huge fleet and carry millions of passengers each year but said size says nothing of a company’s value or profitability. On the other hand, he said, a much smaller airline could have much higher profitability.
“There is no clear winner. Having the lowest cost is a good one, having a strong brand is a good one, having a supportive government policy is also important. This is a big one. And those are the key drivers for recovery.”
Taking low-cost long-haul as an example, Pichler suggested that some airlines market themselves as having certain models to scare off competition and defend market share.
“Let’s be frank, low-cost long-haul, nobody has ever made money. Just look into the P&L (profit and loss). Look how sustainable your unit cost advantage is if you operate low-cost long-haul. It’s fake. Your cost advantage is not there. It is a marketing gimmick for attracting investors. Show me any so-called low-cost long-haul airline that has ever made money. None. Nothing.”
He added: “An airline is only a business, it’s a P&L and a balance sheet.”
Pichler also warned that airlines must not fall into the trap of treating marketing as pricing and promotions in their recovery strategies, even if they have lots of seats to fill amid an overcapacity crisis. Instead, Pichler said, marketing strategies should revolve around securing customer confidence, whether it is around ease of travel or safety on-board.
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