No one likes layoffs. People losing their job due to something other than their own performance creates emotional and economic havoc at homes and in communities. Yet the current environment has plunged many businesses into this exact scenario, and so the pragmatic question is how to deal with this? For the largest U.S. airlines, this creates an opportunity to rethink their long-term business model as they watch the lower-cost carriers in the U.S. recover more quickly and adapt more readily. Here is a five point roadmap they should consider:

Go Back to a Zero-Based Budget

Budgets are necessary for any company though they are hardly the thing most employees enjoy. Most budget processes require departments to justify changes in spending from one year to the next, effectively sanctioning that their prior period spend was reasonable and provided a good return to the company. A zero-based budget requires departments to justify every dollar to be spent from dollar one. This makes no presumptions about what was spent the prior period. This process, which takes time, dedication, and grit, is considered financial proctology to many people but it reveals an amazing amount about how the company spends money. In almost every case, the process shows redundancies, spending on non essential items, paying for projects that most thought were sidelined, and more.

Letting people go hurts, and so companies owe it to those people and the ones remaining that the company is looking at how it spends all of its money and is not asking employees to subsidize waste in other areas. A zero-based budget process will help this and bring transparency and new efficiencies to airlines as they deal with many more months of uncertain revenue.

Re-think the Fleet

Structural changes in travel demand means that the often complicated and varied fleets of the largest airlines have a lot of room for change. We’ve already seen Delta Airlines
announce the retirement of their Boeing
777 and 717 fleets, but they probably aren’t done yet. One of the big advantages lower cost airlines have is the simplicity of their fleets, which minimizes training, sparing, and long term maintenance costs. Larger airlines take a “we must serve all size markets” approach and this means they buy and maintain airplanes from quite small to very large, and often from multiple manufacturers. They may argue that by buying from both Airbus and Boeing, for example, they keep each company honest and get a better price. Yet lower-cost airlines don’t behave this way: Southwest is all Boeing, Spirit and JetBlue are all Airbus, RyanAir all Boeing, etc. Prior to the major consolidations in the 2008-2012 period, Continental Airlines had pioneered an exclusive deal with Boeing that they felt reached capital cost efficiency and operational simplicity.

It’s not only simplicity in manufacture, but sizing also. Wide-body, long-haul airplanes have always had a higher risk profile versus smaller narrow-body airplanes due to higher costs to acquire and operate. Now, the future of long-haul travel for business is highly certain, even if most believe that leisure travel will come back sooner and stronger. Passengers in the front cabins of these big airplanes pay far more than their real estate share to cover the costs of these planes, and with that traffic uncertain it makes the wide-body risk that much greater.

Aircraft lessors are realizing the change in value for their fleets, and manufacturers are revising production and thinking about their pricing longer term. Big airlines have a unique, out of court opportunity to fix the inefficiencies in their fleet plans and work out new or revised deals that better match the likelihood for demand over the coming years.

Re-imagine the Customer Experience

The large, higher-cost U.S. airlines fight for the travel paid for by businesses and try to attract these customers with a combination of schedule convenience (a Southwest speciality domestically) and higher-touch, more personalized airport and onboard experiences (Delta, American, United). Schedule will continue to be a winner for whatever business travel recovers but the rest of the experience — in the airports and onboard — should be reconsidered in light of what will likely be an ongoing sensitivity to close spaces. Onboard, this could mean a permanent change in meal services, to reduce the flight attendant and customer contacts. It could mean more privacy in business and first class cabins to attract those who want true separation even onboard the aircraft. It could mean changes in the boarding process to mimic what is happening now on an ongoing basis.

In the airport, it could mean changes to check-in and lounge access for those who depended on that service. There may be other things to change as well, and the point is that this terrible demand environment gives airlines the ability but also requires them to re-think every aspect of the customer touch points to see how these can be made safer and more attractive to the business traveler. Attracting business travelers will remain important, and becomes even more important if there is less total business to go around.

Supercharge Self-Serve Technology

One big way to lower expenses, improve the customer experience, and be safer is to use technology to allow more self service. Checking in without ticket counters, tagging bags without people, maybe eventually even boarding based only on technology is possible. Reducing call center needs for rebooking and other issues, already largely automated, can be made even easier and for more customers. Isn’t it great to rent a car online, walk right to the car without stopping at a counter, and then drive out with Clear (or similar) to make the whole experience self service? Airlines likely won’t be able to adopt this model completely but can use this downtime to re-think what can be done at check-in, the gates, and more with better technology. If a lot of people must be let go now because of low demand, the ideal would be to bring back some, but not all, over time.

Sharpen the Reason for Being in Business

This is potentially the toughest thing for the big airlines to consider but one that could mean the most in terms of redefining their business for the future. Think of what the big airlines do: they have complicated fleets and inefficient operations so that they can serve tiny cities, medium sized cities, and large cities. They offer cheap basic economy fares to compete with low cost carriers and three digit fares to those who can make their company pay for that. They are trying to be everything to everyone, and in what other industry does this strategy work? Morton’s doesn’t try to be McDonald’s and vice versa. Car companies don’t also manufacture trains and planes. Target isn’t Nordstrom’s nor is Nordstrom’s Target.

By starting first with who is the customer they can best serve to be profitable, they would make different decisions about hubs, fleets, network, product, and distribution. This is what the low cost carriers do so well and it seems that the big guys miss this — the low cost carriers know their customer and don’t worry about not being best for others. They worry about being best for whom they specifically target, and targeting every traveler is targeting no one.

This is not an easy time for U.S. airlines, and it is harder for the four largest than for the others because of their complications and somewhat lack of focus. Southwest is closer to this than American, Delta, or United, but they have become too dependent on business travelers as their cost advantage to the big three has shrunk considerably. By following these five ideas after the layoffs or the voluntary cutbacks, the airlines can refocus and redefine their business models in important ways to make themselves more resilient, more profitable, and provide better service to the customers they choose to target.

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