How Great Companies Prepare for Bad Times

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Few segments have been harder hit during COVID 19 than the airline industry.

The impact has been devastating.

Once planning on high tourism demand and endless clear blue skies, the industry now faces an uncertain future.

On 3 March this year, I flew to America. It was business as usual. Flights and airports were bursting at the seams.

In the past two decades, the industry has seen eye-watering growth.

The IATA website reveals that 4.4 billion passengers flew in 2018. That’s up 7% from 2017. It’s been continuous year on year growth. There were 1.6 billion passenger journeys in 2000.

”Airlines are connecting more people and places than ever before. The freedom to fly is more accessible than ever. And our world is a more prosperous place as a result.” So said IATA’s CEO, Alexandre de Juniac in 2018.

Overnight, everything changed.

Today upwards of 50% of the global passenger fleet has been grounded. Passenger revenues will be $252 billion lower this year compared to 2019. 68% lower in Q2 alone.

Most international carriers only have two months’ cash on hand to cover operating expenses.

It is a desperate struggle for survival. The risk of permanent damage is very high.

Who will emerge stronger … positioned to capitalise on opportunities, as demand returns and air travel inevitably rebounds?

Time will tell of course. But I’m placing my bets on Southwest Airlines.

The current challenge for airlines worldwide is to manage costs and cash. In America, a $25bn rescue package for the 10 biggest airlines has been agreed upon. Southwest Airlines will receive $3.2bn, including $2.3bn in payroll support.

But what else do these airlines have to fight with?

This is the bigger question. And it’s precisely where Southwest has the biggest advantage.

When the reality is bad and the future is uncertain you have to have something substantial to fight with.

How strong you were going into this crisis matters now.

Airlines that win are the ones with the lowest costs.

Southwest is relentless in delivering a no-frills business model with the lowest per-unit cost in the industry. But they’ve also achieved something else.

They’ve combined low cost with a customer experience.

One no competitor has ever got close to matching. They created a superior intangible flying experience. Based on fun, entertainment and genuine human care.

For the customer, this more than compensated for any loss in frills and benefits on the low-cost model. And it made them strong.

Here for me is the secret.

For this to feel real and authentic, they had to build an airline culture unlike any other. One that had the properties of fun, entertainment, and genuine care at the very core of its soul.

What’s more, after 45 years, they still invest in their culture and guard it like a fortress.

Competitors cut corners that saved costs but eroded their cultures. Herb Kelleher, the founder, was clear. Southwest only cut those corners that did not impact the culture inside the company.

The result today is something rare and precious …

        a deep well of accumulated trust, loyalty, and respect from customers and employees.

Will this be enough to avoid failure?

It’s impossible to say of course. There are no guarantees. So much is still out of their control. The biggest uncertainty is when people will start to fly again. And in what numbers?

But they have a fighting chance.

• They have cash, a strong balance sheet, and the lowest unit costs, and …
• They have a culture that’s near impossible to copy and customers who love them.

How other airlines (and businesses) right now would wish for the same!

Last month, Gary Kelly, the Southwest CEO said this;

“I’m grateful we have time to work on the biggest problem we’ve ever been confronted with. This is not a time to feel sorry for ourselves. It’s time to be laser-focused. We believe we have rational reasons for hope.”

Rational reasons for hope … arising from actions taken during the good times.

Once in the storm, it’s too late.

Jim Collins writes about productive paranoia. “It’s the ability to be hyper-vigilant about potentially bad events that can hit your company. Then to convert that fear into preparation and clearheaded action.”

It’s the hallmark of a great company. And it’s why Southwest has a fighting chance of making it … possibly even emerging stronger.

Saving for a rainy day is not an empty idiom. It’s exactly what one needs … flying into a storm.

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