Comment: Taste of fear

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This story is sourced from Airline Business
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As we compile the list of nominations for the 2009 Airline Strategy Awards - and there is still time to put yourself, your chief executive or your airline forward - the magazine's editors and our partners at executive search firm Spencer Stuart are wondering just how short the short list is going to be. There are of course plenty of innovative strategic stories out there, but for many the strategy is a simple one: survival.

At last year's Awards, where Lufthansa's Wolfgang Mayrhuber and Flybe's Jim French were among the winners, the tongue-in-cheek introduction to the event flipped through images of the emotions airline executives were going through. Outright panic was one of them. At that time the background was excruciatingly high fuel prices coupled with the slowing economy. Then came the banking crisisand the economy nosedived.

So what is the emotional state of the leaders of low-cost carriers, the sector under scrutiny in this issue, as they battle through the crisis? Are they as well equipped as their compatriots at network carriers, who arguably may have more experience in crisis management, to weather the storm?

Speaking about how Southwest Airlines performed in the first quarter of the year, chief executive Gary Kelly is sure about one thing: "We face the toughest revenue environment in our history." The result for Southwest was a net loss for the three months of $91 million. It made a profit of $34 million during the same period in 2008.

This is an awful reversal for a carrier that was previously able to boast of record numbers of consecutive profitable months. However, Kelly does not see "any reason to panic based on first quarter results but we can't let this ­continue to decline".

You would not expect an experienced team like Southwest's to panic, but the suspicion is that there are plenty of other management teams less well equipped to handle the downturn. The basic reason is they haven't faced one. In a sector that is still immature - most low-cost players are less than a decade old - managers have been accustomed to unbridled growth.

That page of the story has turned. Now managers face a slump in demand and consumer confidence, which as Virgin Blue's Brett Godfrey observes, has caused airlines to "hit the bottom of the stimulation barrel".

It seems that aggressive fare sales, a popular tactic to counter an unprecedented collapse in revenue, only go so far. Then there is the challenge of dealing with a radical change in consumer behaviour, with travellers booking later and later. This has a painful effect on cash flow.

There is no magic formula for getting through this crisis except the tedious but essential attention to detail at every level. As one chief executive observes: "Managing in a downturn is a completely different skill." The to-do list in the past year or so, for virtually all types of carrier, has run down cost cuts, pay freezes, job cuts and capacity reduction. Apart from the first line of the list, this is not natural territory for low-cost carrier managers.

There is a reality check going on in the boardrooms of low-cost players everywhere. The fear of failure is high, as is the fear of this unknown territory. The priority is to conserve, boost and raise as much cash as possible. Relying on the popular choice of selling an aircraft or two to release cash is less of an option in today's market.

The timeline is to get through winter 2010 alive and then hope the economic situation and therefore demand begins to improve as next year unwinds. Only then will the industry discover what this hugely important sector will look like. Its influence will not wane, but it will be wiser for the experience.

The fear of failure is high, as is the fear of this unknown territory

Airline strategy awards

The 2009 Airline Strategy Awards, hosted by Airline Business, will take place at historic Lincoln's Inn in London on Sunday 12 July. It is simple to put your executive team or carrier forward for an award in one of the seven categories. Go now to the Airline Strategy Awards website strategyawards.com