Question: How do you get a million dollars?
Answer: Start with a billion and go into the airline industry.
The old joke reveals the perilously low margins in running an airline. Even in good times, a single long-haul aircraft needed to bring in around $100m a year in revenue, and if you got your costs wrong, you could quickly lose a lot of money.
Now, the pandemic has devastated the industry and airlines have made savage cuts to staff, routes and planes. But change and disruption not only bring a greater level of risk, they bring opportunity, it is just a question of spotting it.
Several new airlines have sprung up to take advantage of reduced costs, assuming that the demand for travel will remain huge and that the pandemic will prove to be a short-term blip. They see this as a golden opportunity.
Thousands of pilots and cabin crew have been laid off and will be competing for jobs; aircraft leasing costs have reduced by around 30%. Two years ago there were 30,000 international routes in operation, now there are 12,000. So there are opportunities to enter the market and to do so at a considerably lower cost.
Among the new entrants are Norse Atlantic offering low-cost transatlantic flights, Breeze and Avelo airlines in USA and Lift in South Africa. Flypop plans to meet demand for the South Asian diaspora living in the UK to visit India and has suddenly found that its projected costs have halved.
Change of whatever kind, however large or small, internally or externally generated, always brings both upside and downside risks. All you have to do is understand those risks, exploit the upside, and constrain the downside.
It remains to be seen how the new entrants manage the downside risks when something like normality returns and the big players up their game…
Data Source: The Financial Times, Wikipedia