senior client partner, aviation & aerospace
This Week in Leadership
In a sign of mounting concerns over high-tech employee tracking, some states are preemptively banning even untried measures.
Offering free flights to volunteers fighting COVID-19 is great PR. Offering completely booked free flights that don’t adhere to social-distancing guidelines, particularly to volunteers fighting COVID-19, not so much.
That’s what happened to one major airline this week in a viral story that only highlights the dilemma businesses—both in the air and on the ground—will face in a world of social distancing. In this case, passengers hit their Twitter accounts when the airline fully booked a cross-country flight, resulting in a host of unpleasant images of passengers crunched inches apart. Part of the outrage stemmed over the airline previously pledging to leave the middle seat open when possible.
All of which raises an obvious question for hotels, restaurants, offices, and virtually every other business as the economy slowly reopens: can organizations afford to social distance?
For most, the answer is a complex calculation of safety, economics, and reputation, says Radhika Papandreou, a senior client partner at Korn Ferry and leader of the firm’s North America Travel, Hospitality, and Leisure practice. “Companies want to tell people what they are doing to keep them safe,” she says, “but the reality is that if people don’t feel safe, they are going to stay away.”
The economics of the airline industry perfectly illustrates the complex dynamics at play. Despite efforts to differentiate through loyalty programs, in-flight food and entertainment offerings, and other enhanced experiences, consumers still make flight decisions based on the cheapest airfare. As a result, an airline’s financial health depends in large part on the number of seats it fills and at what price, known as load factor. Airlines generate additional revenue through baggage, seat selection, Wi-Fi, drinks, cancellations, flight changes, and other ancillary fees.
Still, airline margins are so thin that a requirement as small as not selling a ticket for the middle seat for every row on a flight could end up losing money for the airline, says Michael Bell, a senior client partner in Korn Ferry’s Civil Aviation practice. “A flight needs to be between 65% and 85% full just to break even,” he says. Simple math shows that stripping out one of every three seats reduces capacity to a maximum of 66% full.
But flights are, of course, far from full. A majority of fleets are grounded, and schedules have been slashed by as much as 90% at some airlines. Since the coronavirus outbreak, passenger traffic is down 94% and domestic flights are averaging just 23 passengers per trip.
Plenty of other industries feature similar economic dynamics that make social distancing financially unviable, says Papandreou. Restaurants, for instance, would lose more money than they make if they operate at only half capacity. The combination of social distancing and a prolonged downturn in customer volume creates intense financial pressure for leaders of these businesses, who are faced with the ultimate catch-22: limit capacity and raise prices or open up capacity at the risk of safety and, in turn, reputation.
Bell says the decision is less up to leaders than it is to customers. He notes dryly, for instance, that while attention has focused on keeping the middle seat on a flight unoccupied, a passenger’s safety is still at risk if the seats in front and behind are occupied. “Ultimately, consumers will decide what they are comfortable with,” he says.