23rd March, 2020
The entire travel sector has been shaken by the acceleration of the Coronavirus outbreak. As the leaders of this wonderful industry deal with financial implications and attempt to stay afloat, they must exemplify empathy and just not look at layoffs, writes Ai’s Ritesh Gupta
The travel industry is evaluating financial actions including cost containment, adjusting guidance, and gearing up for scenario planning and financial modeling for potential consequences owing to the COVID-19 outbreak.
From an airline’s perspective, the immediate calculation is about staying afloat and meeting their debt obligation. Focus is on curtailing operating expenses and capacity cuts to compensate for plunging demand. Evaluating where Southwest Airlines stands, an airline with robust balance sheet, it had a cash stockpile of $6.2 billion post recent additional financing. Analysis by The Motley Fool indicated that the airline is projected to face a quarterly operating loss of less than $3 billion next quarter.
And technology companies belonging to this sector are in the process of removing cash costs from the business. Sabre has started working on several immediate actions with regard to its workforce and other costs, totaling over $200 million in cash costs.
“We believe Sabre is well positioned to navigate this challenging environment,” Sean Menke, President and CEO, Sabre. He attributed the same to significant aspects of the business’ cost structure being variable. Other than workforce-related cut, the group is also looking at $250 million semi-variable technology hosting costs.
Airlines are also on lookout for support from the government. For instance, Virgin Atlantic recently appealed to the UK government for clear, decisive and unwavering support for the UK aviation sector, comprising emergency credit facilities to a value of £5-7.5bn, to bolster confidence in the industry, and to prevent credit card processors from withholding customer payments, and slot alleviation for the full summer 2020 season.
Don’t rush, evaluate all the options
The longer-lasting effects of the outbreak on consumer habits are difficult to predict. As Menke admits, the global travel industry is facing challenges beyond what has been experienced before.
"The speed of the demand fall-off is unlike anything we've seen," Delta chief executive Ed Bastian said late last week reportedly in a note to staff.
So what does it mean for travel industry’s workforce? Does it make layoffs inevitable?
In this context, The Harvard Business Review suggests rather than over-reacting and or being too slow, leaders must demonstrate the ability to “keep your cool in a critical situation. Few recommendations:
The article ends up with a positive message: “Going through a downturn and making tough decisions to keep your company afloat is hard. However, if you lead with compassion you will touch the lives of your employees in an extraordinary way and come out of this potential slowdown stronger than ever before, enhancing the shared values of your staff”.