Third, airlines may also look at reconfiguring the layout of their cabins to address the increased share of leisure traffic. Decision making is swift and fact based, and departments work seamlessly with one another. During the pandemic, e-commerce sales soared while many passenger flightswhich are responsible for delivering around half of total air cargowere grounded. Please try again later. Norway has mandated that 0.5 percent of aviation fuel in the country must be sustainable this year, growing to 30 percent by 2030. A McKinsey analysis suggests that while current SAF costs are high in relation to kerosene cost, they will come down over time and could reach breakeven between 2030 and 2035, in an optimistic scenario (Exhibit 3). The process is disciplined to the standard: one person is responsible for the job; each function is in place and ready to go before the plane arrives; passengers are briefed prior to boarding; flight attendants help stow carry-on baggage to speed seating. Applying the philosophy and methods of the lean approach also creates new opportunities for outsourcing and insourcing. Swissair AG/S.A. When asked about feasible ways to decarbonize aviation, they ranked carbon offsetting as the least appropriate option. The shape of the post-COVID-19 airline sector is becoming clearer and holds lessons for airlines today. 1 Great operators in other heavy industries have worked through these challenges to deliver low costs, high quality, and satisfied customers. The aim of maintenance, of course, is to ensure an aircrafts lifetime airworthiness and safety through the inspection, disassembling, and rebuilding of aircraft structures (wings, fuselage, tail, and cabin, for example) and systems (including avionics, hydraulics, and electronics). 1 Nations excluded aviation and international shipping when setting carbon targets because emissions are difficult to allocate to a particular country. Copa Airlines, for instance, has been able to use its hub in Panama to create thousands of origin-and-destination pairs, more than half of which are privileged (compared with around 10 to 15 percent for most other airlines). Microsoft committed to reducing its environmental footprint by promoting SAF and paying for the cost premium. Data indicate carriers with greater network privilege tend to perform better. It will take time for airlines to restore capacity, and bottlenecks such as delays in bringing aircraft back to service and crew retraining could lead to a supplydemand gap, resulting in higher short-term prices. Boeing 777. McKinsey estimates that United could increase revenue by $25 million a year if it improved its customer relationship management so that the airline is better able to market certain services and . Before COVID-19, an airline boasted an ROIC well ahead of the overall industrys rate of 5.8 percent. As carriers set out to reenvision themselves and plan for a comeback from the pandemic, taking these lessons on board could set them up for future economic success. However, if an aircraft is properly serviced and maintained, theres no correlation shown between its age and safety. We have seen turnaround times at two internationally based carriers reduced by 20 to 40 percent in this way (Exhibit 4). Subscribed to {PRACTICE_NAME} email alerts. I am very pleased to join the alumni community of McKinsey Asian Executive leadership program. 4 Please email us at: How does Gen Z see its place in the working world? For aircraft with more than approximately 100 passengers, significant aircraft-technology development would be required, and infrastructure constraints would need to be overcome. The benefits of the model for airlines and passengers remain largely intact, and long-term trendsincluding rising demand for thinner routes and the increasing market share of leisure travelsupport the continued importance of hubs. Airlines should instead invest in new tools that can provide real-time information to track travel demand. Carriers can also invest in the customer experiencesuch as making check-in and boarding processes more seamlessand support servicesfrom revenue accounting to invoicingto drive the next level of efficiency. Published connection times have been unrealistic at times, inducing much stress at the more congested hub airports. In some regions, the fermentation of wood residues into sustainable kerosene has shown potential as a viable path. Plus, enjoy a free first checked bag and other great United travel benefits. Southwest Airlines (United States) Mckinsey 7S Analysis. Toyota embarked on its journey 50 years ago and only in the 1970s reached a stage we would recognize as lean, made possible by its well-known suite of specific, practical tools, such as kanban, "fast changeover," "standard work," and hoshin kanri.2 2.Kanban cards facilitate the smooth ordering and tracking of parts. Institutions and governments are announcing policies on CO2 or SAF. These could include committing to reductions in greenhouse-gas emissions in return for more labor flexibility; increasing the cash-on-hand requirements to make airlines more resilient against future shocks; more balanced value sharing between airlines and other sectors such as airports; or changes in the ownership caps to allow greater inflows of foreign capital, reducing the reliance on state capital further down the road. Long termand to become net-zero CO2the required CO2 needs to be extracted from the carbon cycle (taken from the air with direct air capture). Of the nonroutine work, nearly a quarter is accounted for by wing maintenance, which overwhelmingly involves just four areas (Exhibit 3). Before the pandemic, airlines spent roughly 5 percent of their revenue on IT. For example, concentrating passengers through a hub enables a carrier to offer connections for markets that lack sufficient demand for a nonstop servicethereby creating a cycle of reward between passengers and the airline. Examples abound, often in Europe, such as the rail link between the United Kingdom and Europe that cut back the need for flying. Many airlines have had to borrow huge sums of money to stay afloat and cope with high daily cash burn rates. The frequency of climate-related discussions in European earnings calls with investors increased nearly sevenfold since 2017, according to HSBC data. Many close cousins of the companies in the airline industryAirbus UK, Boeing, Bombardier, Lockheed Martin, Pratt & Whitney, Sikorsky Aircrafthave strategic lean programs in place. In the longer term, aviation is likely to undergo structural changes with regard to demand and the degree of industry consolidation, along with unprecedented government support. We see a glut of latent demand of people eager to travel. Airlines dont yet have a viable business case for buying SAF; therefore, its production volume is small, with little economies of scale and insufficient funding (Exhibit 4). All search options. UA514 Los Angeles to New York departing 7:30AM arriving 3:50PM. These costs will need to be recouped. In August 2019, for example, a passenger on an incoming flight to Frankfurt could connect to around 35 flights within a connecting window of one to four hours; the possible connections fell to just 11 by August 2020. Prices for used-aircraft leases have plummeted and are likely to remain lower. We ran McKinsey's proprietary Organizational Health Index at a dozen carriers globally. We also interviewed industry leaders. Created "We Stand United," an officer-led collaborative action team to build and implement a systemwide DEI strategy focused on employees, customers, communities and commercial partners Paired each Business Resource Group with a cross-cultural executive sponsor to help lead their mission and provide further layers of visibility and support The ROIC excludes goodwill, after taxes. One low-cost carrier, for example, separates its aircraft internally into two subfleets. Distribution of data indicate healthier airlines perform better. Now that United Airlines has filed for bankruptcy protection, . For maintenance-business builders, on the other hand, lean-oriented hangars designed with a true assembly line work flow in mind may be worthwhile. The airline industry is understandably focused on the coronavirus pandemics impact on growth, along with the health and livelihoods of its millions of workers. That means an industry with a predictably steady growth rate has suddenly shrunk to a fraction of its size. Burdened by debt, many carriers have depleted their cash reserves. Our recent work in the trenches of maintenance and other operations at several airlines has shown us that they can simultaneously make breakthroughs in cost and quality while continually improving their performance in both areasan achievement known as the "first paradox" of Toyota Motors lean-production system. Capacity: 276-350 passengers. In any industry, companies that adopt lean techniques face difficulties, such as getting senior management committed to the effort, developing the talent pool to lead it, and avoiding the "pick-and-choose" lean-tool-kit approach, which in the end fails to address the root causes of problems. Impressive maintenance results30 to 50 percent improvements in aircraft and component turnaround times and 25 to 50 percent improvements in productivity (Exhibit 1)are encouraging signs for the airlines other operational choke points, such as baggage handling, passenger loading, and customer service. Munoz e-mailed him, and the two set up a time to. SAF is a solution that can achieve full decarbonization, but it comes with challenges on both the supply and demand fronts. Five years ago, most OTAs showed only flight prices and schedules. Other inefficiencies include limits on air-traffic-control capacity and a lack of automation in air-navigation services. In late September, Mendonca, the former McKinsey partner, posted an open letter on the website Medium detailing his frustration with United. For instance, the monthly lease rate of a 2016 vintage Boeing 777-300ER aircraft was around $1.2 million in 2019. We dont know what the aviation industry will look like after the coronavirus pandemic, but we believe that customer preferences for environmental flying will continue. But airlines shouldnt risk the perception that they arent doing enough about CO2, especially amid mounting scrutiny from the flying public, the media, investors, and regulators. Bolder moves and much deeper collaboration among stakeholders are necessary to build financial structures and programs that can help funnel capital into SAF production. Some of these are obvious: hygiene and safety standards will be more stringent, and digitalization will continue to transform the travel experience. Because of the scale of the challenge, any solution will require a multistakeholder approach that also includes governments, tech players, and suppliers. The Future of the Airline Industry After COVID-19 | McKinsey DOWNLOADS Article (6 pages) It's difficult to overstate just how much the COVID-19 pandemic has devastated airlines. But its in the trenches that lean efforts succeed or fail. For most of its 71 years, Swissair was one of the major international airlines and known as the "Flying Bank" due to . The data indicate that conduct, defined as capacity growth versus GDP growth, matters more than industry structure when it comes to performance. Investments in reliabilityas well as innovation in the onboard productcan have revenue upsides. But the forecast is not without bright spots. Facebook Twitter. A bar chart displays conduct and industry structure metrics, and performance metrics are displayed in a list. Underpinning such efforts is a commitment from the top to a cultural change emphasizing, above all, the identification of waste, rigorous problem solving by the front line, and a focus on fully utilizing aircraft and other assets. In the airline industry, the pendant is still up for grabs. In 2019, for example, 80percent of the seat-kilometer capacity of 787s was deployed to or from one of the 30 largest airports globally. Our research has found that most airlines have the potential to greatly enhance the quality of their leadership with a strong strategic vision that is communicated to all levels of the organization. As a result, Copa has become the only reasonable one-stop connection for passengers wishing to fly on many thinner routes between North and South America, and it has earned a return on invested capital above the cost of capital for every year except one from 2003 to 2019. This year now represents the biggest retrenchment in the history of aviation, with airline capacity down roughly 75 percent as of early April. Although the survey took place well before the coronavirus essentially shut down air travel, more than 50 percent of respondents said they were really worried about climate change. Both passengers and airlines benefit when airlines unbundle priority services and expand their range of ancillaries. Email us at JobAccommodations@united.com if you're in need of such an accommodation. Boeing 777-200. From there, United customers can connect on Emirates and their sister. ("Pat") Patterson (1899-1980), the new president, was the major influence on the company's progress until his retirement in 1966. Employees have clear objectives and feel recognized for their work. A narrow-body aircraft generates a higher capital turnover than a wide-body plane because of cost and usage. Source: International Air Transport Association Market Intelligence Services; McKinsey analysis It would also carefully match staffing to passenger-arrival rates, standardize best practices, and monitor processing times. To find answers, we analyzed a large number of variables to seek patterns in top performers. United Airlines is hiring Analyst - Network Planning & Analytics in the Network Planning team based in Gurgaon, India. Longer connection windows will not only facilitate the rebuilding of hub networks but also help airlines better deal with the cascading effect of flight delays, increasing long-term operational resilience. To increase fuel efficiency, airlines should identify the areas needing improvement with the help of analytics and systematically drive behavioral change with their frontline employees. If airport regulations permit, airlines could complement such flight activity with the potential deployment of depreciated aircraft, especially on popular routes. Return date *. In 2020, the rate fell to less than $800,000. To decrease stress during tight connection times, for instance, operations control centers could dynamically adjust cruise speed, allocate gates to minimize the distance that passengers have to walk between flights, and fast-track passengers with challenging connections through security. Coronavirus aid: Air France must cut domestic flights to get state loan, BBC, May 4, 2020, bbc.com. Companies that embrace lean really begin to see things differently. United Mileage Plus (Pre-Merger) - Creditors balk at United consultant McKinsey - CHICAGO (Dow Jones/AP) A committee of unsecured creditors of United Airlines have asked bankruptcy court to stop the airline from expanding an agreement with consulting firm McKinsey & Co. We are thrilled to have you on the team and you are lucky to have a mentor like Zachery Jones. Need Help with Mckinsey 7s Framework Of Friendly Skies Welfare-to-Work at United Airlines? 3. At the same time, issues such as route structures, excess capacity, pricing, and yield management compete with operations for the airlines attention.1 1.For a survey of the industrys overall challenges, see Peter R. Costa, Doug S. Harned, and Jerrold T. Lundquist, 'Rethinking the aviation industry,' The McKinsey Quarterly, 2002 special edition: Risk and resilience, pp. Airline operations present a striking dichotomy. We strive to provide individuals with disabilities equal access to our website. Deseret News. A better system for replacing lightbulbs makes almost 5 percent of all currently unpredictable A-check operations routine. Beyond this, the next horizon is analytics, which involves, among other efforts, using datain smarter ways to enhance decision making, requiring some investment but yielding significant payoffs. As new planes are rapidly added in anticipation of demand growth, ticket prices fall.