The shift should be on meeting the challenge of the lockdown by investing in training and coaching; adapting to changed circumstances through the rejection of hierarchical approval of company strategy and the adoption of customer collaboration and approval.
by Dr. Ruwantissa Abeyratne
Writing from Montreal
There is nothing more deceptive than an obvious fact.
― Arthur Conan Doyle, The Boscombe Valley Mystery
With the global lockdown and the unprecedented stoppage of passenger flights around the world both tourism and business travel came to a standstill. There were video conferencing and Zoom meetings where businesses scrambled to keep their activities going. Most thought that the pandemic would usher in a boom period for couriers. Some airlines hastened to convert their aircraft into all cargo facilities, on the basis that the carriage of cargo by air would grow. This was the natural prognosis of some air transport economists and panjandrums who underestimated the consequences the virus would unravel on an unprepared and unsuspecting world.
The Economist of 4 July reports that, contrary to popular belief FedEx, which spearheaded express delivery in the United States, saw operating profits go down by 64% year on year in the period between February and May 2020. Yes, the demand for delivery of air freight grew but so did the massive costs that were incurred by the carriers due to the spread of the virus. The high costs were related to employees – particularly delivery workers - being affected by Covid-19 and going on sick leave as well as the compelling need to engage new and additional staff to clean the facilities involving transportation. There was also a reduction in the carriage of bulk air cargo to deal with. This last factor affected not only FedEx but also the most successful carrier UPS which released dismal revenue and business figures in April. These carriers had to relinquish their sustained reputation of on time deliveries and jack up surcharges that were calculated to prevent overloading.
The other dimension adding to the cargo carriers’ misery is the technology giant Amazon, which has ordered 100,000 electric delivery vehicles to its growing fleet of 80 aircraft and 30,000 delivery trucks, and is unequivocally demonstrating its rapid growth.
However, the bigger problem seems to be anterior to the Covid crisis - as The Economist reports. The conundrum the freight carriers had was a continuous one predating the lockdown - as to whether to concentrate on bulk deliveries instead of focusing on the consumer market. The Economist reports: “In January FedEx finally extended home deliveries from six days a week to seven and strengthened its business-to-consumer operation. But its earlier dithering left it with a ground network for home deliveries that was a work in progress when the pandemic hit. ups in particular had leaned earlier and more heavily into that growth business before covid-19. It too has experienced problems as a result of pandemic demand—but fewer than FedEx has”.
The problem does not lie with FedEx or UPS alone but with other air transport enterprises as well which were caught off guard. The reason is that they were too caught up with efficiency and ignored the need for innovation. At a webinar conducted by Harvard Business Review (HBR) on 20 July 2020 it was mentioned that when complacency creeps into many business enterprises, it effectively precludes them from proceeding to thrive in a world of unprecedented and accelerating change. HBR pointed out even prior to the global lockdown, there were threats such as digital disruption; natural disasters; terrorist events; trade wars; financial shocks; social unrest; regulatory restrictions; environmental crises and the like that should have prompted businesses to unleash existing human and other resources in an innovative way that would have prepared the industries for the shock of the pandemic and its consequences.
What was recommended was that businesses should have turned sporadic innovations into systematic innovations to gain strength and market share (which can well apply to the air cargo carriers who should have anticipated the crisis to further threaten their market share) and more importantly to turn their attention from pandering to shareholders’ interests to the neglected area of the stakeholders’ interests. In this context the prioritization should have been in the order of customers; employees; shareholders; and communities.
The Covid-19 pandemic tricked the air transport industry into rushing into reacting to the crisis and deflected the attention of the industry from running its business by eliminating waste and introducing a stable process which adhered to standardization and harmonization. This way, the industry could have minimized risk variation from critical operating standards and avoided being overtly reactive.
This misleading shroud of panic precluded the air transport industry from considering changing the industry toward customer needs and market conditions instead of rushing towards the perceived consequences of the crisis. The pandemic also fooled bureaucracies into overacting by overextending their strengths which in turn created dangerously unbalanced systems. The result was the cranking out of products that did not address customer needs. In the case of the needs of the customer, who was bereft of planned air transport being cancelled, resulting in shattered dreams of summer vacations, the prudent approach would have been to have a cooperative dialogue with States to ameliorate the lot of the passenger and assure him of proper redress.
Through its misleading process the Covid-19 virus has taught the aviation industry a valuable lesson: plan to adapt and run businesses reliably and efficiently. Another lesson, HBR says, is that businesses should change their operations to capitalize on unexpected opportunities that are not solely bent on the health of the balance sheet. Also recommended is a change in metamorphosis of the business model from a traditional approach to an agile approach of flexibility. One way to achieve this is to move from the sole focus of multitasking to a dedicated focus on the most valuable approach based on the prioritization mentioned above.
The shift should be on meeting the challenge of the lockdown by investing in training and coaching; adapting to changed circumstances through the rejection of hierarchical approval of company strategy and the adoption of customer collaboration and approval. The silver line in the cloud is that all is not lost for FedEx and UPS and the like. This having been said The Economist concludes: “FedEx may yet get its act together. Its latest results were considerably better than analysts had been expecting. Its share price soared by 12% the following day, returning to pre-pandemic levels. When the global economy recovers the company may find itself with a high-margin air-cargo business and a solid home-delivery one”. This is good news.
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