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Looking to the Future of Air Travel

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As the battle against the SARS-CoV-2 virus takes it toll on the global economy, no industry has been harder hit than aviation. In the United States, the major carriers have seen passenger numbers and revenue plummet. In 2019, the United States transportation security administration (TSA) screened around 2.5 million passengers every day across the U.S., with some variation according to the day of the week. In April 2020, that dropped to between 90,000 and 130,000 passengers.

Further Reading

Harvard Business Review sat down to discuss the challenges (and opportunities) facing the industry with Jon Ostrower, the editor-in-chief of The Air Current, Courtney Miller, managing director of analysis for The Air Current, and Dan McKone and Alan Lewis, two Boston-based managing directors at L.E.K. Consulting who have experience advising major airlines.

Is this the biggest crisis the aviation industry has ever faced?

Jon Ostrower: Yes.

Alan Lewis: Not even close. 

In recent years, major airlines listed a pandemic in shareholder communications as one of the risks they face. Should they have seen this coming and have been better prepared?

Dan McKone: True, this is not a “black swan” in the classic sense of the term. Many people predicted that a pandemic would eventually break out. But I’m not sure there’s any way to fully prepare. The crisis is so extensive.

Courtney Miller: I agree. Any CEO that would have hoarded cash to prepare for this eventuality would have very quickly become an ex-CEO.

Ostrower: I have a slightly different view. I think we will see how different strategies that airlines took going into the crisis will play out. For instance, Lufthansa believes they are better prepared to survive something like this because they own their own airplanes, and so don’t have as much debt to service.  Time will tell.

This is the second time in my life that major U.S. airlines have had to ask for a bailout. Does it suggest that there is something structurally wrong? That shareholders aren’t rewarding the right type of management?

Miller: I don’t think so. There’s been a lot of attention paid to all the dividends and buybacks from airlines in recent years, and questions raised over whether they could have squirreled away the cash instead. But any business without revenue can’t sustain itself. I don’t see a way the airlines could have survived this on their own, even with a different management approach.

McKone: I’d add that the government was right to prop up the airlines. They play so many critical roles in terms of our economic and national security.

Two of you (McKone and Lewis) have written a book on ancillary revenue. Are there any innovative ways that airlines can use to try to find some revenue at the moment?

McKone: Traditionally, airlines have found ancillary revenue by unbundling services and selling them a la carte — so things like checked bag fees, seat selection, and so on. This source of revenue obviously is close to zero now, because there are so few passengers traveling. Instead, airlines are looking to find any use for their aircraft in the absence of passengers, whether it be cargo or moving medical supplies and personnel to different markets.

What will be more interesting will be how airlines approach revenue creation when demand returns. What add-on features and services will they offer? Perhaps they will allow customers to more easily book out a middle seat for distancing. Or add some sort of “peace of mind” product that guarantees the airline will take care of you if flights are cancelled or quarantines are put in place. The trick will be determining what customers will be willing to pay for above the ticket price and what they will expect as part of airlines’ delivering a safe experience.

Do you really think anyone is going to be willing to sit in a middle seat again?

Miller: An airline could absolutely block the middle seat, but then you have a third of the airplane empty. You automatically limit your load factor to 66%. How long are airlines going to be willing to do that? The answer can’t be “forever.”

That’s disappointing. I was hoping this crisis would change the passenger experience for the better.

Lewis: There will be innovation to ensure peace of mind.  In Asia, where carriers are back up and running to some markets, you are seeing the use of gloves and masks by flight attendants, the use of more disposables within service, a general reduction in the amount of interaction with flight crew. Emirates ran a pilot in Dubai where it tested all its passengers for Covid-19 before they boarded the flight, though its unclear if airlines will be able to scale rapid-testing.

Longer term, you will see the introduction of technologies to increase hygiene. Touchless seats that connect to Bluetooth on your phone to lower your seat back or fold out your tray; touchless lavatories; more regimented boarding procedures so people aren’t falling over each other in the aisles. At airports, you’ll see facial recognition technology and tracking through customs and boarding, so customers and staff aren’t touching the same boarding pass.

Ostrower: I think all of these changes will be positive from a passenger’s point of view. But on the flip side, I suspect flying may become more boring for a while, as airlines try to recover financially. We’ve already seen airlines pulling in-flight entertainment system content out of seat-backs, Qantas for example. I think you will see many airlines cancelling or scaling back contracts with Hollywood to play all movies and TV shows. Many will reconsider in-flight wi-fi. There will be huge pressures on the cost side.

What impact will virtual meeting platforms have on airlines? Will people become habituated to meeting virtually and stop flying as a result?

McKone: L.E.K Consulting did a detailed study on this during the global financial crisis 10 years ago. We found that the technology would not have a material impact on flying patterns. But I think this time may be different. We now think there could be some lasting behavior change, with so many business people being conditioned to use virtual meetings like Zoom, etc. At the same time, people are still going to continue to fly in great numbers if you take a long-term view. And leisure travel will be less affected.

Miller: Maybe instead of sending 10 people to each meeting via air travel you send the two sales executives and keep the support staff on Zoom. That sort of scenario is likely, and akin to what we saw after 9/11.

We’ve looked at how new technology affected air cargo. The fax machine was supposed to kill the express business. But couriers like FedEx survived and even flourished — they lost high-yield business, but the overall growth trends were in their favor. I suspect something similar will play out with airline travel. Traffic will come back — but it will be different.

Lewis: Zoom and other videoconferencing platforms are going to have a much bigger impact on the commercial real estate market than on airlines. So many people are now working from home, I don’t see them all coming back.

What does the future hold for regional airlines — the smaller carriers that serve smaller markets?

Miller: Things are tough across the entire industry, but regional airlines that fly on behalf of the major airlines are relatively well positioned, particularly the independent regionals such as Skywest and Republic. First, their contracts with the major airlines protect them from a lot of the downside risk from a slowdown. The entire airline network is going to shrink. So now the larger markets are going to be looking for the smallest, cheapest assets to fly, which are regional aircraft. Seat costs are irrelevant if you can’t fill the seats. As an indication of this, you’re already seeing airlines retiring many of their larger, wide-body jets. They just don’t anticipate having need for them in the short term.  Regional aircraft are going to be needed.

McKone: I’d add a note of caution. Most regionals get paid for feeding traffic to the major airlines’ hubs, however. Secondary markets serviced by regional aircraft tend to be the “tip-of-the-whip” when network capacity shrinks.

I have a lot of frequent flyer points built up. Should I be worried about them? 

Miller: Frequent-flyer programs are important sources of revenues for many airlines — especially through the resale of miles to financial services firms. Just as one example, Delta’s contract with American Express was worth $3.4 billion to Delta in 2018. If you’re a frequent flyer with a ton of miles, I wouldn’t be worrying that your balance is going to be going away. Even when multiple airlines went through bankruptcies some years ago, the miles of the individual passengers were preserved and came out valid on the back end.

Lewis: Airlines need to make sure that customers keep their frequent-flier credit cards and keep spending on them. If people start feeling that frequent flyer points aren’t as useful to them now, that they’d rather have other benefits, that’s going to be a real problem for airlines. So I wouldn’t be surprised if you don’t find plenty of good redemption opportunities, at least in the short term, when travel opens back up again.

Ostrower: The downside is that so many flights have been eliminated from the network. As the network shrinks, it will be harder to travel smoothly from point A to point B. So while you may find first-class itineraries, they will likely be two or three-stop itineraries now. That’s just going to be part of the reality.

Will there be any unexpected winners from the slowdown in the aviation industry?

Ostrower: Amazon. Surprise, surprise! As airlines retire their wide-body aircraft and shrink their fleet, the aircraft are going to conversion shops to become cargo planes and then sold to companies like Amazon. The glut of aircraft is going to drive the price down. Not just for Amazon but for other growing cargo companies — the Chinese postal system, for example. The crisis has shown how integral e-commerce and package delivery is to the aviation industry.

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Research: How to Build Trust with Business Partners from Other Cultures

Eugene Mymrin/Getty Images

Trust is the social glue that holds business relationships together. Business partners who trust each other spend less time and energy protecting themselves from being exploited, and both sides achieve better economic outcomes in negotiations. But, how do managers decide whether to trust a potential partner outside of their business? And how does culture influence this decision-making process?

To answer these questions, we interviewed 82 managers from 33 different nations in four regions of the world identified by the World Bank as the engines of the global economy: East Asia, the Middle East and South Asia, North America and Europe, and Latin America. These managers were diverse in terms of gender and age, and they represented various industries and business functions.

We asked them, “How do people in your culture determine if a potential business partner is trustworthy?” Their answers revealed systematic cultural differences in how trustworthiness is judged that have implications for how managers should approach these partnerships. Our findings have been published in The International Journal of Conflict Management.

Although not everyone in a cultural region determines trustworthiness in the same way, the cultural similarities and differences we observed led us to several conclusions, building on the previous work of one of us (Jeanne). The variations we observed — in both the criteria that managers used to assess trustworthiness and the way they collected information to make that assessment — are associated with two cultural factors. The first factor is how much people in that culture are willing to trust strangers in everyday social interactions. The second is what’s called cultural tightness-looseness, which is the extent to which social behavior is closely monitored in a particular culture and violations of social norms are sanctioned.

Here is an overview of what we found in each region. Further below we discuss what this means for managers looking to build business partnerships across cultures.

North American and European Cultures: Openness

Managers from Western cultures told us they generally assumed a potential new business partner would be trustworthy. For example, one respondent from the U.S. said, “We operate under the principle [that] everyone can be trusted until proven otherwise.” Another person from Italy said something similar: “We tend to believe that people are trustworthy.”

Nevertheless, managers in this region also tested those assumptions; “trust but verify,” as one U.S. respondent told us. They did so primarily by evaluating the potential partner’s behavior at the negotiation table: “See if [the] person is forthcoming; ask a question you know the answer to,” a U.S. manager advised. A respondent from Germany explained, “If you have someone who’s pretty open to you, who shares a lot of information, I think it feels like he’s trusting in you, so you trust in him. … If it’s only give, and there’s no take, or if there’s only a take from his side and no give, then it’s not a fair dialogue.”

Managers in Western culture do not rely on a social relationship to ensure trust — in fact, it’s just the opposite. “It doesn’t matter how nice the people are, or how much you like them. If they don’t have enough business, they don’t have enough business,” a respondent from the U.S. said. An Italian manager explained: “You have to separate the personal relationship from the work.”

East Asian Cultures: Competency

East Asian managers described what amounted to a three-stage process to determine trustworthiness. First, they seek information about a potential business partner’s reputation. “In order to trust, we have to know the [person] first,” said a Korean manager. A favored way to do this is to rely on a third-party introduction, which we call “brokerage.” A Japanese respondent explained it this way: “If Mr. B introduces Mr. C to Mr. A, then Mr. A would trust Mr. C, because Mr. A trusts Mr. B. And Mr. A knows that if Mr. C performs very badly, then Mr. B will be very embarrassed, and the relationship between Mr. A and Mr. B gets very weak.”

Reputation, East Asian managers explained, is hard to establish, so people and companies with good reputations are intent on maintaining them.

Meeting the potential partner to test their competency is stage two of the trust-building process. Since it is difficult to explicitly say no in these cultures, East Asian managers seek to determine whether the potential partner can deliver the business. They explained:

“It’s not like [I’m] testing [whether] I trust you, [I’m] testing if you can do it.” — manager from China

“Chinese exaggerate so [you] have to check [them] out yourself. Focus on their capabilities.” — manager from China

“Sometimes people [say they can do] things [that] they cannot do. It’s a big mistake and you lose trust completely [in these people].” — manager from Japan

If the potential partner’s competency checks out, East Asian managers move to the third stage, where they engage in more social, relationship-building activities. A manager from Japan explained that they tend to socialize after the business meeting, so as not to do anything to upset the burgeoning relationship. “[Having a] business dinner after successful or important meetings is fairly typical,” they said.

Middle Eastern and South Asian Cultures: Respect

Respect is the primary criterion we found Middle Eastern and South Asian managers use to judge trustworthiness. Managers from these cultures explained that to expand their businesses they had to work with others who were not members of their immediate family, clan, or tribe. They understood that a potential business partner might not share their values, but they sought out people who at least respected their values. “Show[ing] that you respect their way of living can play a big role in smoothing the [beginning of the relationship],” as one manager from India told us.

Middle Eastern and South Asian managers said that they verify, before they trust. “It’s not, I trust, [then] I verify; it’s I verify first, then I trust,” said a manager from Lebanon.

As in East Asia, managers from this region research their potential partner’s reputation. One respondent from Palestine said, “I talk to other people in the community who might know this person, ask them about him [and] whether I should move forward or not.” This process might include brokerage: “I try to always build [a] personal relationship with my clients. They don’t always become friends, but … when they introduce me to potential clients, my potential clients trust me because there’s someone in the middle [whom they] trust,” said a manager from Turkey.

Negative information at this stage of the process is a signal to move on, but positive information then needs to be confirmed. “You should double-check or ask more than one person…” a manager from Kuwait cautioned.

The final judgment of trustworthiness in this region often comes after a series of social engagements that provide an opportunity to assess respect:

“People go [to] … dinners. … They have a couple [of] drinks. They talk about stuff, life and everything. So they try to get to know each other’s character, and so … decide there whether to trust that person or not.” — manager from Turkey

“We like hospitality, so you should show some generosity, so people feel that … you’re willing to give.” — manager from Saudi Arabia

Latin American Cultures: Similar Values

In Latin American cultures, the social relationship comes first, and the business after. Shared values are the primary criteria for judging trustworthiness:

“Find out if (they) have same values as you do.” — manager from Brazil

“They trust me because they think that I am similar to them.” — manager from Colombia

“If you perceive that there are values that are not shared … that is where you decide [whether] things can continue … or [whether you’re] not really willing to have the next conversation.” — manager from Bolivia

Latin American managers rely on the opinions of others as a first step in determining the trustworthiness of a potential new business partner. The primary focus of managers in this region was weeding out those with poor reputations. A manager from Mexico told us, “If you heard one guy wants to make an alliance with you, and three or four former shareholders say that he’s very corrupt … I think that’s very, very important, because … if he stole from other guys, he will [probably] do it to you.”

Assessing shared values, however, required making a personal connection:

“Before negotiation, engage in social contact — no business talk.” — manager from Nicaragua

“[Small talk] in Latin America is very important…and a good way that we’ve found to do it is by sharing a meal. We try not to talk business. We just get to meet each other … see if we have things in common. Most of the times, we do.” — manager from Mexico

“When you get them talking about their family, about something that they like talking about … even if you try … you cannot hide yourself … for the whole two hours. There will be like five minutes where you’re going to show your true colors, right? That’s what you want to see. … Are they open? Are they transparent? Or are they shady? Are they suspicious? [You want to see] their true self, the one that you’re going to be working with.” — manager from Chile

What Explains the Differences?

The differences we observed are connected to cultural levels of trust and how “tight” or “loose” the culture is. Again, those terms refer to the extent to which social behavior is monitored and violations of social norms carry consequences.

How Do You Assess Trust with Potential Business Partners?

In North America or Europe: Recognize that the test for trustworthiness is openness and consistency at the negotiation table. Be prepared to share business-relevant information regarding priorities and the reasons behind them, and it’s fair to expect the same in return. Accept that a cordial social relationship is a benefit but not necessary for trust between business partners.

In East Asia: Ask someone who has worked with you and the other party to make an introduction. Be prepared to demonstrate your competency to deliver your end of the new business relationship, by showing examples or providing prototypes. Join in post-negotiation social events to celebrate the new relationship.

In the Middle East or South Asia: Understand that respect reigns. Actively seek opportunities to signal respect for differences in cultural norms. Offering or reciprocating hospitality is a good start.

In Latin America: Participate fully in social activities. Be prepared to be open about yourself, your interests and hobbies, and your family situation. Learn about the partner’s business and community, including their family and values, so that you can move the conversation beyond small talk.

Keep in mind that cultural differences are a matter of emphasis. For example, our findings do not imply that respect, which we found to be key in the Middle East and South Asian cultures, is altogether unimportant in Western culture; just that it is more important in Middle Eastern and South Asian cultures. Likewise, our research does not imply that every manager in every country in a region is going to approach the challenge of determining whether you are a trustworthy potential business partner exactly as we described. That said, understanding what is normative in a culture can give you useful information as you endeavor to build trust with counterparts in different parts of the world.

If you want to explore these concepts further and understand how they apply to you, you can join this simulation and webinar taught by Jeanne.

Source: HBR.org