Idea in Brief
The Problem
When faced with industry disruptions and downturns, many leaders and companies instinctively focus on cutting costs to maintain profitability. But that is shortsighted.
The Solution
A better approach is to use the period of uncertainty to make smart reductions in certain areas while also investing in new capabilities that will allow you to emerge stronger. Research shows that the organizations that pursue this strategy gain a long-term advantage.
The Advice
To play both defense and offense simultaneously, leaders need to adopt three mindsets: sensemaking (taking small steps to understand the environment and adjusting as you go); a bootstrap ethic (spending money where it counts while scrimping where it doesn’t); and a commitment to stakeholder balance (working with employees, suppliers, investors, and communities to spread out the pain and ensure a collective upside).
In early 2020 the pandemic plunged the airline industry into crisis, as passenger traffic on U.S. carriers plummeted 96% on a year-over-year basis. Like many of its peers, Alaska Airlines responded by quickly moving to stabilize its finances. It implemented a hiring freeze, cut senior managers’ salaries, renegotiated payment terms with vendors, suspended stock repurchases and dividend payments, and reduced capital spending. But the company also did something that set it apart. As competitors canceled airplane orders, Alaska Airlines’ leaders spotted an opportunity to update and expand the company’s fleet at attractive prices while streamlining operations by shifting from a mix of Airbus and Boeing aircraft to only Boeing. Confident that its balance sheet was strong, the company announced in December 2020 that it had agreed to buy 68 Boeing planes, with an option to buy 52 more. It was the only major U.S. airline to place a large aircraft order that year. “We wanted to be aggressive to enable our recovery coming out of the huge challenges of the pandemic,” then-president and current CEO Ben Minicucci explains. “We knew supply chain issues would hamper airplane deliveries, but this deal would put us first in line and set us up nicely to expand.” After all, “you can’t grow in this business without airplanes.”
