We examine how firms respond to an unexpected industry shock that shifts demand patterns. We highlight the importance of reconfiguring and reallocating non-scale free physical resources to new applications to create new sources of value and being able to access new markets to capture value from these reconfigured resources. The COVID-19 pandemic’s impact on the airline industry provides a unique opportunity to examine such a demand shock as there was a substantial decline in passenger demand coupled with a surge in cargo demand. Our findings from the US domestic airline industry reveal that firms possessing highly fungible narrow-bodied aircraft and operating in more dispersed markets were better able to take advantage of the shift from passenger to freight demand. A supplementary case study and interviews with industry experts both support the benefits of fungible physical resources and access to dispersed markets in shaping effective responses to turbulent environments. These findings offer important managerial implications, suggesting that firms whose resources are closely tailored to prevailing industry environments may be less able to adapt effectively to demand shifts caused by industry shocks.
