Summer disappointing for airlines, what next?
September 02 2020 05:48 PM
A fleet of Airbus SE A380 passenger aircraft, operated by British Airways, sit parked near other gro
A fleet of Airbus SE A380 passenger aircraft, operated by British Airways, sit parked near other grounded jets at Chateauroux airport in France. Airlines worldwide have been largely grounded since mid-March. Air travel has fallen on hard times since the onset of the pandemic six months ago, with the number of travellers dropping significantly.

Beyond the Tarmac - Aviation Page

The coronavirus pandemic has decimated air travel globally. Airlines worldwide have been largely grounded since mid-March.

Air travel has fallen on hard times since the onset of the pandemic six months ago, with the number of travellers dropping significantly.

The Covid-19 pandemic caused commercial air travel to come to a standstill for several months, and it is now at only a fraction of 2019 demand!

Financially, 2020 will go down as the worst year in the history of aviation. Globally, airlines are expected to lose $84.3bn this year.

And the situation is not improving either. In fact, in many cases it is going in the wrong direction.

The busy summer season has virtually ended without a significant pick-up in demand in major markets – North America, Europe and Asia-Pacific.

Although travel has rebounded somewhat in these markets, it remains a fraction of what it was before the outbreak. The situation looks grim as autumn, a traditionally low demand season in many key markets, has set in.

The global body of airlines - International Air Transportation Association (IATA) predicted in late July that global air travel won't recover from the pandemic until 2024, a year later than its previous projection.

According to Oliver Wyman, a prominent international management consulting firm, about 20 airlines have already shut down operations or declared bankruptcy. Hundreds of thousands of airline workers have either already lost their jobs or face the prospect as governmental bailouts run out or prove insufficient. And thousands of aircraft have been sent to storage or retired before they needed to be.

“Even more than the 9/11 terrorist attacks or the 2008-2009 financial crisis, Covid-19 is rocking the aviation industry to its core. Many of the scars will be permanent and visible. Based on our most recent analysis, the aviation industry is unlikely to recover to pre-Covid levels until the second half of 2022 at the earliest — and even then, it will be in domestic travel only,” point out Geoff Murray and Tom Stalnaker who authored the report.

Oliver Wyman conducted a ‘Traveller Sentiment Survey’ of nearly 4,600 consumers in nine countries that showed the majority — about 58% — were planning only domestic travel after Covid-19 subsides. Another 6% aren't planning to travel at all.

One of the biggest challenges facing airlines is the implosion of business travel. Corporate conferences have been cancelled. Investment bankers are doing deals virtually. And companies aren't rewarding star performers with travel junkets.

“One factor holding back demand is the anticipated shrinkage in business travel. We expect it to remain at least 25% below pre-pandemic levels for the foreseeable future, at least into 2021, as companies cut back on trips between their own offices and facilities, relying instead on videoconferencing. Such internal travel, which also includes leadership meetings and professional development, makes up about 40% of total corporate demand, according to our analysis. We expect corporate external travel to return, but at a slower rate than domestic leisure travel,” Oliver Wyman points out.

At a recent virtual media roundtable, IATA director general and CEO Alexandre de Juniac said, “Borders (of countries) are largely closed. And government management of travel restrictions is so unpredictable and uncoordinated that people are still not flying.

“For the industry this is immensely frustrating. It is also frustrating for travellers who cannot see family and loved ones, do business or take a break. And it is tragic for the growing numbers of unemployed whose livelihoods are being destroyed.”

Airlines will still be financially fragile in 2021, IATA noted. Passenger revenues will be more than one-third smaller than in 2019. And airlines are expected to lose about $5 for every passenger carried.

Research suggests that some 60% of travellers will be eager to recommence travel within a few months of the pandemic coming under control. The same research also indicates that an even greater percentage of potential travellers until their personal financial situation stabilises (69%) or if quarantine measures are in place (over 80%).

The disappointing summer also provides two other important reminders for governments, de Junaic points out.

The first is that financial relief measures are still needed. The crisis is lasting longer than most would have predicted. And the initial round of measures will need to be topped up. The industry needs a financial lifeline that will keep them afloat. And, importantly, this must be done in ways that do not further increase the debt-burden.

The second is the urgent need for a waiver of the ‘80-20 use-it-or-lose-it’ slot rule. Many governments such as Australia, New Zealand, China, Singapore, Brazil and Mexico have granted a waiver for the full winter season. But Europe is underestimating the challenge and dragging its feet, de Juniac noted.

People will want to fly again, provided they have confidence in their personal financial situation and the measures taken to keep travellers safe.

Obviously, getting people safely flying again will be a powerful economic boost because about 10% of the world’s GDP is from tourism and much of that depends on air travel.

Pratap John is Business Editor at Gulf Times.




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