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CAPA Live – Vaccines and shorter term solutions

Analysis

As the aviation industry prepares for the arrival of newly announced vaccines for the COVID-19 virus, it is clear the impact for travel and transport will be significant. Not only is there a rush to understand how these will be distributed around the world in the next 12 months but also an understanding of the industry once it is widely available.

The Dec-2020 edition of CAPA Live – a monthly virtual summit, offering insights, information, data and live interviews with airline CEOs and industry executives across a next-gen virtual event platform – gathered industry leaders and experts to focus heavily on the outlook for 2021 and examine the rollout of the vaccine and its impact on aviation.

It is now ‘not just a deep, black void’ as vaccine becomes ‘a bridging scenario’

The Airline Analyst MD Michael Duff stated the availability of a COVID-19 vaccine "suggests that there will be an end to the crisis, not just a deep, black void; it turns the situation more into a bridging scenario". He noted that while financings and restructurings will be able to be done with a "shorter horizon" than was considered a few months back, it will be "too late" for airlines with insufficient liquidity or insufficient unencumbered assets to refinance.

Airlines that do survive the crisis will "struggle with the increased debt level for years", according to Mr Duff, although low interest rates will allow that burden to be more "manageable". On the plus side, some airlines "will emerge from the crisis with a leaner mentality" and more flexible structures, and the average age of the world's installed fleet will reduce.

Vaccine developments should give people 'more confidence' in booking

Credit Suisse MD Neil Glynn, stated one of the most important aspects of the COVID-19 vaccine is the "impact on consumer confidence", which has resulted in forward bookings beginning to "surge". He explained: "The latest vaccine developments should give people more confidence that if they actually do book a trip... that that trip might actually happen".

The media will also have an important role to play in enhancing traveller confidence, according to airBaltic CEO Martin Gauss. He said demand will improve once the media changes headlines to focus on the arrival and effectiveness of a COVID-19 vaccine. Mr Gauss noted: "The cash burn will exist of course because we won't get back to old levels, but on short haul Europe, there's so much demand because people haven't travelled then for a year".

Vaccines, testing and therapeutics ‘will be game changers’

Alan Joyce, CEO of Australian flag carrier Qantas, had split opinion when he recently said that once a COVID-19 vaccine becomes available, passengers will only be allowed to fly on the airline if they can provide proof they have been vaccinated. American Airlines former chairman and CEO Robert Crandall supports the view and said "mandating vaccinated only passengers, if you will, is a very good idea".

Mr Crandall noted airlines should take the position not to place passengers at risk in order to accommodate a small subset of potential travellers that prefer not to get vaccinated.

AirAsia Group CEO Tony Fernandes, believes vaccines, testing and therapeutics “will be game changers” for travel and tourism, but was cautious about airlines themselves deciding who should and shouldn’t be flying in the future and if a vaccination will be a prerequisite to being able to fly.

He said, making vaccinations a requirement to boarding aircraft "will become a trend but it's not for the airline to decide, it's for the governments to decide". He added: "The country should decide who is allowed in … I foresee Asia's governments won't let anyone in without a vaccination, although I think testing is just as good."

The next CAPA Live is on 13-Jan-2021. Sign up here to join us

Vaccine rollout ‘isn't going to be like turning on a light switch’

While news of the successful development of multiple vaccines is positive, the reality is it just represents more optimism for the medium-term at best. Informa Group CEO Stephen Carter stated the impact of vaccine rollout "isn't going to be like turning on a light switch", adding projections for 1H2021 are "complicated" while more stability may be expected from 2H2021. Lord Carter also noted the potential for strong market activity from 2022, despite economic headwinds, stating: "There's a lot of pent up demand… There are very real, factual data points that would make you feel positive about where 2022 and 2023 could be.”

But by then the marketplace could look very different. Highlighting an OECD warning, CAPA - Centre for Aviation chairman emeritus Peter Harbison said the "median advanced and emerging market economy could have lost the equivalent of four to five years of per capita real income growth by 2022". This, he said, illustrates a "lot about what the purchasing power is going to be of likely consumers of the aviation product".

As such, he believes it will be "hard for airlines to get back", and the IATA projections for future cash burn mean the industry "can't just continue to hold our breaths and hope” that the COVID-19 pandemic is going to go away".

We ’can't rely on the vaccine as the saviour for the industry’

Mr Harbison stated the industry "can't rely on the vaccine as the saviour for the industry" and noted there must be "some strong interim capability of allowing people to travel between nations" before the vaccines become fully effective. While the rollout goals for the COVID-19 vaccine are "really very aggressive", he warned it is not expected to be "plain sailing" especially when "we're looking at really big second or third or even extended first waves occurring in America particularly and in Europe.

For the US and Western Europe, he warned “it's going to get a lot worse before it gets better”. For airlines getting from here to there, getting from where we are now and starting to plan for a positive future will remain a challenge. “How long can you hold your breath in terms of cash burn?," he questioned.

One country not sitting back and waiting is Singapore and Scoot CEO Campbell Wilson, acknowledged that while Singapore's authorities are in the process of "procuring a vaccine” and that “clearly there's a national vaccination strategy… that would obviously allow the borders to be even further opened,” he said it is “not waiting for a vaccine” but taking a proactive stance to recovery. "Clearly the vaccine will ultimately be a great solution but there are things that can be done in the meantime," he said.

It will still ‘take years’ before we are back at 2019 travel levels

The development of a vaccine “will play a key role in the recovery" of the aviation sector from the impact of the pandemic, but "it will take years before we are back at 2019 levels," due to the shock it has had on the industry, warned IATA DG and CEO Alexandre de Juniac. "At the peak" of the coronavirus related crisis in aviation in Apr-2020 "traffic was down 94% compared to" Apr-2019 "and we expect full-year traffic to be down 66%," he said.

Testing remains important part of arsenal

The depths the industry has fallen means that we need a range of methods to support its recovery. While a fully vaccinated world is the perfect scenario, Mr de Juniac warned "we cannot wait for the global distribution of the vaccine to reopen borders to travel", adding: "we can and must open borders today with systematic COVID-19 testing".

Mr de Juniac noted "it's clear that, for our customers, safe travel and effective testing are linked", meaning governments should embrace systematic testing in order to resume international air travel while "minimising the risk of importing new cases". He said: "Travel bubbles are the building blocks of harmonised global reopening of borders with testing and without quarantine".

Logistics of vaccine delivery remains a ‘huge challenge’

Air France KLM Martinair Cargo global head of pharmaceutical logistics Marcel Kuijn warned COVID-19 vaccine distribution will be "a huge challenge for all of us in the industry". Mr Kuijn noted the rate of distribution will depend on how rapidly vaccines are produced, approved and manufactured. He forecast that vaccine volumes "will not be huge yet", but "as more and more vaccines get approved in more and more countries, the volumes of distribution will increase".

Qatar Airways chief officer cargo Guillaume Halleux, described scale as being the main challenge. He said vaccines are "not a new product for our industry", but “the quantity is new". The airline has already completed a number of trial shipments. Mr Halleux said: "We are ready to go, we are just waiting for the green light now from the pharmaceutical companies and the freight forwarding companies".

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