CAPA Live highlights. Part 2: The airline CEOs speak


CAPA Live: 14-Oct-2020

'The biggest thing we need to do is give people reasons to travel': Doug Parker, American CEO

There is no such thing as the 'new norm and demand could return in 'very robust manner': Sir Tim Clark, Emirates Airline President

More first time flyers in Mexico: Enrique Beltranena, Volaris CEO

'Burning the furniture to keep the house warm': Ed Sims, WestJet CEO

Airlines are undergoing a 'fundamental reset of capacity': Rob Gurney, oneworld CEO

Loyalty helps airlines 'remain relevant': Paul Smitton, Cathay Pacific Asia Miles CEO,

Biosafety 'will be one element of the equation' to resume travel: IATA

"People will fly but I think governments are holding them back": Helane Becker, MD, Cowen & Co

  • American Airlines CEO believes industry is well-positioned to withstand the crisis and needs to give people reasons to travel.
  • Business travel not expected to recover until 2025, with variations in domestic market recovery.
  • Emirates Airline president expects demand to return in a robust manner and emphasizes the importance of maintaining brand presence.
  • Airlines are undergoing a fundamental reset of capacity, with alliances becoming more important.
  • Biosafety measures and stimulating demand are crucial for travel resumption.
  • International travel bookings remain bleak, but pent-up demand is being held back by government restrictions.

'The biggest thing we need to do is give people reasons to travel': Doug Parker, American CEO

American Airlines CEO Doug Parker believes the industry is in "good condition for riding out the crisis", adding American Airlines and its competitors are "positioned to withstand a situation as bad as the one we're in now for well over a year or more, which I think no one anticipates". He noted that while airlines did need support early in the crisis, for which the US Government provided funding under the CARES Act, "We've raised more than enough liquidity to withstand a continuation of this".

The US is witnessing only "gradual demand increases", acknowledged Mr Parker, but "as long as that continues, our industry is in good shape for riding out the crisis".

He noted there is "enormous pent up demand" for global travel, with passengers unable to travel due to constraints between countries. He stated: "While there are some that are simply not flying because they're afraid to fly, it's much more there is no reason for them to fly... The biggest thing we need to do is give people reasons to travel".

See related insights: CAPA Live American's Doug Parker - alliances "incredibly important"

Despite some pockets of growth, it remains 'a dire outlook' for business travel: CAPA, CTC

In her global round-up of projections for aviation recovery CTC - Corporate Travel Community global director Catherine Craig highlighted that industry experts suggest business travel will not recover until 2025, considering the volatility of the coronavirus pandemic and the reaction of the global economy. "It's a dire outlook to say the very least," she said.

Ms Craig also noted variations in the recovery of domestic markets, with Russia recovering to pre-crisis levels of RPK growth and China "showing consistent signs of recovery", while the US faces a fourth consecutive month of travel stagnation and Australia remains "closed for business".

Only a small percentage of organisations expect any form of business travel in 2020 and any travel would be mainly domestic. Only one third of US-based organisations expect to travel domestically in 2020 and only 10% expect to undertake international business trips. Ms Craig said passenger confidence will be contingent on the reopening of borders and the availability of a coronavirus vaccine or antiviral cocktails, which would have a positive impact on recovery.

There is no such thing as the 'new norm and demand could return in 'very robust manner': Sir Tim Clark

Emirates Airline president Sir Tim Clark said he "is not one of these people who believes in what they call the new norm", and he believes demand will return in "a very robust manner". Sir Tim said this is particularly because demand has been "so suppressed in the past 10 months" although he expects demand will remain suppressed for at least the next six to nine months.

When demand does return, airlines "need to ensure that we are a known entity" by maintaining its physical product and continued use of their marketing tools to keep their brands in the minds of customers. This explains Emirates' plan to reopen the lounge and bar area - and showers - on the upper deck of its A380, reinforcing the iconic brand product. This will necessarily be conducted under its new inflight protocols with regards to social distancing "and everything else", although there won't be a "return to the halcyon" days of multiple people occupying the space, explained Sir Tim.

The role of the network carrier "could be stronger than in the past" when travel demand returns, acknowledged Sir Tim. He said you "have to assume you will recapture the growth curve prior to the pandemic" and he believes there will be a demand driven bounce back which will return "sooner rather than later", although whether airlines are in "good enough shape to respond to that" is another question.

See related insights: CAPA Live: WestJet CEO Ed Sims, "sector relief" needed

Airlines are undergoing a 'fundamental reset of capacity': oneworld's Rob Gurney

Global alliance oneworld's CEO Rob Gurney acknowledged that a "majority of airlines are going to be smaller than they are today" once the coronavirus pandemic subsides. Most airlines around the world are accelerating fleet retirements, producing a "fundamental reset of capacity". In this environment, the global network reach of alliances becomes more important, he said.

When the airline industry moves into the phase of restoration and rebuilding, he said it "makes sense" for competition authorities to "take a more flexible view" in the short to medium term. As capacity rebuilding starts, Mr Gurney said there is a rationale for competition authorities to allow airlines to collaborate, although this would need to be applied on a "market by market, airline by airline" basis. Competition authorities need to ask if "some flexibility" will be more beneficial to consumers within a particular timeframe, by taking a pragmatic approach.

The restoration of pre-coronavirus levels of business travel demand though "is not going to be fast". Mr Gurney said he is not sure if anyone really knows if business travel will fully recover or not. Airlines are operating on a set of assumptions based on existing operating parameters and once restrictions unwind, Mr Gurney said, he expects a clearer picture of the future of business travel should emerge.

Biosafety 'will be one element of the equation' to resume travel: IATA

IATA head of consulting Asia Thomas D Pellegrin stated rebuilding confidence in biosafety "will be one element of the equation" to resume travel, however "stimulating demand will also be an important component".

Mr Pellegrin said "that means looking at airfares" as well as partnerships. Traveller concern over biosafety correlates with new domestic infections within their respective countries, he said. Once it has been declared safe to travel, 52% of respondents in IATA's Aug-2020 passenger survey would wait at least six months or more, while 48% would wait two months or less before they travel.

Data for Sep-2020 shows it was a 'quite bleak' month for international travel: ForwardKeys

ForwardKeys VP insights Olivier Ponti stated Sep-2020 was "quite bleak" for international travel, with international inbound bookings down close to 94% globally. "Even though there are some localised signs of reactivation, there is still no recovery of international travel," he said. Mr Ponti noted that of bookings made in Sep-2020 by arrival region, the Americas had the lowest fall at 90.3% year-on-year, followed by Europe (92.9%) and Middle East/Africa (98.0%).

In Europe, certain markets like Italy, the UK and Spain registered "some kind of reactivation" for international departures, but have "underperformed compared with the European average". He noted other markets like France and Germany were "consistently overperforming" compared with regional results for tickets issued. Mr Ponti said these countries have had a "relatively strong rebound given the current context".

Pent up demand for international travel is being held back by governments: Helane Becker

Cowen & Co MD Helane Becker believes "there is huge pent up demand for international travel" but that it is still be held up by travel restrictions. "I think people will fly but I think governments are holding them back," she said. "It's increasingly apparent that we're not going to get much of a recovery until the middle of 2021 at the earliest; it's going to take a lot for governments to feel comfortable with letting their people travel".

Ms Becker acknowledged that it is going to take a long time for airline traffic to get back to 2019 levels, but recovery - "getting to within 80% to 90% of pre-COVID levels of traffic" - will come sooner. "We think things will recover in three to five years in the US domestic market and five to seven years internationally," she said.

Slot rule waiver allows carriers to avoid operating in excess of demand: PA Consulting's David Huttner

PA Consulting commercial aviation practice leader David Huttner stated those in favour of the extension of the waiver of slot rules point out that established carriers will be able to maintain their long term position without operating capacity in excess of demand; however, as a result capacity at key airports will be blocked. Mr Huttner noted: "There's a lot of new carriers, new entrant carriers, a lot of times LCCs, who want to get into these airports, and airports will be underutilised".

However, if the waiver on slot rules is not extended, established airlines that built up their positions over many years will face "even greater losses" or would have to operate services in excess of demand in order to retain the slots, he acknowledged. "Meanwhile the new entrant carriers, the LCCs, will be given a chance to help with the restructure of the industry and the re-emergence of the aviation sector post COVID and the airport infrastructure will be better utilised," he added.

More first time flyers in Mexico: Volaris, CEO Enrique Beltranena

Volaris, CEO Enrique Beltranena said that "proportionally, we are seeing much more first time flyers getting into the system right now". The carrier has always targeted bus passengers with its low fare offer, but the pandemic and the safety of air travel has given it a stronger position. "The bus market is a three billion passenger market vs 105 million passengers via air. The difference is humungous," he stated.

According to Mr Beltranena, around 22% to 24% of Volaris passengers quote bus fares first then airlines. The airline has been completing elasticity tests on different markets, on different segments, "because nothing is reacting the same," he says.

The findings show that sometimes VFR reacts better in some markets, sometimes leisure reacts better in other markets, but it has been able to build a basic forward strategy from data from the H1N1 recovery from 2009, "so we knew exactly that our VFR market was the one that was going to recover faster," said Mr Beltranena.

See related insights: CAPA Live: Volaris' Beltranena - Mexico's domestic air market strong

'Burning the furniture to keep the house warm': WestJet CEO, Ed Sims

WestJet CEO Ed Sims, warned the Canadian carrier will have to consider "even more new and creative ways of generating financial flexibility to reduce that cash burn", if there is no uptake in demand during the stabilisation phase. "We find ourselves in a position where realistically you're burning the furniture to keep the house warm, and that's okay until you've run out of furniture", he observed. The carrier employed 14,000 staff in the middle of Feb-2020, and now employs 4000 active staff, with 4000 others made permanently redundant and another 6000 stood down, furloughed or awaiting recall.

Mr Sims stated Canadian aviation is at a "major structural disadvantage", following the "lack of specific sector relief [and] lack of any particular funding" from the Canadian government. Mr Sims stated that he believes he understands "why the government took the position that they took early on, from a social welfare perspective", but noted such actions have "left the Canadian aviation very exposed".

According to WestJet's estimations, between 15% to 20% of the market share held by domiciled Canadian carriers has now moved to foreign airlines "over the course of the last seven months". Mr Sims explained: "That... is an invidious and frankly, unsustainable position".

See related insights: CAPA Live: WestJet CEO Ed Sims, "sector relief" needed

Testing as a substitute for quarantine: Air Canada's Anton Vidgen

Air Canada director brand experience Anton Vidgen stated 'there should be some' alternatives to mandatory coronavirus quarantine. Mr Vidgen said "we need to find" the correct "set of protocols informed by science, that ultimately provide the confidence that we all are looking for".

The carrier's own testing trial of 16,000 participants on arrival into Toronto Pearson International Airport has found "less than 1%" of individuals taking the coronavirus test tested positive to coronavirus.

There have been strong calls among industry to introduce a testing regime, but as CAPA chairman emeritus Peter Harbison noted, any form of airport testing "raises major problems once you get to a decent level of recovery, due to congestion and time constraints". He added: "Airports need to change dramatically and I don't see that happening yet as standard recognition will also be complex".

Loyalty helps airlines 'remain relevant': Cathay Pacific Asia Miles CEO, Paul Smitton

In a panel hosted by Managing Partner, On Point Loyalty, Evert de Boer, Cathay Pacific Asia Miles CEO and MD Paul Smitton stated while air travel went down "dramatically" due to COVID-19, the airline had a "good spread" of ways to maintain engagement through its programme partners, including restaurant and credit card categories. "It's helped to ensure that we remain relevant," he said.

Likewise, United Airlines Mileage Plus president and VP marketing and loyalty Luc Bondar stated it was important at the beginning of the COVID-19 crisis to "engage our members frequently" and maintain transparency in strategies to extend memberships, credits and subscriptions to boost confidence for FFP members.

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