‘This is a big downturn, beyond comprehension’: CAPA Live
The Covid-19 pandemic has caught us all off guard. While the industry has faced numerous previous crises, the fact that subsequent recoveries occurred at different rates had led to complacency and ill-preparedness for an event of such magnitude.
"Initially when we started on this horrible expedition, there was an assumption it would be over in six months. Governments thought so as well but it's obvious now that won't be the case," Peter Harbison, chairman emeritus highlighted on 14-Oct-2020 at the inaugural CAPA Live – a new monthly virtual summit offering insights, information, data and live interviews across a next-gen virtual event platform.
“These priorities – which involved government subsidy of one form or another and airlines raising debt and equity – have now been overtaken, as the cash bleed will continue well into 2021. This is a big downturn, beyond comprehension, and a vaccine won't have a widespread impact at least before the middle of 2021," he warned. "Consumer confidence will be a key part of recovery; if consumers don't come back then obviously there is no industry … finding a uniform formula is key but still remains elusive.”
It is clear that travel and transport will remain subdued through 2021 and into subsequent years and the industry needs now to come to terms with the new landscape. But within this space there are pockets of demand that can support those that are adaptable and accept the world for what it is right now. That is a changed world where leisure demand dominates and business travel remains near-dormant.
Aviation has returned to the 1930s
The inaugural Oct-2020 edition of digital event periodical CAPA Live brought together a wide range of leading industry experts to explore how aviation has returned to the 1930s due to the COVID-19 pandemic.
There has been much talk about the post-COVID industry reverting to the profile of the 1970s, with its reduced traffic levels, the prospect of more active government intervention, smaller networks and higher prices.
But in two very important ways the real time frame to compare is the 1930s. There are important lessons to be learned from industry and government behaviour 90 years ago.
First of all, WWI had spawned the multilateral Paris Convention of 1919, which established that every state had absolute sovereignty in the airspace over its territory. That meant essentially that all borders were closed to foreign aircraft – until they were opened.
Secondly, in the earlier, barnstorming days of aviation the biggest inhibitor of commercial air travel expansion was safety. There was an uncomfortable tendency for airlines to crash, a feature that would-be passengers found undesirable. Aside from the cost of flying and the lack of comfort – two characteristics that once again emerge in our current condition – people were unwilling to embark on such dangerous missions.
Today, like the 1930s, most borders are effectively closed and, despite some pent-up leisure demand, there is widespread reluctance to fly, for health safety reasons.
It took until after WWII and the Chicago Convention for the logjam to be broken. Back then, in 1944, under the leadership of the US and the UK, senior aviation officials from all over the world met to agree a new regime. Today, there is little sign of that leadership emerging in the near term.
Australasian markets are being hampered by COVID-19 spikes slowing the road to recovery
Opening up the CAPA Live content panel discussions reviewed the current situation across the Asia Pacific markets.
Australian Airports Association CEO James Goodwin believes the Australian Government has taken the "right approach" towards the "health crisis", however noted air travel is the "lowest" since consistent records began. Mr Goodwin said airports have many fixed costs, and noted despite losses, "the airports have stayed opened" and remained "good corporate citizens".
This though has been to the detriment of their own financial health. Mr Goodwin acknowledged that Australian airports are losing more than AUD300 million (USD215 million) monthly, a "quite devastating" impact, and that air travel is "likely" to be one of the last sectors to recover from the coronavirus crisis. In his eyes the coronavirus outlook is still "very grim" and "we still need some timeframes" regarding state border reopenings and safe travel zone bubbles.
Brisbane Airport executive general manager, aviation development & partnerships Jim Parashos stated "what we need to do" regarding increased aeronautical operations and biosecurity measures at airports is to collaborate with health officials "to get them to better understand the operating environment" of airports. He said Australia's domestic terminals "are very much meant to be transit points", and Brisbane Airport's own concourse which could previously handle "six or seven simultaneous arrivals, is now able to handle two".
Recognising the much greater value that international passengers delivered to airports and that they would not be back soon, Mr Parashos accepted that the airport will “take whatever we can get" between domestic and international revenue generation in the coronavirus environment. He believed that until "we can sort out our domestic border issue", it is "very hard" to see anything beyond the trans-Tasman Australia-New Zealand bubble reopening.
International Bubbles: Australia-New Zealand and Singapore’s unilateral offering
Morgan Stanley analyst Rob Koh stated that once some confidence builds from the trans-Tasman bubble, Australia “could have some Pacific Island friends join". He explained "I'd like to think Australia and Singapore could also start a travel bubble, and this would be at the same time and not mutually exclusive".
Asia Pacific Airlines Association (AAPA) director general Subhas Menon stated "Singapore is taking a very enlightened position when it comes to international travel; most governments are taking a view of deferred gratification, saying: let’s address domestic sectors before we start looking at cross border travel". He added: "Singapore has taken a risk-based approach, they are embarking on policy to negotiate travel bubbles but unfortunately, they are alone in this endeavour".
Jetstar Asia CEO Bara Pasupathi stated "Singapore's Government understands the importance of airlines and the effect they have on the economy, as Singapore is 100% reliant on international travel and transit". He said: "They have been brilliant in supporting us and have also had some very smart initiatives".
BIS Oxford Economics chief Australia economist Sarah Hunter, stated "most economies" have moved beyond the tightest phase of coronavirus, and noted as restrictions are removed and activity is allowed to return "concerns about the disease" have lived beyond the restrictions. Ms Hunter said consumer services "where we interact with people" are the sectors which have lagged behind.
As tourism is a "substantial proportion" of the labour force, there is "no surprise" job losses are "very concentrated in this particular area," Ms Hunter said, and "returning to normal" will require a vaccine or the ability to "work out" how to live with coronavirus, adding "getting this sector back to normal…is going to be really vital".
Rapid Covid-19 testing 'critical' for traveller confidence as we still await delivery of a vaccine
In a corporate travel keynote interview, Corporate Travel Management (CTM) executive director and managing director Jamie Pherous said he believed that rapid COVID-19 testing at airports is "really critical" for restoring traveller confidence with a 15 minute test at each end of the journey an option that "will give a lot of people confidence".
On reshaping of the post-pandemic industry, he explained that he expects "mass consolidation" in the corporate travel supply chain due to the loss of international business.
CTM has a global presence spanning corporate, events, leisure, loyalty and wholesale travel and Mr Pherous said it was benefitting from a "diversity in client and geography" which has facilitated an "exceptionally strong" return to travel in some parts of the world, its portfolio of domestic clients and its essential travel clients, including those in the government, healthcare and mining sectors”.
Progress of the Pandemic...Therapeutics, Vaccines. The “solution” is a long way off
Helping to understand the progress of the COVID-19 pandemic, including the very latest data on the pandemic, is important in charting recovery and making projections into the future. Informa PLC director custom intelligence & analytics Duncan Emerton stated there has been "significant investment" in resources in response to COVID-19, adding the industry is "setting new standards of collaboration to find a solution and exit strategy".
Mr Emerton added since the beginning of 2020, there has been an exponential increase in trials for drugs that are now in the pipeline with the clinical trial landscape "early in evidence generation" but starting to deliver "reassuring data". But despite offering some insightful updates from Informa’s Pharma Intelligence on the status of vaccines and therapeutics, including timeframes for rollout, his evidence shows it will still be some time before a true sustainable solution is delivered.
Informa PLC head of group health, safety and security Steve Dyson, provided his own observations on the pandemic. "We need to start seeing the pandemic figures falling at a global level and that is still not happening," he said.
Mr Dyson noted Asian countries have not seen as high fatality and case rates as countries such as the US, India and Brazil. "This is perhaps due to their experience of recent pandemics that occurred predominantly in Asia and more advanced levels of biosafety and biosecurity at airports and at major events," he explained.
Airline business model survivors – ‘cost will become king’
CAPA’s founder and chairman emeritus Peter Harbison reinforced views on the recovery and how leisure demand, domestic movement and LCCs are leading the return of travel.
In a post COVID-19 world there will be extended government support and there will "inevitably be fewer airlines," he warned and those airlines that survive “will be heavily indebted, have lower frequencies, fewer routes and charge higher fares".
Ultimately, in a market dominated by price sensitive leisure travellers, "cost will become king again," he explained. Already, LCCs’ global market share has grown by over 2% in 2020 and by as much as 5-10% in some individual markets.
Until border controls are lifted however, international aviation remains tightly constrained – and unpredictable, acknowledged Mr Harbison. The mere development of bilateral “bubbles” is already proving very challenging, even between island partners like Australia and New Zealand; extrapolating beyond that will be infinitely more complex until health solutions are found. Further more, the recovery will be driven in an environment where the “speed of passenger traffic return will be in inverse proportion to yield”.
The result: a very different shaped industry in the medium term, where full service airlines will have to adapt to the loss of premium traffic on which they have previously relied. Meanwhile, for many airlines, it will be a matter “of how long can they hold their breath”.
The future aviation industry will look a lot like the ‘old normal’: Jeff Shane
IATA’s former general counsel Jeff Shane argued the aviation industry is "going to look a lot like the old normal" post-COVID-19. He explained that the provision of air transportation "will be done in very much the same way... the question is how long is it going to take to get there" and noted that it is a "discouraging picture because governments are simply not following the advice of those they appointed" concerning guidance and recommendations on a response to COVID-19 in air travel.
If protocols for COVID-19 testing could be established consistently globally, "then governments will trust each other and they would allow flights to happen," according to Mr Shane, but "as long as there are either closed borders... or quarantine measures which are tantamount to closed borders... we're not going to see anything like the recovery that we expected to see by now".
His biggest "worry” is that governments have "become investors of airlines" as bailouts have become forms of equity in airlines. "There should be some nervousness about that... governments should be sophisticated enough to know that you cannot regulate an optimal air transportation market; the market has to create that". He warned that the trend could encourage protectionism and hamper the economy due to a lack of connectivity.
'You can't run a world economy on Zoom': EUROCONTROL’s Eamonn Brennan
There has been much talk about how technology will substitute travel to some degree, especially in relation to business travel, but EUROCONTROL director general and former Irish Aviation Authority CEO Eamonn Brennan sees a full return of traffic levels by 2024 for both short- and long-haul operations. "You can't run a world economy based on Zoom,” he said. "Once you open up the market, people will want to travel... long haul business travel will recover stronger than you think".
Still, significant short-term impacts remain evident. European air traffic was at around 40% of 2019 levels as of 13-Oct-2020, but Mr Brennan warned that this could end up "plunging to perhaps below 30% by the end of Nov-2020", concluding that the implication of this "is that there is a massive financial hole in the European aviation system".
He also pointed out that load factors on the flights that are operating remain below 50% on average. He said EUROCONTROL is predicting up to a 60% reduction in traffic in winter 2020/2021, with "no improvement in Europe until at least Easter... it's going to be that long until the short haul market recovers". Mr Brennan also said he is hoping that the North Atlantic travel market recovers with a possible change in administration in the US.
CAPA Live delivers a monthly virtual “Summit”, jam-packed with information, data and live interviews. CAPA experts, global airline CEOs and other cutting-edge industry leaders will be presenting live from a next-gen virtual event platform. Subscribe here!