Last week we launched a webinar series looking at the impact of COVID-19 on the air travel industry. We hosted two webinars, with over 5,000 people registered. The feedback was great and there were many questions. Following the webinars we also sent out a short questionnaire to gauge what the audience was thinking about where this current crisis will leave travel patterns once travel restrictions are lifted.
Take a look at the common themes that came up in discussion and the insight we gained from audience feedback: -
A “reset” moment
A look at how global aviation has grown over the past 25 years shows that there have been a number of ‘shock’ to growth in that period: 9/11 and the 2007 global financial crash stand out as the biggest. With each event, 2-3 years of growth was lost as the industry was re-set to a new normal, with growth levels that were sustainable in the new economic and geo-political climate. What we are experiencing now is another re-set moment for the industry. Again, several years of growth will be lost and it may be 2022 or 2023 before the volume of flyers returns to what had been expected for 2020.
Specific effects we should expect to see include airline failures, especially of whose market position falls somewhere between the niche carrier and the global player. Equally, we should expect consolidation of airlines and the permanent grounding of some older aircraft in the fleets of the world’s largest airlines.
The role of government support
While governments are being bombarded with requests from airlines for help, governments will need to grapple with how to decide which airlines should be helped. In general governments have become less willing to support airlines in recent years, especially where they are private entities, have elements of cross-border ownership and have don’t have a strong track record of profitability. To date we have seen different responses from governments with some offering the same support to all carriers, others targeting support at specific airlines and still others targeting support at employees rather than businesses.
Understanding airline capacity changes
At the time of the webinar, OAG data was showing that capacity globally was 29% lower than for the same week in 2019. Every day new announcements by airlines of revised schedules has meant that, for now, the situation is getting worse by the day and the reduction in capacity is inevitably worse than the numbers indicate.
In some markets, rather than amend schedules, what we are seeing is airlines simply cancel flights. This is especially true for the US market and at those times when governments have announced bans on travel which are implemented at short notice. We plan to present some of the data showing the effect of amended schedules compared to cancelled fights in our next webinar
Can we look to China for what is to come?
There are small signs of recovery in some markets, of which China is one, in that the reductions in airline schedules appear to have bottomed out. This process has taken about eight weeks and we are seeing what may become a similar pattern in other North East Asian countries, such as South Korea and Japan, where the schedule reductions may have gone as low as they are going to.
Chinese airlines may now be operating with load factors of around 60% which shows traffic is also returning, although it is expected that consumer confidence is going to take some time to entirely come back. The different strategies adopted for containment of coronavirus by various countries will also be having different effects. With so much of the global economy, and especially Asian economies, dependent on China, any recovery in China will also ripple out from there. This is especially true for tourism industries. Cambodia, Thailand, Japan and Taiwan are the countries most dependent on China for airline capacity with as much as 38% of Cambodia scheduled air capacity serving the Chinese market.
While the focus has been on passenger flying, the impact of massively reduced schedules is being felt in the cargo industry. With maybe up to half of all air cargo flown in the belly of passenger aircraft, airfreight rates have increased, and some airlines are converting passenger aircraft to fly freight.
What the audience was thinking
Respondents to the survey came from 50 countries across the world. Perhaps reassuringly, over a quarter of these people said they thought that the impact of COVID-19 on their business had already peaked, while 39% thought the peak would be in May and another 16% thought it would be in June this year. Only 15% thought the peak impact would be in July or sometime later.
When it came to what the most likely medium-term impact (i.e. 6 months to 2 years) on business air travel the consensus was that there will be less business travel. Only 11% thought business travel would return to pre-coronavirus levels, and a mere 6% thought business travel would increase as business travellers made up for lost time and/or took advantage of low fares. Instead, the expectation is that there will be less business travel due to economic uncertainty (42%), less business travel because of increased comfort with operating in the digital sphere (31%) and less business travel because of the fear that coronavirus will re-emerge and continue to disrupt travel (9%).
While not altogether rosy, the picture that emerges for leisure travel is somewhat more positive, however. 16% of respondents said that they thought leisure travel would return to pre-coronavirus levels while 20% felt that there would be more leisure travel to make up for lost time and/or take advantage of low fares. Few thought that we would come out of this with leisure travellers being put off flying due to increased concern about the environmental impact of flying (3%), or because they have become more comfortable with less leisure travel (4%). Mostly respondents believed there would be less leisure travel because of economic uncertainty and/or high fares (31%) and because of a fear of disruption due to re-emergence of coronavirus (23%).
In the short term, most respondents felt that it is appropriate for governments to help out airlines through direct financial support in the form of loans or capital injections (28%), though loans and loan guarantees (28%), and through tax relief measures (33%).
When it comes to the medium-term impact on the airline industry itself, only 14% seemed to expect widespread financial assistance from governments, but over half are expecting some, or even a large number, of airlines go out of business.
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