Air Transport: The Airline Crisis
As lockdowns within countries start to ease, yet many borders still closed to international travel with 14-day quarantines in place where travel is allowed, KJM Today looks at the present crisis and the future of air travel.
An almost empty check-in hall at Berlin's Schonefeld
(Günter Wicker/Flughafen Berlin Brandenburg GmbH)
It is a quite remarkable facet of life that many people have, up to 2020, taken travelling by air for granted. It is however, understandable since almost everybody alive today has grown up with the idea that flying is a very ordinary and relatively easy way of getting from one place to another. Especially if there is some distance between the two points. Yet it has not always been so, and the development of the air travel industry has always been more complex than most believe.
It is one thing for a UK resident to fly from London to Edinburgh - and it’s further than one thinks; it takes five hours and twenty minutes on average by train one way – there and back, much of the day’s waking hours. That’s time spent on the journey and not either enjoying the sights and sounds of the Scottish city if on holiday or working and doing business. Even so, train travel is well established in the UK so although there has always been a market for UK domestic flying, it isn’t as big as that found elsewhere, like for example between Los Angeles and Boston.
easyJet are among airlines to have re-started flights (Tyler McDowell)
US domestic air travel has always been founded on distance and population; it can take almost six hours to fly from the west coast of the US to the east and LA to Boston is 2,591 miles – by comparison London to New York is 3,440 miles and around seven hours and thirty minutes flying time. But while it is one thing for a travel company to offer a service to potential travellers inside one’s own borders, it is another matter entirely to cross those borders into another country. Yes, we are all familiar with needing a passport, which is simply a means of identification. We also are reasonably familiar with visas, which is an endorsement of your passport by the country you wish to visit. Somebody however, has to get you there – wherever around the world ‘there’ is. And to do it requires the agreement of the two countries concerned.
International air travel has its roots in bilateral agreements between two countries that allow the citizens of each to go between the two and are decades old. In more recent times these have been added to with more universal agreements that reduce any previous restrictions that might have been in place; the European Union and its ‘free movement’ principle is one. There are other agreements between certain countries that have made border crossing easier and all of these were or are covered by what is today a little-known agreement known as the Warsaw Convention of 1929.
This set in place the framework for international air travel and was amended by The Hague Protocol of 1955, enabling those bilateral air agreements to take place. The airline world has always had its ups and downs and it is a notoriously difficult business in which to be profitable and sustainable. Despite that, for decades, those agreements already mentioned protected national airlines, many of which were state-owned, so only certain airlines could fly certain routes. British Airways (and before them, BOAC) were the designated UK airline for routes to the primary US destinations. Pan American and TWA were the US carriers – given the size and population of the US, two carriers were permitted but the disparity in population between the UK and the USA meant Pan Am and TWA had things comparatively easy compared to BOAC and even though a second UK carrier was allowed, numerous airlines tried and failed. From British Eagle to British Caledonian no second UK airline has been truly successful – until Virgin Atlantic came along.
Virgin Atlantic have been hit hard by the worldwide shutdown of air travel (Kevan James)
What helped Virgin was the sweeping away of the old rules; the ‘deregulation’ of the airways. As the long-established order was broken down, anybody could start an airline and fly any route. Hundreds of new airlines started and hundreds of new airlines failed – it is a very expensive business. But even as those new carriers floundered, so did the old ones. Long-established airline names, previously bolstered by their government owners and unlimited taxpayer funding, suddenly found that as the new way began to take effect, they had to stand on their own two feet or die – and some did. Sabena of Belgium, Malev from Hungary, Viasa of Venezuela to name just three – there are more. Even Pan Am and TWA have gone. Italy’s Alitalia has always been a financial basket case but has survived despite EU rules forbidding state aid.
The new carriers, those at least that were able to grow, offered a better service and even though some were state-owned, from the start had to take financial responsibility. And until March 2020, most had at least made enough money to stay alive and plan a future, altering their business models to reflect the demand and be flexible enough to adapt to change. Airlines like Pan Am couldn’t, which is why they went bankrupt.
All of it however, decades of established procedures, well-worn and comfortable (most of the time) ways and means by which almost everybody could fly from one place in the world to another, were thrown into disarray by the outbreak of the Covid-19 virus. All of that has changed to the point where it must be asked; can many airlines stay in business when they have no business left? Covid-19 and the responses of governments to it have ripped the very foundations of air travel away. And it is those government responses that have been called into question, particularly in the UK where the recently imposed 14-day quarantine regulations has been called a death-knell for air transport in the country. The criticism has reached the point where Prime Minister Boris Johnson and his government are now said to be seriously considering scrapping the requirement. At the very least, so-called ‘air bridges’ are being talked of – particular countries where travel between them can happen without the need for quarantining upon arrival. The peculiarity of the UK quarantine requirement is the timing; imposed at the point where other countries are relaxing them. The move does – or did – indeed put up a giant sign over the UK saying, ‘Closed’.
As the shutdown began to bite, KJM Today asked a number of industry professionals and observers for their views. Nick Harding, Editor at UK Aviation News, said: ‘I think restricting travel to essential travel only is vital to the fight against the spread of Covid-19 as it reduces unnecessary human contact which is the main way the virus spread. A side effect of that will be that it will make us think how about how we use transport, particularly air travel, in the future such as do we need to fly from London to Glasgow for that meeting that could be held on Zoom? Air Travel as we knew won’t be back for many years and we already knew before this pandemic that we had to reduce air travel use for climate reasons’.
But it is not only airlines that have been affected. Many social media critics, when posting outraged comments on taxpayers cash being used to prop up airlines, forget that there is a supply chain behind those airlines, including catering suppliers and engineering support and of course, airports. Like all, Düsseldorf in Germany has seen its traffic plummet over the spring of 2020. Verena Wefers, spokesperson for the airport said: ‘Düsseldorf Airport [has been] facing massive losses of traffic and passenger numbers due to the Covid-19 crisis. Currently, we are experiencing a decrease of more than 90 percent. Given this context, we applied for short time work for our employees for the rest of the year, stopped not strictly necessary investments and projects and adapted our services. How air traffic will take shape in the coming weeks and months depends on the general situation around the pandemic. Travel restrictions in practically all countries have been extended for now. It will probably get better in the summer and fall, but only very marginally. For the coming four years, the industry is expecting air traffic to be 20 - 30 per cent lower than in 2019’.
Düsseldorf (Flughafen Düsseldorf)
In Norway, Avinor, operator of most of the country’s airports, found a similar situation. Spokesperson Nora Hoberg said: ‘The outbreak of the Covid-19 virus has posed significant challenges for the operation of Avinor in the form of traffic and revenue loss. The situation means that employees cannot be employed in a way that is economically rational for the company. As of May 11, layoff notice has been sent to just over 550 employees who will be laid off in whole or in part. 3000 people are employed in Avinor. The number of passengers travelling at Avinor's airports in April decreased by 91 per cent compared to last year. In terms of number of flights, the reduction is close to 60 per cent’.
US carrier Delta, like all airlines, as well as the airports they serve, are cutting back. The Boeing 777 is still considered to be a modern and up-to-date aircraft but in truth, it’s now been around for twenty years and Delta’s are going. The airline plans to retire its 18 wide-body Boeing 777s by the end of 2020 as a result of the Covid-19 pandemic. The retirement will accelerate the airline’s strategy to simplify and modernise its fleet, while continuing to operate newer, more cost-efficient aircraft.
‘We’re making strategic, cost-effective changes to our fleet to respond to the impact of the COVID-19 pandemic while also ensuring Delta is well-positioned for the recovery on the backside of the crisis,’ said Gil West, Delta’s Chief Operating Officer. ‘The 777 has been a reliable part of Delta’s success since it joined the fleet in 1999 and because of its unique operating characteristics, opened new non-stop, ultra-long-haul markets that only it could fly at that time.’
Delta's Boeing 767s are expected to be retired (Kevan James)
Last month, Delta announced plans to accelerate the retirement of the MD-88 and MD-90 fleets to June. Since the onset of the Covid-19 situation, Delta has reacted quickly by parking aircraft and considering early aircraft retirements to reduce operational complexity and cost. To date, the airline has parked more than 650 mainline and regional aircraft to adjust capacity to match reduced customer demand. Despite a reduction in international passenger travel, the 777 fleet has been the workhorse of Delta’s cargo, mail and U.S. citizen repatriation operations amid the pandemic. Since late April, the wide-body jet has flown dozens of trips from Chicago and Los Angeles to Frankfurt to deliver mail to U.S. military troops abroad; operated between the U.S. and Asia to deliver thousands of pounds of critical, life-saving supplies to aid in the Covid-19 response; and carried thousands of U.S. citizens back to the U.S. from Sydney, Mumbai, Manila and other cities around the world. The Boeing 777-200 first entered the fleet in 1999 and grew to 18 aircraft, including 10 of the long-range 777-200LR variant, which arrived in 2008. At the time, aircraft was uniquely positioned to fly non-stop between Atlanta and Johannesburg, South Africa, Los Angeles to Sydney and other distant destinations. Delta will continue flying its fleet of long-haul next generation Airbus A350-900s, which burn 21% less fuel per seat than the 777s they will replace.
Most notably, the Airbus A380 ‘Super-Jumbo’ is also set to remain grounded and retirements of the type had begun before the onset of the Covid-19 pandemic. British Airways (BA) have a fleet of the giant aircraft and has not, as yet, specified whether or not they will remain in service and the same applies to the UK flag-carrier’s now long-in-the-tooth Boeing 747s. Many airlines around the world had already withdrawn the venerable aircraft from service but BA are still the largest user. The airline has been heavily criticised for the manner in which it has gone about handling the inevitable reductions in staff as it seeks to remain a viable concern.
Nick Harding makes the point that, ‘It’s going to take between 2-4 years to get back to anywhere near the level of passenger numbers expected this year. In truth, we may never return to it. That does of course mean there will be less aircraft in the fleet and less staff needed. But British Airways are handling this very badly. In British Airways case it is a thinly veiled attempt to get rid of expensive older contracts in favour of newer, cheaper staff contracts. Away from the BA situation, we are likely to see bargain fares in 2021 to try and stimulate air travel back but on a much reduced global network. Domestic routes are likely to be hardest cut as airlines focus on the profitable routes’.
British Airways' continued use of the Airbus A380 is in doubt (Kevan James)
KJM Today does of course, have its own observers of the air transport industry and one, The Aviation Oracle, takes a slightly different view on shorter routes, saying: ‘It is most likely is that domestic services, and those within closely aligned regions such as the EU, will resume well before long-haul activity picks up again. Some airlines’ projections appear to be wildly optimistic given the current mood of the public. It seems almost inevitable at present that the rebound will be a long and winding road, potentially beset by challenges such as further lockdowns that might be imposed if the virus returns with a vengeance. There are still so many variables and uncertainties involved which make quantifiable projections almost impossible, although it is extremely likely that the challenges that lay ahead will claim further victims in the form of airline failures before this is all over’.
Contributor Tyler McDowell, a frequent flyer, also expresses some hope. ‘I am optimistic that a full return during the winter schedule will occur in October time. I am sure airlines over the summer will phase back in with reduced services, provided we don't see another surge of Covid-19 cases across the continent’, he said.
We know that the situation up to now (June 2020) has been a bleak one for the air transport industry. Many employees who have been furloughed may find that they do not have a job to return to, at least in the short term. But how long is that term going to be? The Aviation Oracle again: ‘Despite the restrictions which currently seem to be coming more onerous, there is still some optimism in the industry that business will return to an extent as soon as any travel becomes possible again. Lufthansa is projecting activity at 20% of the levels it was at pre-Covid-19 by July with Air France KLM anticipating similar levels, while British Airways’ parent IAG forecasts as much 45% resumption in the same period although it admits the reality may be more aligned with its competitors. Most carriers are aiming for a 60-70% rebound by Q4 and 80% in 2021. Meanwhile, in what might amount to a fit of hubris the outspoken head of Ryanair, Michael O’Leary, has announced plans for the airline to operate 40% of its normal flight schedule in July, and an increase to 90% before year end’.
Gordon Smith, Group Editor for Key Publishing's magazines, Airliner World and Airports of the World, said: 'We’re currently in the very early stages of shaping what will become the new normal for commercial aviation. In the same way that the events of 9/11 radically changed our perceptions around security when flying, Covid-19 is likely to act as a similar catalyst for health and welfare. While there are some relatively simple quick fixes – handing out basic PPE such as facemasks and gloves for example – the is a small mountain of other essential elements which will be complicated to introduce, expensive and detract from the passenger experience many of us have been used to.
'The industry that emerges from Covid-19 will be leaner in almost every sense - fewer airlines, fewer personnel, fewer aircraft. This is already having an immediate impact, but we’ll also see radical repercussions in the longer term. Deferrals and cancellations will be increasingly common in manufacturers’ order books, and some airports which were previously lobbying airlines for increases in frequencies and equipment upgrades, will find themselves keen to simply maintain any sort of regular connection. The early temptation from some nations for protectionism and a go-it-alone approach will only last so long as it becomes clear that we’re all in this for the long-haul. The World Health Organisation has stated that Covid-19 could be with us indefinitely, and the gradual reopening of scheduled air links will be necessary. A global response is required to this most global of problems. Coordination between nations will be challenging, but crucial’.
The Aviation Oracle added: ‘Much of course rides on flights being permitted to resume. This will enable carriers to start generating much-needed revenue again, and also has the potential to avoid providing refunds to travellers for flights already booked later in the year. A need to ramp up operations may also be forced if regulators decide not to extend exemptions to “use it or lose it” slot rules that are currently set to expire in October – if such arrangements are not continued into the winter, any airline not using 80% of its slots may find them reallocated to another bidder. If that happens, some airlines may decide it is cheaper to fly empty than keep aircraft on the ground to protect longer term business.
‘However, a restart cannot just happen. Deferred aircraft maintenance will need to be performed in many cases, while recurrent qualifications for aircrew (pilots and cabin staff) will have to be refreshed. Then there comes the question of whether the public will want to travel – many people seem almost scared to be outside at present, so their propensity to be cooped up in an enclosed metal tube with one hundred or more other customers must be open to question. Even those who are willing to fly might be deterred by social distancing and other restrictions imposed at airports which may extend door-to-door journey times. And finally of course, people will not travel if the resorts, hotels and facilities are not open’.
Berlin's soon to be opened Brandenburg has been used to park easyJet Airbus A320s during the shutdown (Günter Wicker/Flughafen Berlin Brandenburg GmbH)
Airport Historian Max Groot also makes an important point however, saying: If the only problem in the world was Covid-19, then you can expect things to return to normal in two to three years. However, long before Covid-19 started there were many other things going on in the world: increasing trade tensions and the resulting halt to, and even reverse of the globalisation process; increasing geo-political tensions (partially related to the trade tensions) between the US and China, Russia and the West, within the ME, etc.; and of course an increasing awareness of the environmental damage that flying does to the environment. Due to Covid-19, the world has been plunged into a deep recession. This likely will worsen the trade tensions: countries could move to close their borders for foreign exports and immigrant labour in order to protect their hurting economies. This would lead to a further decrease in worldwide GDP and loss of jobs. This negative spiral could last for many years. It seems certain that part of the business demand will not come back due to business discovering that meeting online can be pretty efficient for most internal meetings. I also think that leisure demand in the West will not return to what it was. I know people who might fly six or seven times a year for fun, shopping in London, winter break in Barcelona, a week in Bali, summer holiday in Florida. Now that flying is becoming more expensive and more of a hassle I think a lot of people will fly less, but this could be temporary’.
One aspect to flying that has come under the spotlight is cleanliness. The term “Deep-cleaning” has come to the fore recently and air transport blogger James White made this point: ‘Having been on a fair few planes previously, some of them have been a little grubby to say the least. In a world where time is money, anything more than a quick vacuum at the end of the day was considered a waste of time. This won’t pass any longer.
‘In order to compete, airlines will simply have to make sure their aircraft are noticeably cleaner. Anything less, and people won’t see them as safe to fly - I received the following from British Airways: “All key surfaces are disinfected after every flight and we clean our aircraft from nose to tail every day. The air in our cabins is passed through HEPA filters, which remove microscopic bacteria and virus clusters with over 99.9% efficiency and is equivalent to hospital operating theatre standards.” easyJet have also sent similar in the past week. As far as airports go, many already have pretty good cleaning procedures in place. The last time I passed through Heathrow, they had a number of hand sanitising stations dotted around the terminal.
‘A full scale recovery goes depends on how the virus dissipates. If it has gone by the end of the summer, then I don’t see any reason why things wouldn’t get back on track for summer 2021. After being cooped up for the majority of the summer 2020, people will be more desperate than ever to escape. If however there is a second wave, then I suspect people will be a little more cautious when booking. What’s to say there won’t be a third or fourth wave in the future?’
Worn and grubby cabin interiors must become a thing of the past (James White)
And on the subject of airports and looking at what might be to come, Avinor’s Nora Hoberg commented: ‘Avinor is constantly working on future scenarios for how the traffic will develop, in this work we lean on our own experience and knowledge of the market, but also to a large extent what is available from reputable external reviews. As is well known, there are many uncertain moments around the supply and demand side. At this time nobody has an overview of how deep and long-lasting the crisis will be. We know that air traffic in general is closely linked to the development in GDP, and with the prospect of a negative development this will affect the future. Private individuals will have lower purchasing power and companies will tighten on the cost side.
‘Avinor expects the domestic market to start coming back somewhat earlier than abroad. Avinor's scenarios today indicate that air traffic in Norway will be back at 2019 level at the earliest in 2022/23, but also possible in 2024. In the most positive scenario, air traffic will start to return significantly over the summer months June-August, while at the most pessimistic end it can go towards October. It should be noted that these are scenarios that are constantly moving and are our best guess so far’.
Yet in recent years many airports, anticipating the upsurge that had previously been evident, expanded and refurbished their terminals. Some have built new runways (or are trying to, as at London Heathrow) and some cities have built entirely new airports, as at Istanbul. How many of these facilities are now going to be needed? Max Groot says: ‘As most commercial airports in the world are still government owned, the pressure to shed staff will be a bit less urgent than with airlines, but it's only a matter of time before the announcements will come. The airport's viability is a 100% dependent on airlines and their passengers, although many airports would have you believe otherwise! In that sense, you see the same as in the real-estate sector - you build ahead of time and you expect that the demand will (still) be there. Sometimes that is simply not the case. Expect to see many new facilities lying idle for the coming years'.
Military aviation is not generally in the public eye. The activities of any air force tend to be a little shy of too much publicity, except of course when showing itself in a good light to the citizens of the country it is intended to defend. And its costs are not often debated in or by the public. Air transport for the masses however, is constantly in view because it is, in theory at least, available to anybody and everybody. Travel is often taken for granted but the Covid-19 outbreak has put almost all aspects of life for everybody in question like never before. Airlines and airports are, for the most part and certainly in many western countries, businesses almost like any other and businesses of all kinds go bankrupt every normal day of normal life - if one’s local corner shop or convenience store doesn’t have enough custom, it will fail and close. Airlines themselves are no different. Except…
The air transport industry is not a normal one and the airlines that provide the service are not normal everyday businesses either. When a small airline closes, few notice. When a big airline bites the dust, everybody does. Swissair, the former national carrier of Switzerland was a case in point; its failure was considered a national embarrassment and the country as a whole made strenuous efforts to redress the balance. British Airways is much criticised within the UK but if it were to vanish, its fleet permanently parked, the ripple effect throughout the country would be catastrophic. Many people fail to grasp the enormity of such an event. And few really grasp the contribution made to any country’s economy by the air transport industry. And for that matter, the contribution it makes to so many aspects of life that have, until now, been taken for granted.
© Kevan James / KJM Today 2020
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