The COVID-19 crisis to cause turbulence in the airline sector until 2024
UOC researcher Pere Suau pointed out that the next few years will see a significant reduction in air traffic and that some airlines run the risk of folding
The coronavirus pandemic has suddenly emptied once-bustling airports. The pandemic has left business plans throughout the entire airline industry up the air, leaving the vast majority of its fleets grounded and empty. According to Pere Suau Sánchez, professor and researcher at the UOC's Faculty of Economics and Business, it might be years until we see airports like Barcelona-el Prat return to levels of passenger activity on par with what they were just a few months ago. Health controls at airports, lower flight frequencies, shorter distances, airlines that disappear and others that are now taking off... These are just some of the conclusions the UOC researcher analysed in his study "An early assessment of the impact of COVID-19 on air transport: Just another crisis or the end of aviation as we know it?", published in the Journal of Transport Geography.
Although the easing of lockdown measures is reaching a broad spectrum of industries, airlines are not among them, and this summer will not witness packed suitcases rolling towards the airports on their way to holiday destinations. COVID-19 will leave the airline industry beset by turbulence for some years to come; in fact, according to Suau Sánchez, "the sector predicts that it will not recover 2019 levels of traffic until 2023 or 2024". The truth is that the current pandemic has led to an unprecedented crisis in the airline industry. Before coronavirus, one of the major upheavals that the sector had to face for health reasons was SARS, in 2003, with the Asian Pacific seeing a 35% drop in passenger numbers. In the early stages of COVID-19, however, the fall in revenue was 98%.
The virus has emptied airports and bargain-basement offers may end up being one of the strategies airlines use to fill them up again. According to Suau Sánchez, "historically, after a crisis, the airlines have tried to stimulate demand with lower fares. On this occasion, it appears that this might also be the case, although there could be additional costs related to health safety at airports". The airlines will have to adapt their structures to survive the next few years, with much lower passenger volumes than those seen before the crisis, although this will not translate into more expensive tickets for consumers. The UOC researcher added: "On specific routes that end up having fewer competitors during the recovery, they may raise fares. But globally, it's thought that fares will stay the same or fall slightly."
Not all airline models or markets will suffer the effects in the same way, according to 16 executives from different airlines specializing in different models and markets interviewed by the UOC researcher for his study. Airlines will have to adapt their business model to lower travel paces and frequencies, and low-cost firms will recover quicker than ones offering a broader range of services.
As in any crisis, some of the names that were seen until recently on airport departure screens will no longer be up there. Some of the ones that have ceased trading include Flybe (United Kingdom), Air Italy (Italy) and Virgin Australia (Australia). Similarly, others will emerge. The airlines that specialize in regional routes may be among the ones to recover more quickly and the public aid that states have available will mark part of the competition to recover the market. Suau Sánchez warned: "One of the major aid-related concerns in the industry is the distortion of the travel market, as companies will not be competing on a level playing field." Countries such as Germany, France, Italy and Norway have already come to the rescue of their major airlines. According to the UOC researcher, these bailouts may put airlines in a better position to offer lower fares and recover market share, even though they might prove to be a burden in the longer term since they have to be repaid.
New flying habits in the "new normal"?
The pandemic has led to the emergence of new habits among the public, some of which will end up affecting the airline industry. Video calls or remote working have become commonplace for many people and pose a threat to filling seats in aircraft. In this vein, the study produced by Pere Suau Sánchez indicates that some of the business travel that was common in companies before the pandemic will cease to be so. The burgeoning use of new technologies as work tools will mean that some business travel that was taken in the past will come to an end. This is especially the case where trust between parties already existed and the physical presence was very often a legacy rather than a courtesy.
However, the executives in the sector interviewed by Suau Sánchez recognized that it will be very difficult for a video call to replace the trust generated by shaking hands for the first time, and flights to make new contacts or seal important deals will continue to be taken. This is a source of hope for the more traditional airlines with a wide range of services as this type of passenger is one of their main sources of revenue. The interviewees all agreed that in the short term, business travellers will be the first to start flying again. Not all, though, as the usual trade fair- and conference-goers will take longer to come back, given that many events of this type have been cancelled for health reasons. To this effect, a new habit that passengers will have to take on board will be the safety measures in place to prevent a new spike in the virus. Alongside the metal detectors and other devices, travellers will have to familiarize themselves with health checks.
Will travellers look for other forms of transport?
The reactivation of tourism in Spain is being considered from a national viewpoint and is focusing on short-distance travel. It is not the only country to be thinking along these lines, as Germany and France are also encouraging their citizens to look for somewhere closer to home for their holidays, so limiting major population movements. According to Suau Sánchez, these (and other) measures will not pose a threat to the hegemony of the plane as the means of transport of the future for major journeys. The researcher added: "Although long-haul flights will be the last to recover, given the diverse situations many countries find themselves in and sector concerns regarding the impact of video call and remote working technologies, the experts believe that they will eventually return to similar levels."
Alternatives such as high-speed train lines and private vehicles may revive in the short-term, but Suau Sánchez does not see them posing a threat to the airline market. The UOC researcher concluded: "We need to remember that whereas in some short-haul markets, there is the possibility of high-speed rail travel replacing air travel, globally there is no mode of transport that can replace air travel."
Suau, P.; Voltes A.; Cugueró N. An early assessment of the impact of COVID-19 on air transport: Just another crisis or the end of aviation as we know it?. Journal of Transport Geography, 2020, Volum 86. DOI: https://doi.org/10.1016/j.jtrangeo.2020.102749.