Will Aviation Industry Survive after Covid-19?

From the desk of, Meher Kashif Younis:

Of all the industries all over the world, Aviation Industry has been hit the hardest by the pandemic of COVID-19 which emerged in China in December 2019 and then crossed its borders in February/March 2020 and invaded and attacked almost every country causing heavy losses of precious human lives and forcing the governments to take extra-ordinary measures like lockdown and closing their skies for incoming and outgoing flights.

The International Air Transport Association (IATA), a global trade group representing most of the world’s major airlines and cargo carriers, is on record to have said only recently that it does not expect the air travel industry to recover from the hit dealt to it by the Corona Virus pandemic before 2024.

The timeline, which defined “recovery” as a return to 2019 levels of air traffic and revenue, was the direst yet offered by the group, which had previously forecast a bounce back by the airlines by 2023.

“Ahead of any vaccine, it really does depend on how well the countries around the globe manage to control the virus”, IATA’s chief economist Brian Pearce said in a briefing in September 2020. “That is clearly going to be an issue with the recovery. What we have not seen is the sort of progress which is needed”.

The bulk of the problem is that the flying public has relatively little interest in flying. “While pent-up demand exists for visiting friends and relatives and leisure travel, consumer confidence is weak in the face of concerns over job security and rising unemployment, as well as risks of catching COVID19” ATA said in a statement.

Moreover, corporate travel was also staying down as the companies seek to cut costs and adjust to remote meetings will hamper a recovery, IATA said. Even as the economy picks back, business travel may be slow to return comparatively.

“Corporate travel budgets are expected to be very constrained as the companies continue to be under financial pressure even as the economy improves”, IATA said. The group said surveys indicate that the link between Gross Domestic Product (GDP) growth and business travel has frayed, as video conferences makes the in-person meetings less necessary.

IATA’s revised timeline as such represents the culmination of a new wave of pessimism from airlines about the travel recovery. In the early months of the pandemic, most carriers had suggested a two to three-year time frame for recovery.

One exception, however, was Southwest CEO Grace Kelly who offered a five-year time frame in April 2020 and said “Based on history, I a recessionary environment, it is a long period for businesses”.

Aviation Industry analysts, too, were quick to predict long road to recovery. Travel demand fell out in Asia region in mid-to-late January and cratered in the rest of the world n mid-March whereas the analysts had envisioned only in January 2020 a V-shaped recovery if the impact spread to US and Europe markets but by April that hope had evaporated in the thin air.

“We are growing increasingly convinced that industry recovery to 2019 levels of output will be a multi-year affair” analyst Jamie Baker of JP Morgan had written in early April 2020.

Analyst Helane Becker of Cowen had in a lengthy report in first half of April 2020 had said “We expect it to take 2 to 5 years to recovery to 2019 levels, our working assumption is 2021 revenues will be back to 2016 levels. Unfortunately, return to work might not mean immediate return to air. It is highly likely that any recovery won’t start until the fourth quarter at the earliest and then continue slowly through 2021 and into 2022.

Other leading analysts including Jamie Baker of JP Morgan and Andrew Didora of Bank of America also continued to suggest a similar timeline pointing to 3-4-year targets in their recent research notes.

And now, the airlines themselves agree: The road back to “normal” won’t just be rough but also long one.

According to latest S&P Global Ratings, global air passenger traffic will decline more than previously estimated in 2020 as the pandemic of Corona Virus continues to ravage travel demand, raising pressure on the credit equity of the airline’s companies. The rating agency now expected global air traffic to sink by as much as 60 % to 70% year on year basis in 2020, much steeper than the decline of 50% to 55% projected earlier in May 2020. Air passenger traffic is forecast to tumble 30 % to 40 in 2021, compared with 2019, a revision from the prior estimate of a 25 % to 30 % drop.

S & P Global Ratings has said “The more negative global outlook increases on all airlines’ credit quality, and ratings are likely to remain under pressure until a vaccine or effective treatment is widely available or until airlines find a more a more widely accepted way to operate under a ‘new normal’. Most airlines rated by S&P Global Ratings have been hit with multiple notch downgrades since the start of the global pandemic. Nearly all rated airlines are also on negative outlook or CreditWatch outlook. Global air traffic faces a more gradual recovery path to pre-pandemic levels by 2024 with domestic travel rebounding at a faster pace than international travel due to more severe border restrictions by some countries.

The weakening global macroeconomic outlook will also impact both consumer and business spending power on all but essential travel, on revues side airline passenger yields to be weaker than pre-pandemic levels due to lower business travelers and ticket price discounts implemented by airlines to attract passengers, cost reductions, fleet right-sizing and liquidity preservation will be critical measures to partly counterbalance the depressed demand for air travel, the rating agency said.

IATA, the trade association for the world’s airlines, has noted that in the six months following 9/11 attacks, previously considered to be the most severe aviation crisis, air passenger traffic measured in revenue passenger kilometers declined by 12 %, far less than the 60%-70% forecasted for 2020. The rating agency report went on to dilate on recovery hindered by international travel restrictions and said the 2020 calendar year forecasts now include more or less actual results, during which global air passenger traffic was largely grounded for almost three months, industry-wise revenue passengerkilometer had fell 94% in April, 91 % in May and 87 % in June on yea on year basis, domestic travel proved more resilient and it is expected to recover more quickly than international travel, as countries have initially started to ease travel restrictions within their home markets, due to pent-up demand for visiting friends and relatives, although some recovery was expected in international travel in July and August but this was limited particularly to travel corridors where travel restrictions were generally lifted. However, there are numerous notable exceptions about some countries were adding back restrictions on certain countries with rising infection rates including quarantine rules or testing for the virus.

Intercontinental traffic was most likely to take some time to reopen given more severe border restrictions. The weakening global macroeconomic outlook will also impact both consumer and business spending power on all but essential travel. Furthermore, it has also been reported that some countries are set to cut down the number of short haul flights available for environmental reasons for example, where there is a reasonable alternative rail service) particularly where generous government packages have been awarded to legacy carriers. The international aviation analysts have opined that top four airlines are going to survive COVID-19 crisis no matter.

Airlines around the world are facing the most severe crisis in the aviation history. Some airlines have already collapsed and more are on their way to bankruptcy. However, there are some airlines much stronger headed extremely wealthy owing to wealthy owners and well purposed than others to survive the crisis.

Here is the list of top four airlines that are well-equipped to survive the pandemic crisis and keep flying. There are also some other airlines which may not make it if the crisis prolongs for years. Chinese Government Airlines: Air China, Chinese Eastern and Chinese Southern. These three Chinese government owned airlines combinedly transported close to 300 million passengers in 2019. They are national strategic assets to China and play a significant role in expanding the influence of China all over the world. The Chinese government has trillions of dollars in deployable capital and virtually unlimited options and reasons to keep these airlines flying. Even it takes several decades of operations at losses, the owners of these airlines are well-determined to keep them flying. QATAR AIRWAYS: Yet another Gulf carrier owned by the government of Qatar is a strategic asset to the country. During the blockade imposed by Qatar’s neighbors several years ago, Qatar Airways singlehandedly saved the country from starvation flying in essentials including milk and meat from Turkey and Iran as well as dairy cows from far off lands such as New Zealand.

Qatar Airways is owned by the Qatari government which has over $ 350 million in known assets worldwide. The airline is headed by a shrewd businessman Akbar Al Baker who flew aircraft even during the peak of pandemic crisis. A diverse fleet, superior product and access to virtually unlimited funds make Qatar Airways one of the most resilient airline to survive the crisis.

ETIHAD AIRWAYS: Etihad Airwavs is the flying carrier of the United Arab Amirates (UAE) owned by Abu Dhabi royal family. The airline has been in steep losses for the last several years partly to a series of bad investments made by the previous Chief Operating Officer (CEO).

Etihad Airways was a recovery oath until COVID-19 hit the air travel demand.

Abu Dhabi royal family owns Sovereign Wealth Fund and Investment Companies Abu Dhabi Investment Company and Mubadal which assets under managing with over one trillion dollars. Other significant assets include ADNOC the oil company owned by the Abu Dhabi government Etihad Airways virtually has access to any amount of money it needs. Etihad Airways is also a strategic asset to Abu Dhabi. Hence no matter, Etihad Airways will keep flying. Will it fly with empty seats for 10 years probably yes, if it makes sense to its owners?

SINGAPORE AIRLINE: Singapore Airline is owned by Singapore government in the form of majority of shares and is a vital link to the Asian business hub. Without a native airline to provide travel link to the country, the economy will collapse which made Singapore government to take a “whatever it takes” approach to support the airline. The government poured in over $ 8 billion in June 2020 to improve the liquidity of the airlines.

The absolute necessity of the airlines survival to its owners makes it an airline capable of suffering losses for decades but still have access to any amount of capital to continue its operations. Here are seven airlines of different countries around the world which are not on the list of airlines which will keep flying no matter what.

Emirates, US Carrier, Lufthansa, Air France, KLM, SAS and Alitalia.

Written by Muhammad Zahid Rifat

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