Higher fares and longer queues beyond COVID-19

Asia-Pacific aviation’s recovery from the catastrophic COVID-19 pandemic could well last into 2023 if the most cautious of the industry’s forecasts prove true. The rehabilitation will be just as painful as the pandemic for industry sectors from lessors to manufacturers who are convinced over-extended carriers in the region will fatally falter. Associate editor and chief correspondent, Tom Ballantyne, reports.

May 1st 2020

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Returning the region’s airline fleets to the sky after travel restrictions are lifted may be the easy part for the industry post COVID-19. Read More » Convincing travellers to fly on those airlines will be quite another matter, research conducted by the International Air Transport Association (IATA) in April revealed.

Its survey of 11 of the world’s largest domestic aviation markets, including the Asia-Pacific, found about 40% of people aimed to wait for at least six months after lockdowns were lifted before flying again. Another 47% would wait at least a month or two. Only 14% said they would get straight back on board.

Fear of the virus is not the only reason for the sentiments of respondents. Approximately 69% of those surveyed indicated they could delay returning to the air until their personal financial situation stabilizes, a pattern that may particularly apply to business travel, given the impact of border shutdowns and severe losses on the global economy.

“The economic conditions will still be damaging passenger confidence in the third quarter,” said IATA chief economist, Brian Pearce. “The economic environment we are expecting in the next six months is not conducive to any substantial return to air travel, for financial reasons.”

A majority of airline chiefs believe recovery will take much longer than a half year. Among them are Emirates Airline president, Sir Tim Clark, and Etihad Airways Group CEO, Tony Douglas.

In a video conference hosted by the UAE-U.S. Business Council last month Clark and Douglas warned it could take to 2023 for passenger demand to recover to pre-crisis levels. They believed 85% of the world’s airlines were at risk of insolvency and in danger of going bankrupt before year-end unless they had state support.

At the turn of the month, Qantas Group CEO, Alan Joyce, said, “Australia has done an amazing job in flattening the curve and we are optimistic domestic travel will start returning earlier than first thought, but we clearly won’t be back to pre-coronavirus levels anytime soon. “With the possible exception of New Zealand, international travel demand could take years to return to what it was.

“We are expecting demand recovery to be gradual and it will be some time before total demand reaches pre-crisis levels,” he said.

Thailand’s prime minister, Prayuth Chan-ocha, has announced the government would support a “last chance” rescue package for Thai Airways International that would involve job losses and a radical restructuring of the carrier group.

“This is an enterprise we have to rehabilitate. It is the last chance to manage the issue so it does not get worse,” he said early this month.

U.S. global consultancy, ICF International, said last month its most recent survey among senior and mid-level executives worldwide, completed in early April, indicated greater scrutiny will be placed on the health and sanitary conditions of individual countries that could impact air service and passenger demand.

“As to how long business activity will remain depressed, nearly 50% of respondents expected the slowdown to last three to four months and others up to one year. Equally, nearly half of respondents expected the recovery take up to two years. Just over one-third of respondents anticipate activity will return to pre-crisis levels within a year,” the consultancy said.

ICF itself predicted recovery will be significantly longer than the respondents’ expectations, including as much as 60% of the respondents in Asia. It’s analysts believe there will be a return to pre-COVID-19 levels of business activity in less than 12 months. “This is related to the relative success many Far East countries have had in containing the pandemic, with countries like South Korea and China slowly returning to work,” it said.

These mixed predictions were underscored by IATA’s latest traffic statistics, for March, which showed passenger demand had plunged 52.9% compared with a year earlier which was the largest decline in air traffic in recent history.

“March was a disastrous month for aviation. Airlines progressively felt the growing impact of COVID-19 related border closings and restrictions on mobility, including in domestic markets,” said IATA director general and CEO, Alexandre de Juniac.

“Demand was at the same level it was in 2006, but we have the fleets and employees for double that. Worse, we know the situation has deteriorated even more in April. Most signs point to a slow recovery.”

March international passenger demand shrank 55.8% compared with March 2019, much worse than the 10.3% year-to-year decline in February. Asia-Pacific airlines were hardest hit, seeing March traffic drop 65.5% compared with 12 months earlier and more than double the 30.7% decline in February.

Chinese airlines continued to see the steepest declines, with domestic demand down 65.5% in March against March 2019. But the numbers were an improvement over the 85% year-to-year decline in February after the country began restarting domestic air travel. Japan’s airlines recorded a 55.8% year-over-year decline in domestic RPKs, despite not implementing any widespread lockdown.

To address passenger concerns about contracting COVID-19 onboard, IATA is supporting the wearing of “face coverings” for passengers and crew inflight “as a critical part of a layered approach to biosecurity to be implemented temporarily when people return to travelling by air”.

“Evidence suggests the risk of transmission on board aircraft is low. Mask-wearing by passengers and crew will reduce the already low risk, while avoiding the dramatic cost increase to air travel onboard social distancing measures would bring,” it said.

From January to March this year, IATA said an informal survey it conducted identified three episodes of suspected inflight transmission of COVID-19, all from passengers to crew and no incidences of passenger to passenger transmission.

A more detailed IATA study of 1,100 passengers confirmed with COVID-19 after travelling, also conducted from January to March this year, revealed no secondary transmissions among the more than 100,000 travelers on the flights. Two possible cases were diagnosed among crew members.

Economic impact of social distancing on airfares* Calls for social distancing measures on aircraft would fundamentally shift the economics of aviation by slashing the maximum load factor to 62%, well below the average industry breakeven load factor of 77%, the International Air Transport Association has calculated. With fewer seats to sell, unit costs would rise sharply. Compared with 2019, airfares would need to increase by 43% to 54% depending on the region if they were to cover costs. Eliminating the middle seat would mean the era of affordable travel will come to an end, IATA predicts. “On the other hand, if airlines cannot recoup the costs [of empty middle seats] from higher fares, airlines will go bust. Neither is a good option when the world will need strong connectivity to help kick-start the recovery from COVID-19’s economic devastation,” IATA said. * Table provided by the International Air Transport Association. May 2020.

For airlines and airports in particular, there is a solid basis to the fear a resumption of operation will lead to losses rather than a return to viability because of talk of social distancing or the empty middle seat requirement.

“Either you [airlines] fly at the same price as before and you lose an enormous amount of money, so it’s impossible for any airline to fly, or you increase the ticket price by at least 50% and then you are able to fly with a minimum profit. So if social distancing is imposed, the era of cheap travel is over,” IATA’s de Juniac said, and added affordable aviation is now at least partly in the hands of governments.

Expectations of these new regulations are not simply speculation. The Civil Aviation Authority of Thailand (CAAT) told airlines when they resumed domestic flights on May 1 they must adopt social distancing and disease transmission prevention by leaving empty seats in each row in cabins, require passengers to wear face masks and not serve food and drinks.

India’s Central Industrial Security Force (CISF) has suggested to the country’s aviation ministry “permanent” new measures for flights should require passengers to report before departure wearing protective masks and gloves and carrying 100ml sanitizers. The submission said flying with a seat vacant between every two people could be the “new normal” for air travelers and expressed interest in station “sanitizing tunnels” at airport entrances to clear passengers and employees for entry to airports.

In April, Emirates Airline became the first carrier to conduct trials for in-site COVID-19 testing on passengers, using properly attired staff to collect blood samples in the group Check-in area of Dubai International Airport. The blood samples results were available in 10 minutes.

“We are working on plans to scale up testing capabilities and extend testing to other flights,’ said the airline’s chief operating officer, Adel Al Redha.

In recognition of the challenge this imposes on airlines IATA has began work on lobbying worldwide to coordinate introduction of new regulations. It is holding regional summits with governments, industry partners and health authorities for the restart of the air transport industry.

“We think it should probably commence with domestic then immediately be followed by something like regional, continental and then move to intercontinental. That’s the approach we have. It is still to be discussed and negotiated with governments,” said de Juniac. “We are advocating similar measures globally to avoid a patchwork of complex and different measures.”

The Governing Council of the International Civil Aviation Organization (ICAO) has established a COVID-19 Aviation Recovery Task Force to recommend strategic priorities and policies for States and industry operators. The first outcomes of its deliberations are expected by the end of this month.

Complicating matters is no one can forecast when the pandemic will end. Already, the relaxation of lockdowns and other measures that were to limit the spread of COVID-19 is happening at an uneven pace around the world. Some countries, believing they have the coronavirus under control, are easing rules while other nations are standing fast, fearing any relaxation of preventative measures could spark a second or third wave of the virus.

Airports are severely affected by the crisis. Airports Council International (ACI) Asia-Pacific has released preliminary traffic data from 18 airports in major aviation markets in region and in the Middle East that showed a year-over-year passenger traffic decline of 95% to mid-April.

Initial signals of recovery were reported from China, with a gradual resumption of its domestic traffic, and to a lesser extent, from South Korea. Like airlines, airports want a coordinated approach between governments, regulators, health authorities and aviation stakeholders to implement sustainable and effective health measures.

“Airports have been forced to make difficult operational decisions, including full or partial closure of terminals and runways and a reduction in frontline employees,” said ACI Asia-Pacific director general, Stefano Baronci.

“Returning to full operational status will not happen overnight. With some signals of stabilization and efforts towards recovery cautiously starting, governments and regulators, along with the national health authorities, need to develop a coordinated approach so airports can prepare the appropriate infrastructure, facilities and processes in support of health measures, he said.

“The freedom of movement will have to co-exist with the virus, until a vaccine against COVID-19 is available at a global scale.”

IATA outs governments shirking support for their airlines The International Air Transport Association (IATA) has named several countries in the Asia-Pacific it believed were not doing enough to support their struggling airlines and aviation sectors. “The situation is deteriorating,” said the airline body’s regional vice president Asia-Pacific, Conrad Clifford. “Airlines are in survival mode. They face a liquidity crisis with a US$61 billion cash burn in the second quarter. “We have seen the first airline casualty in the region. There will be more if governments do not step in urgently to ensure airlines have sufficient cash flow to tide them over this period.” Clifford identified India, Indonesia, Japan, Malaysia, the Philippines, the Republic of Korea, Sri Lanka and Thailand as priority countries that needed to take action. IATA is calling for a combination of direct financial backing, loans, loan guarantees, support from the corporate bond market and tax relief. “Providing support for airlines has a broader economic implication. Jobs across many sectors will be impacted if airlines do not survive the COVID-19 crisis,” he said. “Every airline job supports another 24 in the travel and tourism value chain. In the Asia-Pacific, 11.2 million jobs are at risk, including those dependent on the aviation industry, such as travel and tourism,” Clifford said.  “Airlines continue to perform an important role currently with the transport of essential goods, including medical supplies, and the repatriation of thousands of people stranded around the world by travel restrictions. “And after the COVID-19 pandemic is contained, governments will need airlines to support the economic recovery, connect manufacturing hubs and support tourism. That’s why they need to act now – and urgently – before it is too late.” Earlier in April, IATA released updated analysis showing the COVID-19 crisis will result in a global airline passenger revenue decline of US$314 billion in 2020, a 55% fall compared with 2019. The Asia-Pacific will experience the largest revenue drop of $113 billion in 2020 compared with last year. The new figures topped a forecast of $88 billion in airline losses in the region released in March.