Dawning of a new day

It was difficult to imagine the scale of disruption the novel coronavirus now known as SARS-CoV-2 would unleash back in January when the outbreak was contained to Wuhan and was barely a blip on Europe’s radar.

Now, six months later, the question on everyone’s lips is when the crisis will end and how much of an impact it will have on travel.

The pandemic has been devastating for the global aviation industry, with Europe’s airlines in particular feeling the strain of travel restrictions, having been one of the first regions outside of Asia to begin shutting down operations on a large scale.

Assessing the impact
IATA has made several estimates at how much airline revenues will fall, with each figure increasingly larger and the latest coming in at US$314 billion. Alexandre de Juniac, IATA CEO, warned the situation could see many airlines collapse. “The industry’s outlook grows darker by the day,” he said in April.

The impact has already caused devastation among European airline staff; in the UK there are currently 18,000 jobs on the chopping block at British Airways, Ryanair and Virgin Atlantic, while SAS is planning to cut up to 5,000 full-time positions and Lufthansa Group has warned it might have to make 18,000 staff redundant.

The pandemic was the final straw for struggling regional carrier Flybe which ended all operations in March, while low-cost carrier Norwegian, which was one of the first in Europe to ground its entire fleet of aircraft, temporarily laid off 90 per cent of its workforce and later announced that its crew subsidiaries in Sweden and Denmark had filed for bankruptcy, putting 1,571 pilot and 3,134 cabin crew jobs at risk.

A helping hand
Unlike in the US, where the aviation industry was specifically targeted with a financial package as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, support for airlines and airports in Europe has been piecemeal.

While the European Parliament opened up billions of euros for member states to support their economies and temporarily relaxed state aid rules, industry-level measures have largely been reserved to regulatory issues.

The European Parliament has suspended airport slot rules – which say airlines must use at least 80 per cent of their allocated airport slots to be eligible to get the same slots in the next equivalent flying season – until 24 October.

Eurocontrol announced it would defer the payment of charges for air navigation services in the UK and Europe between February and May 2020. The organisation claimed the move would temporarily save airlines €1.1 billion, though they will eventually have to pay those fees anyway.

Financial support has been much less unified. European governments have taken a more bespoke approach, negotiating with carriers on a case-by-case basis. This is particularly true in the UK, where Chancellor Rishi Sunak at first said he would look at a support package for the industry but quickly changed tack to say the Treasury would only enter discussions with airlines after they had explored “all other options”.

This has led to widely publicised rumours that Virgin Atlantic is in talks with new investors after failing to negotiate a £500 million loan with the government. However, airlines have used the facilities made available, such as the coronavirus job retention scheme, which provides a grant to pay furloughed employees part of their wages until the end of October, and the Covid Corporate Financing Facility (CCFF), through which the likes of Easyjet and Wizz Air have secured hundreds of millions of pounds in emergency loans.

Elsewhere, a range of European airlines have been propped up with bailouts from national governments (see panel), but is it all enough?

IATA has lobbied for more countries to provide financial support with de Juniac saying: “Several governments have stepped up with new or expanded financial relief measures, but the situation remains critical…  without urgent relief, many airlines will not survive to lead the economic recovery.”

Airline consultant Richard Tams, founder and director at Tailwind Advisory, said that while he believes the carriers that need support are getting it, he is worried about the impact of the independent approaches to funding.

“I think it’s going to create an even less level playing field than there is currently because it will very much depend on the appetite of a European government as to at what point they will provide a bailout,” he says. “If other governments are not forthcoming, and even if most major carriers come out of this in one piece, they’re going to have very different balance sheets at the end of the process.”

Green commitments
Europe faces another, perhaps trickier challenge in providing financial backing for aviation – increasing pressure from green lobby groups to meet tough environmental commitments.

France made its support for Air France-KLM conditional on the airline promising to reduce domestic flights that compete with more efficient high-speed rail lines. It is thought Germany could try to include similar caveats in any deal with Lufthansa.

But GBTA chief executive Scott Solombrino is wary of such conditions. “We questioned whether this is really the time to be having that conversation when airlines are already struggling so much. Let’s make sure they can stay in business first, then we can talk about what they can do to become greener.”

Tams, on the other hand, says this could be exactly the right moment to strike. “If you regard this moment as the opportunity for the airline industry to reset itself, and if governments are having a say in that and providing money to support them, then that would make a lot of sense. Bailouts will come with conditions, as they always do, and there is an opportunity to reset environmental requirements for airlines.”

Nick Wyatt, head of R&A and travel and tourism at data and analytics company GlobalData, says attaching conditions to loans and bailouts could be a good way for governments to appease citizens footing the bill. “To make this more palatable to taxpayers, conditions around share buybacks, executive pay and environmental commitments should be worked into the conditions of funding.”

The aviation industry’s financial crisis does not look set to be an easy one to get out of, either. Most experts predict it could be 2023 before demand returns to 2019 levels, and even IATA has warned its airline members to be prepared for a slow recovery.

“Airlines will have liquidity issues well into the future and they’ll be very vulnerable. I think governments are going to have to be prepared to step in to help those businesses for quite a while,” says Tams.

A changed industry
What will this mean for the future of aviation? Tams believes Europe will emerge – perhaps not immediately – to a very different airline landscape to what it has experienced over the last two or three decades.

“I think there’s going to be fewer airlines with smaller networks and less frequency,” he says. “A lot of the borderline sustainable routes will disappear in the long term. And I think carriers will continue to store aircraft for quite a while until demand returns.”

Solombrino is in agreement. “This is something that goes back even before the outbreak began. Airlines should not use bailouts to cover up the sins of their past. This could be an opportunity to shake out the bad apples that maybe wouldn’t have survived even if the coronavirus hadn’t happened.”

But Tams believes the changes could extend right down to business models, particularly when it comes to low-cost airlines and the potential new standards for safe flying. “There’s a whole collection of measures that can be taken on top of social distancing; there’s testing, the use of masks, which is gaining more currency, particularly in Europe, as a potential deterrent [for spreading the disease]. But I think the low-cost carriers will find it very difficult to deliver that model and they’ll have to be everything but low cost, at least for a little while.”

Unified approach
The entire world will have to get used to a new way of flying, and several major industry players have called for a unified global approach to developing health and safety standards that will allow people to start travelling in a way that limits the spread of Covid-19. While airlines have already begun implementing their own changes, the European Union Aviation Safety Agency (EASA) published a set of guidelines in May in conjunction with the European Centre for Disease Prevention and Control (ECDC).

Some suggestions have been more popular than others, and there are a range of approaches to the idea of social distancing onboard. Several international airlines have suggested they will leave middle seats empty to facilitate this, but IATA – which has endorsed the EASA guidelines – has previously dismissed this particular idea and believes facemasks are the most viable method of preventing transmission during flights.

Similarly, Tams believes the ‘middle seat’ model would either lead to a dramatic increase in ticket prices or threaten the long-term viability of airlines because such a measure would drastically reduce their available capacity.

“I think you would have to leave at least one seat spare between each passenger and at least one row, which brings you down to well below 50 per cent load factors. I can’t see any other way that airlines will do that unless they have higher ticket prices because otherwise it’s going to be a further drain on their cash,” he explains.

According to IATA, the industry average load factor to break even on a flight is 77 per cent, which means leaving empty seats could lead to a 43-54 per cent increase in ticket prices depending on the market.

Now airlines and airports are having to work out not just how to get people back in the air, but how to do so with various countries implementing mandatory quarantine periods for incoming travellers, such as the UK and Spain.

Airlines UK’s chief executive Tim Alderslade wrote to British Prime Minister Boris Johnson opposing his proposal to implement self-isolation rules starting in June, saying: “People will simply choose not to travel to and from the UK... In short, passenger travel cannot restart.”

What it all means
There is a general consensus among industry experts that the world could see less business travel even as borders begin reopening. Tams says technology is already playing a big part in changing people’s attitudes towards virtual meetings. “I’m feeling more and more comfortable with video conferencing, and I think that’s going to have a long-term effect. I think that, combined with people’s nervousness, we will see a lot of non-essential travel get binned in the long term, if not permanently.”

On the topic of traveller confidence, Tams and Solombrino agree that airlines will need to adhere to a standard of cleanliness and health measures to entice people back onto planes.

“I know from conversations I’ve had with travel managers that this is something of great frustration, that they’re not getting any clarity [on measures suppliers are taking to protect travellers],” says Tams.

“They’re obviously getting a lot of pressure from the people they service within their companies, so this is definitely something that they’re after and that they’re going to be increasingly concerned about as moves start being made towards flying again.”

According to Solombrino, this could give rise to a shift in priorities for corporate travel programmes from cost to duty of care. “Corporations will want to do their own checks on their suppliers to find out what they’re doing to protect travellers,” Solombrino says. “Prices are going to have to go up to pay for this. It’s not going to be free.”

Regardless, it’s clear that the coronavirus pandemic is causing a sea change in the travel industry unlike any other major event that has come before and will redefine business travel as we know it.