How the airline industry is preparing for changes in post-pandemic travel
Airlines and airports are having to reassess the size of operations in the face of a slow and difficult recovery that could take up to three years to return to pre-COVID-19 traffic levels.
Tina is standing in Paris Charles de Gaulle airport with her one-and-a-half year old daughter, on her way home to Kinshasa from London. “The flight was full, no seats between us and other people,” said the 30-year-old. “They didn’t take our temperature and that worried me.”
But that will soon change because ADP, which runs Charles de Gaulle, recently put in place temperature checks to scan passengers as the aviation industry rushes to restore confidence in travellers and restart a sector that has been decimated by the pandemic.
The airport shows the physical signs of what has quickly become a new normal. Social distance markers divide floor space in front of check-in desks, seats in departure lounges carry stickers warning people to sit apart, Perspex protects staff as they assign seats, and at every entrance masks and gels await those braving air travel.
“Just like after 9/11, travellers needed assurance that there are no weapons on-board. Now they will need to be reassured by airlines and airports that there are no viruses on board,” said Shashank Nigam, chief executive of SimpliFlying, an aviation consultancy.
Most carriers and airports insist on face masks for passengers and staff, as well as provide hand sanitisers and conduct deeper cabin cleaning. The industry has been keen to reassure passengers that air travel is safe.
Some airports such as Hong Kong have gone one stage further with COVID-19 tests for arrivals. In future, immunity passports could be included as temporary biosecurity measures.
“Your health certificate is going to be as important as your visa,” said Andrew Charlton, an aviation consultant.
Flights will look different: Some airlines will offer no food, or at best pre-packaged items, and magazines have been removed. Ryanair’s customers will be banned from queueing for the toilet. Some carriers, such as Air France, have also introduced temperature checks before flights.
It comes as many airlines are hoping for a recovery to start in July, bringing to an end a three-month shutdown that has left carriers with virtually no revenues and tens of thousands of job cuts.
“It’s pretty obvious it’s a cataclysmic situation” for the whole industry, Tim Clark, president of Emirates Airline, told the FT.
“In my lifetime I haven’t seen this . . . But at the times we went through the global financial crisis, gulf wars, the 1998 economic collapse in the east . . . at each of those times I thought ‘aw crikey this is going to be a bad one, what are we going to do?’ But we got through it and made money afterwards,” he said.
“Your health certificate is going to be as important as your visa.” – Andrew Charlton
RESTARTING STALLED ENGINES
But the path to kick-start flying again already looks difficult.
The European Commission published a plan in May that envisages a co-ordinated gradual lifting of border restrictions, with countries and regions opening up safe corridors where epidemiological conditions allow.
However, both the UK and Spain have proposed 14-day quarantines on arriving travellers, a move that in effect shuts down international travel. Other countries, such as Australia and New Zealand, are setting up so-called safe-travel corridors between regions that have contained the virus. One has also been set up in the Baltics.
Many airline executives are worried. “It’s clear from everything we’ve seen, the period of recovery is going to take much longer than anything we’ve witnessed before,” Willie Walsh, chief executive of IAG, which owns BA, told analysts in May. “We hope going forward we’ll see a co-ordinated response but, to be honest, that’s more of a hope than an expectation.”
On top of the health measures, many carriers believe lower fares will stimulate demand. Jozsef Varadi, chief executive at Wizz Air, a low-cost airline, thinks demand is already there – the carrier started flying again to some locations from the start of May. Its planes are 70 to 75 per cent full. “It’s better than most people would have expected,” he said.
Charlton said: “In the short term, we’re likely to see airlines flooding the market with cheap tickets to get people over their fears. But once we get over the sugar rush, I think it’s inevitable that prices will go up because there will be fewer airlines.” Airlines will also have large debts to repay and will need to shore up their balance sheets, according to analysts.
While many carriers have said they will try to ensure social distancing in the early months when aircraft are unlikely to be full, this has already caused problems for some airlines.
US carriers United and American Airlines have come under fire after passengers tweeted pictures of packed planes. United had emailed to say it would automatically block middle seats. It later admitted it could not guarantee passengers will be seated next to empty seats on all flights.
Budget carrier Frontier Airlines tried asking customers to pay at least US$39 (S$54) to sit next to an empty seat, only to drop the fee days later after criticism for crisis profiteering.
Global trade association Iata said any move for social distancing on aircraft would “fundamentally shift” the economics by slashing the maximum load factor to 62 per cent – well below the average break-even load factor of 77 per cent. This would ultimately lead to a rise in ticket prices, with Iata estimating prices could increase by up to 54 per cent compared with 2019, just to cover costs.
THE TROUBLE WITH AIRPORTS
Airports face a similar quandary. While social distancing is possible in some areas, ACI Europe, the trade body, has warned that applying strict distancing at all operational processes would limit the capacity of airports to 20-40 per cent.
Queues at security would also become painfully longer. For example, an aircraft with 189 seats would result in a queue of at least 380m for a single security lane.
Easa guidelines said when physical distancing of 1.5m was not possible, because of infrastructure or operational constraints, carriers and airport operators should implement additional risk-mitigation measures such as hand hygiene and respiratory etiquette.
While social distancing could be introduced at airport shops and restaurants, this will have a big impact on revenues. Olivier Jankovec, director-general of ACI Europe, acknowledged that this would be the price to pay in the short term.
“Anything is better than where we are today, where all revenues have disappeared. Passenger traffic is down by 98 per cent for six weeks in a row. I think what is important is that we can restart operations under a new normal.”
But even after flying restarts, uncertainty is still looming over the long-term structure of the global market. Airlines and airports are having to reassess the size of operations in the face of a slow and difficult recovery that could take up to three years to return to pre-COVID-19 traffic levels. BA has announced plans to cut up to 30 per cent of its 42,000-strong workforce, while Ryanair is looking at axing about 15 per cent.
Geoffrey Weston, partner at consultancy Bain & Company, thinks a “danger zone” lies ahead when airlines look to ramp up capacity to about two-thirds of previous levels. “At the moment in many countries, there’s government support for employees. When you start flying again, and you lose some of that government support . . . and you are now incurring your cash costs of flying on very low load factors, it might be worse than keeping your planes on the ground.”
Airline chiefs are also concerned over the demand for business travel, one of the biggest profit generators.
Research by Citi estimates that corporate travel could be impaired by about 25 per cent versus 2019 levels, driven by the proliferation of virtual meetings and varying quarantining and border rules for the foreseeable future. This will make it a “struggle for a lot of airlines that carry international and business travellers . . . to make money,” said Mark Manduca, aviation analyst at Citi.
Corporates are already showing signs of reassessing their policies.
Jean-Sebastien Jacques, chief executive of mining group Rio Tinto, said its spending on long-haul could fall by as much as 75 per cent over six months. “We used to have a big budget for international travel between continents and I am sure that is going to shrink very quickly.”
SimpliFlying’s Nigam believes airlines may need to think creatively about boosting profits – from introducing subscription services to larger premium-economy cabins, which will allow people to social-distance while paying a little more than economy fares.
“There will be some impact . . . if everyone's enjoying being on Zoom videos,” Ed Bastian, chief executive of Delta Air Lines, told investors in April. “I personally don’t, but maybe some people do. Maybe that will change the nature of travel a bit. But business is done face-to-face. People enjoy experiences. All the things we’ve seen . . . actually has, in my opinion, caused people to miss travel more than ever before in this lockdown phase. And we’ll get back.”
“All the things we’ve seen . . . actually has, in my opinion, caused people to miss travel more than ever before in this lockdown phase. And we’ll get back.” – Ed Bastian
By Tanya Powley in London, David Keohane in Paris and Claire Bushey in Chicago; additional reporting by Neil Hume and Peggy Hollinger in London © 2020 The Financial Times