Aviation’s worst year is far from over

It all started off so well. Many airlines were coming off a record year of travel in 2019, oil prices had been stable, and the world just loved traveling. Emirates, one of the fastest-growing airlines of the last few years, recorded its most profitable quarter ever, from January to March 2020 with its fleet of giant Airbus A380s spanning the globe via the Dubai ‘mega-hub’. Qantas, which likes to call itself the ‘world’s oldest airline’ (a disputed title) was also experiencing the latest in a series of profitable years. It was poised to launch non-stop flights from Sydney, Australia to London and New York in celebration of its 100th year of continuous operations. The manufacturer’s order books were bursting and even if many airlines were not profitable, everyone in the airline eco-system was enjoying record revenues.

The only fly in the ointment was the continued grounding of Boeing’s 737 MAX, which was keeping hundreds of expensive aircraft on the ground; but even that was on track to be remedied. The US Federal Aviation Administration’s (FAA) was close to approving the remedies that Boeing proposed and it was on track to be re-certified sometime in the coming year.

The virus that changed our world

A mystery virus that had been troubling a little-known province in China, suddenly broke loose and changed the world in a few weeks. The trillion-dollar travel industry was among the world’s worst hit sectors, as a ‘health warning’ became a ‘pandemic’ and panic gripped the globe. People were afraid to travel for fear of catching a disease no one knew much about, and governments facing the threat of an overwhelmed medical system began to close borders with very little warning.

The first Daily FT column to address the pandemic, titled Unknown unknowns’, was published on March 17, 2020, less than a week after the World Health Organization (WHO) officially declared COVID-19 a pandemic. The predictions made in that piece have proved to be largely correct — if a little optimistic. The scale and length of the downturn has defied expectation. As predicted, international travel came to a near standstill. Many countries that were able to do so isolated themselves. Qantas and Air New Zealand were forced to ground their entire international fleets and lay off crews. Virgin Australia entered voluntary bankruptcy. Even mighty Emirates was forced to cease flying the majority of its A380s, although the cargo fleet has helped keep revenue trickling in.

As predicted, domestic travel continued to some extent. In countries where the virus has been largely controlled or eliminated (such as China, South Korea, Taiwan and New Zealand) domestic travel has almost returned to 2019 levels.Internal flights in the USA (the world’s largest market pre-2020) were recovering well, but a second surge of the virus has since seen a sharp drop in travel toward the end of the year. Australia also had to contend with a sudden hiccup in domestic travel just before the Christmas holidays. An unexpected spike in infections around Sydney (Australia’s largest city), prompted the imposition of travel restrictions by state governments and the closure of internal borders again. Western Australia’s state government has kept the border between it and the rest of the country closed for most of 2019. It is now closed again as I write this piece, meaning that WA has all but seceded from the commonwealth.

The good news — Boeing’s 737MAX returns to service

Consequent to the FAA’s approval of Boeing’s remedies for the MAX, the aircraft are being gradually returned to service. American Airlines, which had 73 of the type idling for many months, flew their first 737 MAX passenger flights on December 29.

The world’s first airline to use the MAX for revenue services was Brazilian low-cost carrier GOL (Gol Linhas Aéreas), which has been operating the type since December 9, (see our cover picture of the launch). The airline reported that more than 100 flights had been completed before Christmas, with 100% dispatch reliability and widespread passenger acceptance. Passengers had the right to refuse to travel on the MAX if they so desired, but only seven of the 16,000-plus travelers exercised that option.

More than 30 separate national regulatory authorities oversee the operation of MAX aircraft all over the world. Of these, many including Transport Canada (54 aircraft with Air Canada and Westjet) and Europe’s EASA (70+ with various airlines) expect the type to be flying again by end January 2021. China, which has one of the world’s larger MAX fleets with 97 units, has yet to set a timeline for re-certification of the aircraft.

Cargo was the big winner

Airfreight was always a growing business, with around half of all cargo carried in the belly holds of passenger aircraft in 2019. With the sudden cessation of international flying, a huge deficit in the available cargo capacity led to an escalation of yields. Those few airlines with large freighter fleets (see my column of 27 April 2020) have seen continuous use of their cargo aircraft, and that has been one of the few bright spots on their balance sheets, with freight rates often tripling recently.

With dedicated freighters in high demand, many airlines have removed seats on passenger airplanes as a makeshift means of adding cargo capacity. The demand for lift is so high that even a few venerable Boeing 747-200 freighters built in the 1980s have been taken out of storage and pressed into use. Though woefully fuel-inefficient and maintenance-intensive, those old ‘birds’ are now enjoying a brief resurgence. The non-availability of flight engineers (older aircraft require three crew members, including one dedicated flight engineer) is ironically one of the limiting factors, coupled with the lack of simulators to train crews.

As the world now scrambles to buy and deploy billions of doses of the recently developed vaccines, freight rates are again rising to levels that were unimaginable only a year ago.

Will the vaccine be a ‘magic bullet’

The travel industry is hoping and praying that successful deployment of vaccines will bring an end to their misery. There are several hurdles to be cleared though, before it will be possible for unrestricted international travel to resume.

The task of manufacturing, distributing and storing the delicate vaccines is a logistical challenge. Successfully administering the vaccines (some require two doses spaced a specified number of days apart) and tracking the recipients to a level that is traceable and acceptable to other governments, is a task of unimaginable complexity. To add to the ‘unknowns’ the effectiveness of the vaccines are yet to be seen and how long immunity will last is not established. Whether the current vaccine will prove effective against the latest, extremely virulent mutation, (known as B.1.1.7) is yet another unknown.

Many countries, including Australia, intend to keep quarantining inbound travelers until the entire population of the host country has been inoculated against COVID-19 and the vaccine’s efficacy is established with complete certainty.

Some smaller and wealthier countries, such as Israel, Singapore and the UAE, have already purchased sufficient doses for their entire populations. Once these are administered, their borders can be opened, which for airlines based in those states would be a significant milestone. Middle-income countries that cannot afford to pre-purchase the vaccine will likely have to wait until supplies are available, further postponing a recovery of tourism.

A slow and painful recovery

The best prediction of the world’s aviation think tanks, is that a slow recovery will begin during the course of 2021. The distribution and administration of the vaccines are likely to take many months, with many hurdles encountered on the way. Global airline traffic is not expected to return to 2019 levels until the summer of 2023 at the earliest. Yields, the key to profitable operations, are not forecast to improve until 2024 at the earliest. This means a bleak two-to-three-year period of continued losses are in store for the world’s beleaguered airline industry.

 

 

 

 

 

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