Covid-19 will test aviation industry's powers of recovery

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By Shane McGinley

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Industry experts in the aviation sector are predicting billions of dollars in losses, airlines going bust and airports closing as a result of the coronavirus outbreak, but there are some silver linings, such as increased cargo demand and maybe even a few cheap jets coming on to the market

While many airlines have grounded their aircraft in a bid to curtail the spread of Covid-19, they are seeing a surge in demand for cargo services.

“The world doesn’t function without an airline industry.” That was the hair-raising assessment of Tim Coombs, a London-based aviation consultant with more than 30 years’ experience, when I ask him over the phone how things are looking.

I then point out to him that, just minutes earlier, Emirates Airline, one of the world’s largest airlines, had announced it was grounding all its passenger flights for two weeks. Like many around the region, we were both shocked and it took a few seconds to take in the magnitude of the news.

Even during the Gulf Wars, the Dubai-based carrier had manged to keep flying. So, will this Covid-19 pandemic finally achieve what many of the Greta Thunbergs around the world have been claiming, and that the world can indeed function quite fine without planes flying overhead?

Dubai’s Emirates airline, along with all carriers in the UAE, was forced to ground its fleet as part of Covid-19 measures

IATA – the International Air Transport Association – certainly seems pessimistic. It predicts that global airlines need $200bn of state support to survive and warns that if nothing is done, only about 30 of the nearly 700 airlines around the world will still be in existence in a few months.

Coombs, who is a lecturer at City, University of London and also teaches in Dubai, believes the Covid-19 outbreak is indeed “the biggest challenge to have impacted the industry by far”. Despite this, he is conflicted when it comes to the issue of government bailouts for the sector.

“There are some companies, which, because they are nationally owned, are going to benefit from bailouts from governments, [then] there are privately-owned companies which are, by and large, probably going to fail.”

While he believes Emirates is one of these global crown jewels and it is “unthinkable” that Dubai would be able to function without the carrier, he believes not all airlines are so deserving, such as low-cost carrier Norwegian Air, which was given $537m aid by the Oslo government.

“Airlines, by their very nature, have a lot of flexible costs in what they’re doing, if they don’t fly”

“I mean they are an airline in financial trouble anyway. And it’s not clear to me that they had a business case which was viable… The fact that Alitalia, which again is an airline which should have failed quite a long time ago, has now potentially been nationalised by the Italian government, I do not approve of those, because in some ways, it’s sort of throwing good money after bad.”

Race to the bottom

Saj Ahmad, chief analyst at London-based Strategic Aero Research, believes that IATA’s numbers are even too optimistic. “I don’t think this is something that’s going to run into billions, it’s going to run into trillions. I really don’t see that we’ve even reached the bottom of this yet,” he says.

With the US carriers asking President Donald Trump for $50bn in government aid to help them survive, the Gulf carriers must be laughing, as it wasn’t long ago the three biggest American airlines were accusing their rivals in the UAE and Qatar of benefiting from government funding of around $40bn.

“I guess the only saving grace is that all airlines across the world now that are reaching out for government assistance cannot accuse others of being state funded, because, regardless of what kind of caveats or restrictions or imposition, the rules are put in place for financial handout, everybody will be getting some form of state aid,” he points out.

Increased demand for emergency supplies has benefited cargo operators

The strange thing to note is that while many would have assumed that no one at all is planning to fly, this is not the case. Matthew Sliedrecht, marketing director at online travel portal Cleartrip, told us on March 22 that, at the time, before UAE airlines grounded their passenger planes, international bookings to and from the Middle East were running at about 40 percent what they were at the same time last year.

A record-breaking Eid?

Bizarrely, Sliedrecht reports that prices have also remained steady for May this year as people are still booking, anticipating that they will be able to begin flying again when the travel bans are lifted by regional governments.

“People are still booking. When you look at prices from the 22nd of May, they have not come down. That marks the Eid holiday. So, our prediction is that, as [governments] start easing up the period between 2 and 4 weeks that we’ve been given indications of, from a forecast perspective, we may see this Eid as one of the largest travel seasons we’ve seen in history.

“Obviously, we can’t predict the future, but it will be the first time people will have been able to leave the country. Come the end of April, if the restrictions and measures are down by almost every country… people will want to be seeing their families again,” he says.

However, Mohammed Al Husary, executive president and owner of UAS International Trip Support, a Dubai-based company which offers global support for heads of state, VVIPs and business jet operators when they fly, is not so optimistic about the outlook.

“To be honest with you, up until the beginning of March, the situation has been really normal, seemed like last year, because the shut down and ban on travel had not taken wide effect,” he recalls.

“Come the end of April, if the restrictions and measures are down… people will want to be seeing their families again”

“But, as of the 15th of March we are noticing a bit of a decline in the commercial and the VIP operations. The decline we’re talking about is not as huge as people might expect, because up until this moment, there are still some evacuation flights happening… So, I think the biggest impact is yet to materialise. I think this will materialise probably towards the beginning of April.”

Cargo lifeline

While airlines are crying out for bailouts, there is one silver lining: that cargo is seeing a surge in demand, mainly due to increased demand for essential goods.

“It’s gone up so far by 20 percent approximately. But it’s expected also to increase even further as the cargo needs to be moved now more frequently,” Al Husary says.

Riyadh-based Nicholas Cole, CEO of global airport operator DAA International, agrees, pointing out that Covid-19 had resulted in demand for medical supplies.

“It is important to keep airports open. We are in conversations with a number of airlines across our group who still wish to continue flying with the bottom of the plane full. I’ll give you one example, some of the Covid-19 tests coming out of China can be flown in hours.

“If they were to travel by road, or by boat, it would take so much longer. So, I think it forces the world to think about what aviation does for connectivity, not just for people, but also for, you know, goods that are time sensitive.

Ali Ahmed Alnaqbi Founding and Executive Chairman of industry body the Middle East and North Africa Business Aviation Association (MEBAA)

“I’d suggest, currently, that, unfortunately, we’ll have a lot of time sensitive goods, such as [Covid-19] tests and potential vaccines. These kinds of things will be incredibly time sensitive. So I suggest that airlines and airports, although they may be closed to passengers, many airports, ourselves included, are starting to think about what else can we do to keep the facilities moving and play our part in the recovery of Covid-19.”

While the focus is on airlines, Cole says airports are also facing huge challenges. “It is a bit more difficult for airports than it is airlines,” he points out. “Airlines, by their very nature, have a lot of flexible costs in what they’re doing if they don’t fly… An airport is an immovable asset that you have to keep running, you have to keep maintaining. Yes, there are some variable costs in an airport, but they tend to be much lower than they would be in, let’s say, a ground handler or in an airline.”

Tim Coombs, Managing Director at Aviation Economics

For this reason, many experts are predicting that some airports, especially smaller ones, may not survive the current crisis.

“We’re going to have a smaller global market because we will have lost quite a lot of airlines,” Coombs says.

“Potentially we’re going to lose quite a few smaller regional airports, which relied on those independent carriers which might not survive. There will be a thinning out of those regional airports, going forward, which will have less demand.”

Jetsetting for less

Within the business jet sector, Ali Ahmed Alnaqbi, founding and executive chairman of industry body the Middle East and North Africa Business Aviation Association (MEBAA), says there is a real fear that some private jet operators may also go under.

“I think the biggest impact is yet to materialise. I think this will materialise probably towards the beginning of April”

“Honestly speaking, sadly yes, you will not be able to continue without income. It all depends where you are geographically. A lot of governments have created a supportive budget for the private sector and the government sector, this is going to help” he says.

However, for those high-net-worth-individuals (HNWIs) who have spare cash, the current crisis could see a glut of private jets coming on to the market and there may be bargains to be had in the second-hand market, which the Middle East was traditionally not a big region for. “Yes, I think that’s going to happen,” Alnaqbi predicts.

With less airlines, less passengers and less planes, it doesn’t spell good news for the manufacturers, notably major rivals Airbus and Boeing. “It is an absolute disaster for them both,” says Ahmad, with Boeing already suffering from the grounding of the 737 Max aircraft since last year, and Airbus having to admit it was set to retire production of the epic A380 superjumbo.

“I would not be surprised to see Airbus or Boeing at some point, perhaps before mid-year, absolutely ceasing production, where it could be for a quarter, maybe a little bit longer than that, maybe three or four months… The reality is the airlines are just not in a position to be investing if they can’t fly them,” he adds.

Temperature please?

But while the 9/11 attacks got us used to increased security checks, taking off our shoes at airports and not bringing liquids or laptops on planes, will Covid-19 bring a whole new reality, and fear, to flying?

Mohammed Al Husary, executive president, UAS International Trip Support

“I would not be surprised if we get to a situation where passengers have to have a certificate from the doctor to certify that they are fit to fly. We could have a situation where people are checked before they even cross into security. I would not be surprised if, in the background, these kinds of discussions are happening,” says Ahmad.

When people’s need to self-isolate ends and life begins to get back to relative normal, will the aviation industry be forever changed?

“I’m not entirely sure human behaviour is going to change in terms of our desire to continue to fly,” Coombs says emphatically.

“Before coronavirus, we had people wanting to do the right thing in terms of climate change, and the pressure that might have put on the aviation industry, but, on a global scale, it wasn’t showing much impact. The industry has always recovered.” Fingers crossed he’s right.

How will Covid-19 impact the Middle East aviation sector?

The aviation industry in the Gulf region is bracing for a $7bn financial hit and the loss of up to nearly 347,000 jobs due to disruptions caused by the coronavirus. The International Air Transport Association (IATA) said a total of 16,000 passenger flights have been cancelled in the Middle East since the end of January as the outbreak of coronavirus has left the regional aviation industry reeling.

Bahrain: The disruptions could result in 1.1 million loss in passenger volumes and $204m loss in revenue, with  about 5,100 jobs at risk.

Kuwait: The disruptions could result in 2.9 million loss in passenger volumes, $547m loss in base revenues and over 19,800 jobs at risk.

Oman: The disruptions could result in 2 million loss in passenger volumes and $328m loss in base revenues and put about 36,700 jobs at risk.

Saudi Arabia: The disruptions could result in 15.7 million loss in passenger volumes and $3.1bn loss in base revenues and put at risk over 140,300 jobs in the country.

UAE: The disruptions could result in 13.6 million loss in passenger volumes and $2.8bn loss in base revenues and put at risk over 163,000 jobs.

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