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How does an industry that’s barely 100 years old handle a once-in-a-century pandemic? Airline and aviation industry leaders at the inaugural Skift Aviation Forum Thursday had a few ideas.
Earlier this year, airlines were on track to have one of their best years ever, building on several years of record-setting profits. And then the pandemic struck. Now, after several months of teetering on the edge, airlines have more clarity on their near-term future, and the picture isn’t pretty, although executives expressed hope that they see a way through.
Leisure and Family-visit travel will lead the recovery
Over the summer, after the pandemic’s first wave started to recede in Europe and the Americas, people started flying again, taking holidays and visiting friends and relatives. This gave airlines some hope that a recovery was beginning, but unfortunately, the latest data from the International Air Transport Association suggest the recovery wasn’t durable as countries around the world grapple with second- and third-wave infections. Still, airlines are chasing what traffic they can, and most of it is leisure and family-visit travel.
Southwest Airlines CEO Gary Kelly noted the airline has added several new destinations since the pandemic began, almost all in beach, mountain, or other leisure destinations. The carrier will resume operating flights to Hawaii now that the state has eased some of its restrictive quarantine protocols. But he struck a note of caution: “I don’t think things will be back to normal at all by the end of next year,” Kelly said.
Spirit Airlines CEO Ted Christie echoed these sentiments and added that the low-cost-carrier’s network to such places as Haiti and the Dominican Republic help it capture more of the family-visit traffic than network carriers. United has been rejiggering its network to add more flights to Florida and other leisure destinations and away from business-travel markets. “There is a lot of pent up demand,” Chief Commercial Officer Andrew Nocella said at the Skift Aviation Forum. “People want to go see their relatives, they want to go to the beach, they want to have some fun, they want to get out of their bedrooms. So we know it’s out there.”
This trend is international. Virgin Atlantic Airways is adding flights to Pakistan to capitalize on family-visit traffic, Chief Commercial Officer Juha Jarvinen said at the Forum. And Air India General Manager-Commercial Strategy and Planning added that the mainly intercontinental carrier is capitalizing on the Indian diaspora’s pent-up demand for family-visit travel.
… But Business Travel lags
Before the pandemic, airlines like United, Air France, and American Airlines made much of their profits from premium international travel. That market has all but evaporated. Air France CEO Anne Rigail said the loss of business travel is forcing the airline to cut costs and “transform its business.” The company is highlighting its Transavia low-cost brand, which competes directly with carriers like Ryanair in Europe on short-haul, primarily leisure flights. In addition, Air France is permanently retiring some of its larger aircraft, like the Airbus A380, to rebuild its fleet around more efficient, smaller aircraft.
American Airlines is more bullish. “There’s pent-up demand for business travel,” President Robert Isom said at the forum. “That’s what we hear from our corporate clients.” But when these travelers will return to flying — when companies will start sending employees back out on the road — remains an open question.
Southwest’s Kelly thinks it will be about five years. What I’m most concerned with is business travel, and business travel in every recession I’ve been through took five years to recover to the pre-recession level,” he said. “My own opinion is that means that’s the floor in terms of what we should expect with this recession, and it could be much longer than that for all the reasons we know.”
cargo, cargo, cargo
One of the few ways airlines have made money during the pandemic is by ferrying goods around the world. This is more of a money-spinner for international airlines, as most air cargo is carried in the bellies of large aircraft on international routes, and not on smaller domestic aircraft, such as those operated by Southwest and Spirit. In fact, cargo traffic, fueled by demand for personal protective equipment and growing e-commerce as people trapped at home increasingly shop online, led both Korean Air and Asiana to report profits recently.
Virgin Atlantic’s Jariven said cargo, in fact, is driving its network decisions. The airline has made money on flights that are only 20 percent full of passengers but 100 percent full of cargo. “About 60 percent of our fleet is flying now, largely due to cargo,” he said. Cities like New York, Hong Kong, and Shanghai can be profitable now for the airline thanks to high demand for freight.
But the current “euphoria” for cargo may not last past the pandemic, noted Air Lease Corporation Executive Chairman Steven Udvar-Hazy during the Skift Aviation Forum. Some airlines are rushing to add freighters to their fleets, but he predicts they will retrain their focus on passenger aircraft with excellent cargo-carrying capacity, like the Boeing 777-300ER and the Airbus A350.
Soon, airlines will be called on to transport the world’s most valuable freight, the vaccine for Covid-19. This raises significant questions on whether airlines can not only keep the vaccines secure but transport them at the below-zero temperatures the treatments require. To that end, Emirates Chief Operating Officer Adel Al Redha during a session with Skift columnist Colin Nagy confirmed that the carrier’s facilities at Dubai International Airport are both secure and capable of maintaining the “cold chain.”
Is a vaccine a silver bullet? And the dangers of ‘health theater’
Airlines are pinning much of their hope for a meaningful recovery on a Covid-19 vaccine, but not so fast, two infectious disease specialists said during the Skift Aviation Forum. First, manufacturing, distributing, and administering enough doses of the vaccine to inoculate the population against the disease, warned Dr. Angela Rasmussen, a virologist at Georgetown University and Dr. Saskia Popescu, an infectious-disease specialist at George Mason University.
Air travel possibly is safe, the two scientists said, citing recent studies on infection rates on aircraft. But Rasmussen said the airport experience alarmed her. Airports have not enforced social distancing and mask compliance, especially when passengers are eating and drinking. “People need to be thinking of the entire travel experience and not just on the plane,” she said.
Airlines like United and American are experimenting with pre-departure testing for passengers to avoid quarantines in places like Hawaii. But this is akin to “health theater,” Popescu said. “Diagnostic testing is not meant for this,” she said. “Testing is not a strategy.” And testing 72 hours before departure, as some airlines are allowing, is almost useless, as a passenger could contract the virus in the time between the test being administered and departure.
The future will be greener
The pandemic has forced airlines to retire hundreds of older, less fuel-efficient aircraft that they should have retired years ago, but did not because travel demand was so high. Now that demand is a fraction of what it was in 2019, they’re parking these jets.
But that isn’t enough. Many countries, including France, made a commitment to sustainability a requirement for airlines taking pandemic aid. “There were conditions coming with the support of the French government, and one of the conditions is to reduce our environmental footprint a lot quicker, especially on the domestic front,” said Air France’s Rigail. The carrier has refocused its short-haul network away from flights of less than two hours’ duration. In addition, Air France is working with the French railways to increase connections between flights and trains, or what transport nerds call “intermodality.” We are adding a lot of actions to make it a first priority of the airline,” she said.
Airports are getting into the game as well. “A focus on energy efficiency will be critical,” said Robert Horton, vice president for sustainability and environmental affairs at Dallas-Ft. Worth International Airport. “Airports need to make sure we have a clean, reliable energy supply.”
But the environmental movement may choke off air travel’s return, warns Air Lease Corp.’s Udvar-Hazy. “I think the pendulum is swinging too far,” he added. “I think it is a trend that will accelerate…and will have a negative impact on the airline business.”
“When I was a young boy, and I would see the contrails of a jet flying at 35,000 feet, I was captured by the romance of aviation, the way it brings people together, helped us globalize the world, and has transformed the economies of so many countries,” he said. “Now when these…politicians in the green parties in Western and Northern Europe look up, they see all of these airplanes are destroying our civilization. How ridiculous.”