Originally Posted by
Doors to Automatic
I retired from the industry last Summer after 25 years as an airline economist. I spent most of that time working with airports providing them with data and advice on attracting new routes and understanding the performance of their existing networks. Here is my take:
I think this crisis is by far the worst the industry has seen in its 70 year or so history. Short of a nuclear war, it is hard to imagine what other scenario would result in the shutdown of virtually the entire industry for an undetermined time but likely to be at least two months.
9/11 was a tremendous shock, yes, but this is on a completely different scale. Back in 2001 the timing, leading into the low season accelerated the demise of many inefficient carriers that had been teetering on the brink for some time. The low cost revolution was just beginning and the event seemed to prime the market further for the explosive growth which began the following year. By the Spring of 2002, with no further attacks, people started flying again in droves, demand stimulated by the low fares, especially in Europe and by 2003 the LC industry was booming.
Similarly people still flew during the global financial crash, and although demand (and capacity) dropped, airlines still had cash-flow and the efficient ones were able to ride the storm. Again, the worst hit in the Autumn of 2008 so the Summers of 2008 and 2009 were still able to generate some profit.
This is different. We don’t know when flying will begin again, and when it does, which will either be in June or July, the forward bookings for the lucrative Summer season will not be there. People will still be reluctant to travel because of the virus and many will be tightening their belts in the face of a recession whose depth or duration no one will know at that point. This is the time when airlines drive yield which gives them two months of exceptional profitability which essentially pays for the rest of the year. Without it next Winter will be brutally tough.
So we have a situation that is at least as big as 9/11 and the crash combined, with worst possible timing added in.
I think we will see capacity cuts of 30-40% but possibly higher this Summer. Next Winter will be dire and the recovery will only begin a year from now. I think most airlines will lose money until 2022.
My prediction is that it will be at least 2-3 years but possibly more before capacity returns to pre-virus levels. Much will depend on how quickly the recession is over and how deep it ends up being.
Yes, the industry will recover but it will be in years, not months.
I agree, a well reasoned argument, however with one missing viewpoint. When this dies down, be it mid-summer, or late autumn, many billions of people around the world will have been in isolation for months. The majority of those will probably still have jobs to go back to (due to various unprecedented stimulus packages from governments), will have been getting paid while sitting at home (the UK's 80% salary Coronavirus Job Retention Scheme being an example), and not have spent a penny on anything other than food and utilities. They'll be desperate to fly - whether to get some sun, or to visit family they haven't seen for months.
Add to that the fact that every major event has been postponed from the first half of 2020, but still planned to go ahead, the economic rebound will be huge. The Olympics, Formula 1, football, rugby, music events, business conferences, all taking place over the course of the following year.
Naturally it goes without saying that this is all conjecture - it could go either way, this is just the optimistic view of one pilot currently sitting on their couch.