Hubert Horan is an
independent aviation and transport consultant with more than 40 years’ worth of experience in the sector. He came to prominence as an early but prescient
critic of Uber’s business model, arguing it would be impossible for the ride-hailing juggernaut to ever recoup the billions of dollars of losses it had incurred during its expansion phase without becoming a global taxi monopoly. This was due to the fundamental nature of how the taxi market operates. Horan has frequently expressed amazement at the market’s ongoing willingness to support Uber’s multi-billion valuation, given the company’s failure to ever turn a profit and dire outlook.
In recent months, however, Horan has turned his attention back to the aviation sector, which he says is in the grips of a similar sort of suspended reality. He puts this down in part to
duopolistic and monopolistic structures (driven by decades’
worth of industry consolidation) that have reduced any incentive for the sector to properly restructure itself in the face of 85 per cent declines in revenues due to coronavirus.
In his mind, the unexpected hit of coronavirus would have been bad enough in a competitive landscape, but in the current framework the sector is even less capable of absorbing the fallout due its too-big-to fail nature. That ensures a future of government bailouts, not-so-stealth nationalisation and rising ticket prices, with ever poorer accessibility and route choices.
As he
noted in May:
The large number of competitors that were critical to all prior industry restructurings are gone. In the US, $43 billion in desperately needed cash was stripped via extractive stock buybacks and by inflated executive compensation for the managers who believed that that the industry would never face another serious downturn.
Barring the miraculously rapid development of an effective vaccine, no international airline companies are viable going concerns. Bankruptcy-type processes can work when a small percentage of capacity faces liquidity problems but cannot possibly deal with a situation where worldwide demand has totally evaporated.
Airline capacity and employment worldwide will need to shrink far more than anyone had thought possible. This will mean effective nationalization of the industry (including many suppliers), and the establishment of reorganization processes that convince the taxpayers (who will fund it) that the huge costs and sacrifices will be shared equitably.
FT Alphaville spoke with Horan to get more insight into how he sees things unfolding for the industry. His message, sadly, is not an optimistic one. Nor is he convinced that the pain has been properly priced in by investors.
Sorry, can't attach the audio. But well worth listening to (quite long around 45 minutes).
However did say:
Estimates 90% of normality will take 6 years with significant bankruptcies along the way.
Near term bankruptcies - Airlines highly dependent on Int'l Travel most likely (US Delta/American/United) but not ruling out domestic carriers (US Southwest).
European Flag Carriers economics driven by Long Haul - very risky to bankruptcy.