Airline Industry - How to reboot ?

[racedo]

The full implications of the Coronavirus impact on the Airline industry have not yet been felt.

In March the passenger drop off will be considerable but this will continue likely to the whole of Q2 / Q3 as people will fear flying. Assumming the worst is over by June, it is long shot I know then realistically it will be Q4 and beyond before passenge numbers start to recover but they will still be well off last year.

In 2001, post 9/11, Michael O'Leary at Ryanair bet the farm on dopping fares to 1p / 1c to get people back flying. This probably one of the biggest calls in the industry then along with approaching Boeing and getting a mega deal on aircraft. Initially ridiculed it overcame objections because people voted with their wallets. The beefed up security and also a viewpoint that anybody attempting to hijack a plane would die quickly at passengers hands gave people confidence.

Sadly 2021 will be different, increased beefed up or even beefcake security will not allay peoples fears. However people will still vote with the wallets.

Airlines will need to introduce down line cleaning of aircraft, this will impact tight turnaround times but 35 minutes v 25 minutes with a full v empty plane and the economics work. This basically a rub down off all seats and areas with disinfectant wipes. This is about confidence plus assisting in cleaning.

Of course this may allay some of the hygiene fears but it will need a coordinated multi Govt responses to get people travelling again.

Big question is whether a coordinated EU/UK/US etc approach would be the elimination of APD on all flights for a 9 month period from Jan 1 to Sept 30 or even earlier if required.

This gives airlines a chance to recover and while Govt finances would take a hit, they will be doing so anyway and either there is a kick start to the industry / tourism industry or we face the fact that 2019 was the last great travel year until 2025 or later. Bearing in mind that tourism is an easy employer and mega revenue earner that easily contributes more than APD, the issue is do nothing and wait 5 years or plan to act quickly and reap the benefits.

It may seem a bit early to be thinking of a recovery plan especially when we not yet at the bottom but if you don't think or plan to do something then by the time you need to do it has already passed.

No doubt the green and environmental lobby will go nuts but difficult to persuade people that the planet needs saving when they cannot put food on the table.

[Jetscream 32]

Planning for the recovery should indeed be starting now, however, the industry has never experienced and has no rule book for this event and due to air travel being a global social and business driver there are two massive hurdles to overcome.

1. Airlines the world over irrespective of how big their war chest is - Ryanair included - are going to be incurring massive losses, whilst some will say, yes this is fine we can survive... if you begin to desktop plan this event going on until 2021 before we see 'Confidence' in air travel regained - how many airlines will still be here? The supply chain as we all know is incredibly complex and it involves many actors for an aircraft movement that ALL want to be paid - if there is no revenue and no ability to pay the liabilities it all starts to unravel VERY quickly..
2. That debt they are incurring now is going to be a big number by the time the confidence is back and I think therefore that the airlines will struggle to offer £1 fares to stimulate demand due to the length of time it will take to educate the world that no matter where you are flying you are not going to get quarantined/stuck or anything else - Further, the global debt will affect every financial instrument in existence and when lessors/banks do not get their lease/loan payments - all the while the airlines are flying around racking up more debt - something has to give!

In this industry, it will be survival of the fittest, the most agile and most innovative, plus believe it or not, NOW is the time to set-up a new airline but with a pivot change in how air travel has happened to date. But I'm keeping the details of that close to my chest, but do believe a paradigm shift in how airlines are established/run/operated and delivered is going to happen. :)

[racedo]

The debt issue will not go away BUT the debt will be to financial institutions who will be struggling themselves to survive. Foreclosing on lots of airlines will give you lots of planes at very low valuations with many banks etc going bust. Parking the debt for a year still gives you problems but you live to fight another day and bearing in mind Govts will under write it then think parking the debt for a while is feasible.

The £1 fares rebooted demand, it was only for 4-6 months but it got people flying again. Govts will have to choose, reboot flying because of the massive benefit that tourism brings in terms of jobs and tax revenue or isolation. Isolation will bring stagnation at a time when countrys will need everything hence why I think APD etc will stop for 6-9 months to rebuild the industry.

Who knows Boeing might even have fixed the Max by then.

[LGS6753]

But APD is a tax levied by governments individually. There is no standard amount or structure.
I suspect that if things get really bad, a more likely scenario would be some kind of moratorium on interest payments for a period of time.

[Rivet Joint]

Its a shame that air travel seems to be the main target in the cross hairs of the envirionMentalists. Growth stimulates investment, and aircraft are getting cleaner and quieter all the time. Electric aircraft are already being tested. However, if the market becomes stagnant, companies simply won't be investing in technology to make it more sustainable. So the green lot are shooting themselves in the foot, but then that's their specialty. When a child from Sweden can come over to the UK and get thousands of parents to pull their kids out of school you know the lunatics are running the asylum.

In the meantime, I am surprised regional travel is not being retrenched to a select few strategic airports. Of the top of my head (and London airports excluded) EXT, BRS, SOU, BHX, LPL, MAN LBA, NCL, GLA, EDI, ABZ could be the hubs for their respective locations. The difficulty of course is that the other airports are independently owned and you can't blame the operators for trying to grow their businesses. Those airports do seem to offer unsustainable deals to entice operators though, which is distorting the market. We have seen that the second the sweeteners are taken away, the airlines move away. In the meantime, the more viable neighboring airport has a big whole in its operations as a result, which takes time to recover from.

[DaveReidUK]

In the meantime, I am surprised regional travel is not being retrenched to a select few strategic airports. Of the top of my head (and London airports excluded) EXT, BRS, SOU, BHX, LPL, MAN, LBA, NCL, GLA, EDI, ABZ could be the hubs for their respective locations.

Here's a helpful guide to what hub airports are and how they work:

_4nspUFLcE8

[inOban]

There is the question as to whether the GDP of the world can continue to grow... It's recently been calculated that sustainable agriculture could only feed half the world's population.
But getting back to the hub question. Most fuel is used in take off and landing. It's therefore important to use direct flights wherever possible, even if this means adjusting travel plans to the days when your local airport has a direct flight.

[SealinkBF]

Trump has suspended all travel from mainland Europe.

Worried for Alitalia and Norwegian....

[PAXboy]

The wider problem is that there is going to be a world wide recession that is expected to be worse than 2008. This is not caused by CV19, as all the components of looming recession have been obvious for a couple of years. Not least because, after 2008, no significant changes were made to the underlying structures of the financial system. Whilst central banks made sure that banks had more capital, for the most part, the bankers reassured their friends in govt that all would be well. But it was clear that it would not be - because govts spent the last years printing money (Quantative Easing was a great name) and with low interest rates to boot. Consequently, govts and companies racked up debt as it was cheap.

Many were waiting to see what the trigger of the next recession would be and, as it turns out, it's CV19. You will see Trump and others blaming this recession on CV19 but the roots of this recession were planted ten years ago. Personally, I started my financial preparations for this recession two years ago.

So the airlines will not just have to recover from a 9/11 kind of problem but a 2008 problem - but one that is expected to be far worse. Incidentally, if you think the airlines are in trouble - the Cruise lines are up the creek.

[racedo]

The wider problem is that there is going to be a world wide recession that is expected to be worse than 2008. This is not caused by CV19, as all the components of looming recession have been obvious for a couple of years. Not least because, after 2008, no significant changes were made to the underlying structures of the financial system. Whilst central banks made sure that banks had more capital, for the most part, the bankers reassured their friends in govt that all would be well. But it was clear that it would not be - because govts spent the last years printing money (Quantative Easing was a great name) and with low interest rates to boot. Consequently, govts and companies racked up debt as it was cheap.

Many were waiting to see what the trigger of the next recession would be and, as it turns out, it's CV19. You will see Trump and others blaming this recession on CV19 but the roots of this recession were planted ten years ago. Personally, I started my financial preparations for this recession two years ago.

So the airlines will not just have to recover from a 9/11 kind of problem but a 2008 problem - but one that is expected to be far worse. Incidentally, if you think the airlines are in trouble - the Cruise lines are up the creek.

The problem with a Ponzi scheme is no one can afford it to fail.

Digressing slightly but know of one well known branded food company, Sales 1/2 Billion, profit £20 million, sold in last year for £1 but it is private equity and owes £600 million as each private equity owner has borrowed more and more. Completely unsustainable and will never repay its debt.

The only ultimate way out of this is Debt forgiveness but that doesn't work as someone has to bear the cost and people assume they will get it again.

We could be into a depression like the 30's and we know how that ended. Ultimately a need to quickly restart world trade / travel has to occur with the big powers taking a what is best for the people in the country viewpoint rather than what is best for the profits of big banks / natural resources companies in looking at the world.

Not a world Govt but stopping the propping up dictators with billions who spent it in Paris / London / New York who then meet the people they destroyed in their tyranny who escaped to live there.

[PAXboy]

Agreed racedo. I have been watching out for a Depression since about 2003. With each passing year it became apparent that the Depression was going to be far larger than the 1930s. When 2008 happened, I hoped that it would lead to the Depression - but govts just printed money (as they usually do). So we continued to rack up debt. NOW the problem is sovereign debt and the question is:- Are countrys too big to fail?

At some point this has to shake out and I think the CV19 will be the trigger. Not the cause by a very long measure, eventhough Trump and others will pretend that it was.

[Rivet Joint]

Here's a helpful guide to what hub airports are and how they work:

_4nspUFLcE8

Thanks but I think you are putting too much inference on one word. My point was that each respective area of the country should focus their air travel needs on the airports I mentioned. Of course this would never happen, but it would stabalise regional air travel which is clearly on life support at the moment. It makes no sense for neighboring airports to be competing for the very small amount of business that is left.

[LGS6753]

The more serious this crisis becomes, and the longer it lasts, the more likely it is that the aviation industry will look very different in the early twenties from the way it looked in 2019. Numerous weak airlines will, I believe, go to the wall - the first being FlyBe. The stronger ones will only survive if they have very strong balance sheets, or supportive Governments and financial backers. It's too early to say yet how travellers will react - will they learn to love "staycations", or will they still yearn for warmer climes? Will the Green lobby use the crisis as an opportunity to push their anti-aviation agenda? Will teleconferencing become more important in corporate life? Will we end up with many fewer commercial airports as the weaker ones lose scarce traffic?
I am not suggesting I know the answers, but I think those are the fundamental questions that the title of this thread poses.

[Jetscream 32]

The more serious this crisis becomes, and the longer it lasts, the more likely it is that the aviation industry will look very different in the early twenties from the way it looked in 2019. Numerous weak airlines will, I believe, go to the wall - the first being FlyBe. The stronger ones will only survive if they have very strong balance sheets, or supportive Governments and financial backers. It's too early to say yet how travellers will react - will they learn to love "staycations", or will they still yearn for warmer climes? Will the Green lobby use the crisis as an opportunity to push their anti-aviation agenda? Will teleconferencing become more important in corporate life? Will we end up with many fewer commercial airports as the weaker ones lose scarce traffic?
I am not suggesting I know the answers, but I think those are the fundamental questions that the title of this thread poses.

Like - and hopefully will stimulate conversation 👍

[SWBKCB]

OK - the case for evolution over revolution!
The more serious this crisis becomes, and the longer it lasts, the more likely it is that the aviation industry will look very different in the early twenties from the way it looked in 2019. Numerous weak airlines will, I believe, go to the wall - the first being FlyBe. The stronger ones will only survive if they have very strong balance sheets, or supportive Governments and financial backers.
So just what's been going on for years - but as industries become more monolithic, cracks appear for more nimble start ups to exploit - the cycle continues.

It's too early to say yet how travellers will react - will they learn to love "staycations", or will they still yearn for warmer climes?
I know where my money is - following the sun!

Will the Green lobby use the crisis as an opportunity to push their anti-aviation agenda? Will teleconferencing become more important in corporate life?
Yes to both points, but only marginally - not in a game changing way

Will we end up with many fewer commercial airports as the weaker ones lose scarce traffic?
Maybe one or two at most - certainly not 'many fewer'

[FFMAN]

There's nothing more infectious than fear. This is not the Black Death. The common cold is a virus (several actually).
CV19 will be the Y2K 'Millenium Bug' of the current generation - remember 'experts fear that planes will fall out the sky' ???

The average age of people dying 'of CV19' in Italy is 80 - as my own elderley mother often says 'we all have to die of something'.
Let's say 90% of the population get this virus - nearly everybody will recover. When they do, they will be immune to it. Once people have had it they will no longer be paranoid about getting it (they will instead bore the ar$e off everyone for the following x weeks with a [nose] blow by blow account).

There's a lot of doom-mongering going on and trapped behind one's screen and reading the latest 'end of the world' predictions only darkens the mood. I flew yesterday - the plane was nearly full. Peope are still flying mainly because they want to / have to. That will not change.
Many people think that their trip to the sun is as much a spending priority as food. When all this nonsense blows over people will refocus. There will also be quite some pent-up business demand from deferred trips and postponed meetings. When I'm allowed to, I have a flurry of business trips that I need to make.

What does surprise me is that airlines are not really offering any bargain fares to keep 'some' cash flowing through the tills. I fancied taking Mrs FFM on a last minute weekend break next week but the fares were not attractive enough to bother.

[Rivet Joint]

Its a shame that air travel seems to be the main target in the cross hairs of the envirionMentalists. Growth stimulates investment, and aircraft are getting cleaner and quieter all the time. Electric aircraft are already being tested. However, if the market becomes stagnant, companies simply won't be investing in technology to make it more sustainable. So the green lot are shooting themselves in the foot, but then that's their specialty. When a child from Sweden can come over to the UK and get thousands of parents to pull their kids out of school you know the lunatics are running the asylum.

In the meantime, I am surprised regional travel is not being retrenched to a select few strategic airports. Of the top of my head (and London airports excluded) EXT, BRS, SOU, BHX, LPL, MAN LBA, NCL, GLA, EDI, ABZ could be the hubs for their respective locations. The difficulty of course is that the other airports are independently owned and you can't blame the operators for trying to grow their businesses. Those airports do seem to offer unsustainable deals to entice operators though, which is distorting the market. We have seen that the second the sweeteners are taken away, the airlines move away. In the meantime, the more viable neighboring airport has a big whole in its operations as a result, which takes time to recover from.

Stumbled across the below article which provides a nice little summary of the current state of play for regional air travel in this country.

I picked out the following quote which backs up what i said in my earlier post: -

"(UK) has committed to net zero emissions by 2050 but this will not happen without the right policy levers from Government in encouraging new technologies and innovation like sustainable aviation fuels or electric flight.”

I guess it will be too much to expect the green mentalists to employ a bit of this logic though?

It also seems total madness that it was ever deemed fair for APD to be charged on both the outward and return leg of domestic flights. Does anyone know if the other EU countries have this policy?

https://www.flightglobal.com/strategy/uk-chancellor-sets-spring-2020-timing-for-apd-reform-consultation/137196.article