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Is the airline sector in denial about its imminent collapse?

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Is the airline sector in denial about its imminent collapse?

Old 12th Sep 2020, 17:37
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Is the airline sector in denial about its imminent collapse?

The London Financial Times blog Alphaville has a piece in which Hubert Horan Home Page
suggests that decades' worth of industry consolidation have reduced any incentive for the sector to properly restructure itself in the face of 85 per cent declines in revenues due to coronavirus, and that the whole thing could collapse imminently.

Worth a read?

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Old 12th Sep 2020, 18:46
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Absolutely - the first 10 minutes alone are worth listening to.
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Old 12th Sep 2020, 19:20
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any chance you can post the text, I don't do click-bait requiring others access to my computer
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Old 12th Sep 2020, 19:42
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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.
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Old 12th Sep 2020, 19:44
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Great , need more doom and gloom
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Old 12th Sep 2020, 20:09
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Old 12th Sep 2020, 20:26
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No industry is going to survive an 85% decline in revenues, so hunkering down while hoping for a miracle is surely the best strategy.
Against that are reports that Chinese domestic travel is pretty much recovered, so the rebound is good if the virus is neutralized.
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Old 12th Sep 2020, 20:45
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People wonít travel without a vaccine. Itís quite simple. Itís game over for now. Facts are facts. Not even £1 fares will save them.
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Old 12th Sep 2020, 21:38
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Recent reports show that antibodies from Covid19 last only a month or two, if the vaccines being tested cannot do much better than this then having been vaccinated will be essentially worthless.
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Old 12th Sep 2020, 22:11
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Recent reports show that antibodies from Covid19 last only a month or two”

Do you have a link.?

My understating is that only a single individual has been identified who has suffered a second infection.
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Old 12th Sep 2020, 22:11
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People will want to travel - this is being demonstrated already, with significant recovery of the domestic China market.
Build some confidence with workable track/trace apps etc and at the very least, we should see domestic European recovery in the nearer term. If we donít move away from the doom and gloom narrative, then what hope is there for all our futures....?
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Old 12th Sep 2020, 22:48
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Yes, for sure. Economy, with the airline sector as a part of it, will collapse and disappear completely. We'll all move back into caves, not being able to afford homes, let alone travel, and will revert to a natural economy, trading a chicken for a bag of potatoes (or rather a few handfuls of potatoes as there will be nobody to manufacture bags).

All the doom and gloom aside, it's a game of agility, just as everything in life. The strong airlines will do whatever it takes and survive. The weak and poorly managed ones will collapse, if they already haven't. People want to travel even as we speak, although nowhere near in as great numbers as pre-COVID or post-vaccine. The greatest deal breaker for now is not the lurgy in itself but the shambolic, knee-jerk reactions of governments changing travel restrictions in the drop of a hat. And many countries have already been hit seriously badly by this. Economies relying on tourism suffer loads. And, at some point, they will have to liberalise their approach as the alternative means leaving a good third of their people starve or kill one another in the street for a bag of groceries. State aid cannot last forever, especially when there's no income from taxes.
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Old 12th Sep 2020, 23:09
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One thing is not well understood I think. If the airlines sector collapses= no movement of people= no tourism= MILLIONS of homeless= riots= etc etc
This is not driving a taxi which by the way relies on tourists mostly.
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Old 13th Sep 2020, 00:20
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Originally Posted by Contact Approach View Post
People wonít travel without a vaccine. Itís quite simple. Itís game over for now. Facts are facts. Not even £1 fares will save them.
Er, no, the reason people are not travelling is because, A. Some countries have closed their borders to non-resident travellers and B. 14 days quarrantine is just too much to take just for a business trip or even a family holiday.

But, yes I agree, its game over.
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Old 13th Sep 2020, 00:53
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Some of us are not allowed to travel more than 5km from home, let alone to another city or another country.

And this is in a liberal western democracy!
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Old 13th Sep 2020, 03:34
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Originally Posted by Feathers McGraw View Post
Recent reports show that antibodies from Covid19 last only a month or two, if the vaccines being tested cannot do much better than this then having been vaccinated will be essentially worthless.
Recent reports show a literal handful (I think three?) of people who have been shown to be infected a second time.

Vaccines are rarely 100% effective - but they don't need to be. 90% would be ample, even 40% would be helpful.
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Old 13th Sep 2020, 05:27
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It's a matter of when not if the industry will recover. The planes already exist, they're parked all over the world. They have no other use than to fly. (You could say the same of pilots). The world population is still increasing and we'll never lose our desire to travel. The only thing that could prevent a recovery is a viable alternative.
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Old 13th Sep 2020, 07:22
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Oz Domestic will bounce back fairly quickly. Once they have Melbourne under control, in 8-10 weeks they are looking at all borders open internally, thatís if Melbourne goes to plan. Essentially one big island closed for business from outsiders but those inside can move around.

NZ did that and itís Dom market was essentially producing pre covid numbers a week in.
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Old 13th Sep 2020, 08:05
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I don't really understand all the drama related to air travel and meeting in general.
Guys, it is a respiratory disease ; a tough one, a nasty one, the one you do not want to catch but the principle of infection is the same as with other respiratory viruses : you mainly need exchange of droplets. If EVERYBODY wears at least a surgical mask or above (forget about the others) when less than 1.5m from another person, there is no effin way the virus can be spread around - be it in an aircraft or in a meeting room. With that in my mind we can at least recover short-medium haul as it is obvious that flying 10-12 hours on a LH flight and changing 2-3 times your face mask is highly uncomfortable, but that's fine, we will leave that for the moment we have hopefully an effective vaccine.
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Old 13th Sep 2020, 09:09
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Nickler - you are correct about the virus - but that's not REALLY the problem - as TURIN said its the uncertainty - if I book a flight for travel in a month's time what are the chances that it will be cancelled, changed, or banned ? Pretty high I'm afraid - and getting your money back - ho, ho, ho

No Western Democracy can say " sure a few more people are going to die but it's worthwhile to save the airline industry" - the media and the voters would crucify them (oh for the days of Lee Kwan Yew and commonsense).

I'm (hopefully) travelling this week - but am I certain it'll be routine & trouble-free - no way. The Leisure market was built on cheap as possible mass transportation with 30 minute turnarounds - business on certainty, lots of choices and ability to vary your flights. Until there is a vaccine there won't be any certainty - and a lot of airlines are bleeding to death. When it does come back it won't be a great rush back - it will be tentative, slow and in a much reduced industry.

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