1
Introduction
Along with other sectors of the economy, air traffic is vulnerable to external factors,
such as oil crises, natural disasters, armed conflicts, terrorist attacks, economic
recessions and disease outbreaks. These outside influences seem to have a more severe
and more rapid impact on air traffic numbers as sudden increases in flight cancellations,
aircraft groundings, travel bans and border closures are quickly felt in lower load
factors and yields for airlines, while airports lose non- aeronautical revenues (Voltes-Dorta
and Pagliari, 2012). Before Covid-19, the most important disease outbreak in terms
of impact on air traffic was SARS in 2003. According to IATA (IATA, 2020a), in May
2003, at the height of the SARS outbreak, monthly revenue passenger kilometres (RPKs)
of Asia-Pacific airlines were 35% lower than their pre-crisis levels. Covid-19 has
gone well beyond these levels and is currently taking the aviation industry into uncharted
territory. As of 24 March 2020, 98% of global passenger revenues were accounted for
by air transport markets with severe restrictions (i.e., quarantine for arriving passengers,
partial travel bans, and border closures), many airlines have been brought to a complete
stop and, to make matters worse, the provisionally-observed recovery pattern for Covid-19
is turning out to be slower than the short-sharp V-shaped pattern observed in 2003.
(Fig. 1
).
Fig. 1
SARS vs Covid-19 outbreak available seat kilometres (ASKs) evolution in the Chinese
domestic market.
Fig. 1
Source: analysis based on OAG Schedules.
The different response is mainly due to the fact that the Covid-19 crisis has quickly
spread globally. Different international industry organisations have tried to come
up with forecasts of its impact. Airports Council International (ACI) predicted that
Covid-19 can wipe out two-fifths of passenger traffic and half of airport revenues
in 2020 (ACI, 2020). The International Civil Aviation Organization (ICAO) estimates
that during the first half of 2020, compared to their original forecast, there will
be an overall reduction of 47% to 58% of seats offered by airlines, 503 to 607 million
passengers, and a potential loss of gross of operating revenues of airlines of 112
to 135 billion USD (ICAO, 2020). The International Air Transport Association (IATA)
predicts a very slow growth for the second half of 2020, expressed in an overall reduction
of 48% in terms of Revenue-Passenger-Kilometres (RPKs) and 55% in passenger revenues
for 2020. Consultancy firms have come up with other recovery forecasts. For example,
the Boston Consulting Group defined five demand recovery scenarios, with times to
recovery between 3 months and 18 months (BCG, 2020). Though aviation industry forecasts
have in normal circumstances been viewed with some scepticism (De Neufville and Odoni,
2003), the speed and breadth of the impact of Covid-19 has created a new level of
uncertainty concerning the future. The current paper provides a base upon which to
build some more certainty into our expectations of the future of the industry.
Early aviation-themed academic contributions related to the effect of Covid-19 have
focused on the links between aviation networks and global virus propagation (e.g.,
Wu et al., 2020; Boldog et al., 2020; Adiga et al., 2020). These approaches mirror
the research done by Bowen and Laroe (2006) on the link between air transport and
the spread of the SARS virus in 2003. For example, Chinazzi (2020) conclude that travel
restrictions are more effective if combined with social distancing policies to curb
local transmission. Nikolaou and Dimitriou (2020) identify the critical airports for
controlling global infectious disease outbreaks in Europe by integrating an epidemiological
model with the structure of airline networks. Others incorporated air travel data
in efforts to estimate the outbreak size in a given country, for example, Tuite et
al. (2020) for Italy and Zhuang et al. (2020) for Iran.
Our paper does not deal with the epidemiological/transport aspects of the current
pandemic but, instead we focus on estimates of the medium- and long-term impacts of
Covid-19 as seen within the aviation industry itself. We do that by discussing the
results of a series of in-depth interviews with senior industry executives. These
interviews were conducted during the first weeks of the crisis, as the governments
all over the world started to implement widespread lockdown measures. It was a period
of extreme uncertainty, hence our analysis does not deal with specific recovery scenarios.
Instead, the focus is placed on identifying structural aspects of the aviation industry
that will shape its medium- and long-term response to sudden changes in passenger
and cargo traffic. These structural elements incorporate supply, demand, regulation
and business ethics. Understanding these structural dimensions, via comments of survey
respondents and though links to recent research, can provide more confidence in efforts
to predict the future context. Since the views of senior stakeholders might change
as the crisis evolves, a record of their early assessments represents a valuable reference
for future analysis.
The remainder of this paper is structured as follows: in Section 2 we describe our
methodology to carry out the interviews. Section 3 provides an overall picture of
the major traffic impacts of Covid-19 during the first four months of 2020. Section
4 discusses the interview results in relation to the supply-side on the industry.
Section 5 examines the long-term changes of in demand and passenger behaviour. Section
6 deals with regulatory aspects. Section 7 reviews the major uncertainties identified
by the experts. Section 8 discusses some of the opportunities identified by our interviewees
to transform the aviation industry and discusses some ethical aspects. Finally, Section
9 presents the conclusions.
2
Methodology
The empirical work is based on three main sources of information. Firstly, flight
supply data was obtained from the Schedules dataset by OAG (Official Airline Guide),
which provides information on a diverse number of variables for each scheduled flight,
including origin and destination airport, time of departure and arrival, number of
seats supplied, aircraft type, and day of operation. We include all global capacity
data for the first four months of 2020 (January to April) in order to calculate year-on-year
changes with respect to the equivalent dates in 2019. We acknowledge the limitations
of using capacity data in this analysis, given the fact that, for different reasons,
many airlines were flying empty aircraft or with very low load factors before grounding
most of their fleet. Another limitation could have been the accuracy of OAG data sets
given the sudden unprecedented market changes. However, this potential weakness has
been recognized by the data provider, which has taken several steps to ensure that
the schedules dataset is up to date.1
Air freight data is from CLIVE Data Services and covers the first three months of
2020. CLIVE consolidates data shared by international airlines and it is widely regarded
as the provider with the earliest up-to-date figures for global air freight markets.
The dataset contains information on chargeable weight, air freight capacity and dynamic
load factors.
Thirdly, 16 senior aviation executives were interviewed between 19 March 2020 and
17 April 2020. Although the interviews were selective, we aimed for a diverse cohort
(Table 1
). Regarding the airline sector, we interviewed managers of a major network carrier,
a large low-cost carrier, a regional airline, an airline association, a pilot union,
an aviation insurance broker and an aircraft lessor. For the airport sector, we interviewed
managers of a large hub airport, a medium size airport and a regional airport, as
well as of an airport investing firm. Finally, we also interviewed senior leaders
from other organisations, namely consultancies and a data company. We acknowledge
a geographical bias, as most of the interviewees belong to European organisations.
This is partially mitigated by the global perspective of the interviewees, the global
reach of some of their companies, and the global scope of the subject at hand. The
names are not be revealed in order to encourage free expression of opinions and to
ensure their anonymity (Taylor and Bogdan, 1986). Semi-structured interviews were
deemed the most appropriate method as they allow the respondents to introduce new,
unpredictable issues and the interviewer to follow up topics more flexibly. Semi-structured
interviewing was conversation-like and, focussed on three main aspects, the long-term
consequences on the supply-side, the potential long-term changes in passenger behaviour,
and the possible long-term regulatory impacts.
Table 1
List of interviewees.
Table 1
Airline industry
Position
Airline insurance broker
Country Director
Aircraft lessor
Vice President
Country airline association
President
European regional airline
CEO
Major European low-cost carrier
C-level
Airline pilot union
Head of union
Major European network carrier
Former VP for Cargo
Airport industry
Position
Major European hub airport
Head of strategy
Medium size European airport with 10–20 million passengers
Director, CEO
Regional European airport with 200-500 K passengers
Deputy Managing Director
Airport investor
Senior Manager
Others
Position
Large aviation services consultancy
Head of Sustainability
Business travel agency association
Country Director
Large Asian aviation consultancy
CEO
Boutique Consultancy Firm from Latin America
CEO
Data Company
Managing Director
3
Impact of Covid-19 on global traffic
One of the characteristics of the Covid-19 outbreak has been the quick geographical
spread of the virus (Lai et al., 2020), with an initial manifestation in Asia and
a lagged response in the rest of the world's regions (Fig. 2, Fig. 3, Fig. 4
). Most airlines tried to operate a normal schedule until they were prevented by drastic
mobility restrictions. These translated into sudden drops in flight numbers from mid-March
2020, when lockdowns and border closures started to be the dominant policy response
across Europe and America.2
In consequence, the impact has been stronger in international markets (Fig. 2) than
in domestic markets (Fig. 3). Domestic markets experienced a slower and more heterogenous
reaction, since they have been the refuge of airlines to keep some level of activity,
just before the widespread grounding of the fleet in late March. Interestingly, Fig.
3 shows that the partial recovery of the Asia Pacific domestic markets during March
(fuelled by China's recovery), turned into a double-dip in April as other Asian countries
experienced drops in domestic traffic in consonance with the global trend during the
same period.
Fig. 2
Year-on-year change (%) in ASKs by region, international markets, Jan-Apr 2020 vs
2019.
Fig. 2
Source: analysis based on OAG.
Fig. 3
Year-on-year change (%) in ASKs by region, domestic markets, Jan-Apr 2020 vs 2019.
Fig. 3
Source: analysis based on OAG.
Fig. 4
Year-on-year change in air freight chargeable weight (tonnes), Q1 2020 vs Q1 2012.
Fig. 4
Source: CLIVE data services.
The experience of airlines varied by type of carrier (Table 2
). Full-service network carriers (FSNC) are more exposed to international traffic
and most started reducing capacity at the beginning of February. On the other hand,
due to their lower exposure to international traffic, low-cost carriers (LCC) reduced
their supply later.3
Table 2
Year on year change (%) in ASKs according to airline type, Jan-Apr 2020 vs 2019.
Table 2
Airline Type
30-Dec
06-Jan
13-Jan
20-Jan
27-Jan
03-Feb
10-Feb
17-Feb
24-Feb
02-Mar
09-Mar
16-Mar
23-Mar
30-Mar
06-Apr
13-Apr
20-Apr
27-Apr
LCC
6.8
6.3
5.1
5.2
5.5
3.1
1.9
0.7
0.0
−0.6
−3.7
−8.5
−30.3
−50.6
−61.4
−68.7
−72.3
−71.6
FSNC
2.4
3.1
3.0
1.9
1.3
−2.7
−12.7
−14.2
−13.7
−12.3
−15.3
−20.3
−44.1
−69.5
−78.9
−81.4
−82.8
−81.4
Source: Analysis based on OAG.
The significance of air cargo has been vindicated by the Covid-19 crisis (Fig. 4).
Shipments of food and medical supplies have been protected by governments to ensure
the supply of basic necessities. Thus, even though air freight tons quickly dropped
in Asia Pacific in late January, a partial V-shaped recovery pattern was observed
soon after. Later, freight tonnes progressively decreased from the beginning of March
in Europe, North America and the Middle East.
This overview of the scale and diversity in very recent changes following the policy
responses to the Covid-19 provides background for the interpretation of the perspectives
of industry participants.
4
Insight from industry interviews: the supply-side
There was agreement among the interviewees that in a recovery phase there will be
a trend towards consolidation in supply, especially in the European market. One of
the major concerns expressed by the interviewees was related to ensuring a level playing-field
after a foreseeable round of state aid to major carriers. Consolidation, generally,
does not generate much concern when it is a process guided by scale and efficiency
(Brueckner and Pels, 2005; Dennis, 2005). But, for many of our interviewees, possible
state aid to airlines creates some serious concerns. First, state aid could extend
the life of airlines that even in a market context free of Covid-19 pressures could
have disappeared. Second, state support is likely to take different forms in different
countries, in the absence of a common European policy on the matter. Third, a few
interviewees dreaded the implications of states becoming shareholders in airlines
and so exerting influence on airline management that could take the industry back
to the situation 20 or 30 years ago.
Full-service network carriers (FSNC) were seen as the major losers in the medium and
long term. That opinion was supported by a number of perspectives. First, the slow
recovery and the lower traffic levels expected across the industry could ease congestion
levels in major European hubs and so would allow easier operation for existing (and
perhaps even entry of new) low-cost carriers, so threatening some of the European
fortress hubs.4
Increased competition in short-haul routes would potentially erode the capacity of
FSNCs hub-and-spoke operations and therefore the feed into their lucrative long-haul
flights. Second, given that travel bans and restrictions are set at the national level,
respondents expected that international and intercontinental flights will be the last
to be re-established and that process will be highly uneven across countries. Sixth-freedom
hubs will be highly affected in this situation and some interviewers highlighted challenges
facing British Airways, KLM and Emirates in their respective hubs at London Heathrow,
Amsterdam and Dubai. The interviewees expect that FSNCs will make adjustments to capacity
in the face of problems in their hub feed by downgauging their fleets, which can be
done by getting rid of larger and older wide-body aircraft like the B747 (and even
the A380) and utilizing narrow-body aircraft for long-haul markets or working together
with regional airlines to have a feeding fleet more appropriate for thinner routes.
Regarding the latter, two interviewees predicted that regional airlines will clearly
benefit from increasing their activity as hub feeders during the recovery period.
This would, indeed, take the regional airline business model in Europe closer to the
US model (Brueckner and Pai, 2009; Dresner et al., 2002). Regional airlines could
also benefit from a potential increase of Public Service Obligations (PSOs) by governments,
since this is an existing mechanism that could be applied across a larger number of
routes if the recovery of demand is weak.
Concerning low-cost carriers (LCC), the general perspective of interviewees was that
these airlines will focus on the larger markets and abandon the smaller ones, with
a high probability that more LCCs would move operations into large hub airports. However,
some respondents indicated that lower congestion and demand would prompt LCCs to reduce
daily frequencies on large European city-pairs, as the high daily frequency strategy,
partly used to internalise delays and cancellations,5
would not be relevant in the new conditions.
The changes mentioned above are expected to have a direct impact on the airport business
and the hierarchy of airports. First, interviewees considered that regional airports
would be the big losers of this crisis as the focus of demand early in the recovery
would be on larger markets. Second, some medium-size airports with a leisure profile
would face competition from other leisure markets with competitive prices and perhaps
fewer travel restrictions. In that regard, one interviewee highlighted that airline
incentives would be key to recover traffic (see next section) and airports would come
out of this crisis with a worst negotiating position relative to airlines. Thirdly,
airports hosting an airline hub have the potential to be the strongest survivors in
terms of passenger numbers, with the caveat that survival will be also accompanied
by uncertainty of some changes (i.e., the potential entry of LCCs and reduced hub
operations). Fourth, our interviewees questioned the future of hub-bypassing strategies
designed to take advantage of the economic growth of non-hub regions using efficient
long-haul airliners to directly feed the airline's hub, so avoiding congestion at
European hubs (as illustrated at Barcelona, Birmingham or Hamburg, and analysed in
Suau-Sanchez et al., 2016a, Suau-Sanchez et al., 2016b; Tembleque-Vilalta and Suau-Sanchez,
2016). On the one hand, there is a general agreement that the most efficient narrow-body
aircraft, which are used for hub-bypassing, will indeed be useful to airlines for
the recovery of long-haul traffic. On the other hand, the lower traffic levels, the
potential entry of new competitors at hub airports, the late recovery of long-haul
demand and the reduction of feeding traffic, all point towards an increasing focus
on primary hub airports.
5
Insight from industry interviews: the demand-side and consumer behaviour
Overall, our interviewees seem to agree that demand will be highly affected, not only
in the medium term, but also in the long term, initially because of weakened demand
associated with lower levels of disposable income, but then compounded by changes
in behaviour.
5.1
The business traveller
The interviewees expect that business travel will recover in the short term in order
to sustain relationships with clients and providers. However, MICE (Meetings, Incentives,
Conferencing, Exhibitions) related travel will take significantly longer to recover
because many events have already been cancelled or postponed and the marketing and
travel budgets of companies will be significantly reduced as economic activity slowly
recovers in the coming few years. Therefore, although MICE travel may return, the
size of the teams sent to events might be smaller.
Many expressed their concern for business-related long-haul travel, which is known
to sustain FNSCs through the generation of density economies (Brueckner and Spiller,
1991; Caves et al., 1984). Some interviewees think that long-haul flights will be
the last to recover due to the uneven lifting of travel bans and so uneven reconnection
of countries to international travel markets.
There is also a serious concern about the long-term impact of the acquired teleworking
skills during lockdown and the investments made by companies in new workplace platforms.
To date our understanding of the impact of videoconferencing on business air travel
is very limited. Very early work suggested it did not represent a threat to the airline
industry (Denstadli, 2004), and in fact it could even have a positive relationship
for business people who travel a lot (Denstaldli et al., 2013). However, the extensive
implementation of modern high capacity cloud applications, as part of a broadly- based
digital transformation, which is associated in part with changes the work-life and
health balance (Schwarzmüller et al., 2018), is likely to have a much greater impact
than traditional videoconferencing. These technologies may enable companies to minimise
face-to-face contact among their staff and maximise the value of virtual mobility
(Faulconbridge et al., 2009). The interviewees think that, whilst not likely having
a radical effect, the new digital context may indeed reduce the propensity of some
of executives to fly, especially for meetings with staff members of the same company
where relationships and trust already exist. Some argued that, even if the impact
in the reduction of business travel were as small as 5% or 10%, that would be enough
to have a serious impact on airlines, as this type of traveller generates high yields.
5.2
The leisure traveller
The general view was that the impact of Covid-19 would be less intense for the leisure
passenger and that we would see a quicker recovery of demand compared to the business
travellers.
Nevertheless, one of the airport representatives highlighted that the support from
cities, regions and tourism authorities in form of marketing aid would be essential
to help airlines restart tourism-related air services in a context of weakened demand.
One of the airline executives considered that low fares by themselves would not necessarily
ensure a recovery in ticket sales. Though most of the interviewees think that although
leisure demand might recover earlier than business demand, the reduced disposable
income associated with slow economic recovery will mean consumers will travel less.
The higher price elasticity of leisure passengers (Morlotti et al., 2017) opens up
the possibility that the focus of European leisure demand might shift from traditional
“sun-and-beach” destinations in Southern Europe to more affordable destinations in
the north of Africa or the east of the Mediterranean. Similar outcomes could be felt
across the globe.
Health concerns were also considered to play a more important influence on leisure
demand than business demand. Business travel is usually a necessity whereas leisure
travel may involve considerations of the health risks if Covid-19 remains a risk in
some destinations. A few interviewees noted the possible rise in staycations6
beyond 2020 and 2021.
For both business and leisure travel, the interviewees are concerned about the lack
of consumer confidence when flights resume. Besides fear and health concerns, lower
levels of disposable income in households and saving measures in surviving businesses
will both depress air travel demand. In that regard, two of the interviewees suggested
that support to airlines might not be enough to stimulate demand. This remark was
made in relation to the IMF World Economic Forum preliminary report published in early
April (IMF, 2020). According to Baldwin and Weder di Mauro (2020), to avoid a persistent
weak demand, a “whatever it takes” approach might be required, including subsidies
for households and workers until reaching a partial recovery. Others, like Krugman
(2020), advocate for a policy of permanent stimulus. Seen in this way the fortunes
of the airline industry will be shaped by political judgements made about national
and international economic policy making.
6
Insights of industry interviews: regulation: relaxation or tightening?
The most immediate regulatory concern of the industry as the threat of Covid-19 unfolded
was slot regulation, and during the first days airlines flew empty aircraft to make
sure they kept the slots for the following season.7
This short-term concern was quickly resolved with a suspension of the slot rules by
the EU from March 1st to October 24th, 2020. However, following the expansion and
spread of the virus other regulatory aspects have become apparent.
One involves health screening at airports, which could take different forms, such
as temperature checks or even quick antibody tests for Covid-19, when these can be
produced at an affordable price and are reliable enough. In any case, these controls
will require capital expenditure, human resources and terminal space, all financial
issues for airports, so could translate into new airport fees. Others also mentioned
possible restrictions for passengers of particular regions, based on health risk assessments,
which would affect traffic rights.
Concerning social distancing, the concerns of the airport multiply as it involves
a significant reduction of terminal capacity.8
Its implementation in the airliner cabin would not be feasible from a commercial point
view, as load factors would be lower than 50%. The policy of some airlines of offering
an empty middle seat was seen by our interviewees more as a way of selling “peace
of mind” to passengers and a potential source of ancillary revenues, rather than an
effective measure of social distancing.
The experts mostly agreed that the EC would not back down in relation to the EU ETS
and the EU Green Deal, in view of the strong statement by the EC President in that
regard (Euroactive, 2020). A few interviewees had more concrete concerns regarding
sustainability, that is how CORSIA (Carbon Offsetting and Reduction Scheme for International
Aviation) baseline emissions, which were calculated based on the years 2019 and 2020,
would be calculated now given the massive drop in airline activity. Also, whether
the start of CORSIA would be compromised in 2021 and what would happen with the progress
of aviation from Phase 3 to Phase 4 of the EU ETS in 2021.9
One respondent highlighted that state aid, and the potential entry of states as shareholders
of airlines, could be an opportunity to impose green conditions to state aid. Indeed,
several weeks after the interview, the French finance minister stated that a bailout
of Air France would entail the reduction of domestic flights of less than 2.5 h that
have a rail alternative and do not contribute to connecting traffic (Flightglobal,
2020).
A few interviewees also saw the pressure on airlines could justify a relaxation in
airline foreign ownership regulations, which would allow surviving airlines to operate
in different jurisdictions. That of course runs counter to what might flow from state
intervention. In spite of that, the interviewees felt the long-term trend towards
deregulation should continue as it has proven beneficial to increasing international
flights and to national economies.
7
The major unknowns
The first major uncertainty was the future development of air freight. On the one
hand, some considered that Covid-19 would accelerate the process of greater orientation
towards cargo that many airports were already going through as part of the growing
importance of e-commerce. Indeed, integrated express carriers (e.g., UPS, FedEx, DHL)
would be the great winners in this new set of circumstances. Elsewhere, geographic
re-orientation of supply chains, perhaps involving increased regionalisation, might
see a shift away from air to road deliveries in some markets, except in a few key
sectors like pharma, technology and perishables.
The other big question mark for experts was future ticket prices. Some argued that
prices would have to increase to cover the new costs of an industry, that might be
too large, particularly in the segment of business travel. On the contrary, excess
supply could lead to lower ticket prices and that in any case the industry would need
to do significant capacity adjustments to match demand levels, which would keep prices
at a level similar to the recent past. One interviewee mentioned that the current
lower costs of aircraft leasing and of fuel (oil price plummeted during the first
quarter of 2020) would certainly allow airlines to offer lower ticket prices. If those
cost factors remain low, LCCs would become very aggressive in their pricing to stimulate
demand. The big unknown here is whether the expected boost due to lower costs will
outweigh the dampening of demand due to lower levels of disposable income and fear
of flying (IATA, 2020b).
8
Opportunities to transform elements of the aviation industry
Some interviewees highlighted the opportunities of this crisis to re-think some ethical
aspects of the aviation industry.
Two experts asserted that the industry had probably facilitated some excesses and
that the COVID-19 experience could lead to a realignment in activity that is more
consistent with broader social objectives. One example is the role that air cargo
has played in facilitating the consumption of exotic fruit and vegetables in high
income countries all year round. This concern has attracted research attention in
the past (Vega, 2008; Kallis, 2011). The forced re-structure of long-haul air services
may change costs and so bring the planning of air freight services more into line
with current thinking on sustainable economic development.
The second ethical aspect that was highlighted was the application of the EU regulation
261/2004 on air passenger rights. As a result of the mass cancellations, airlines
offered vouchers for subsequent use as a way to protect their financial situation
and avoid imminent bankruptcy. In light of the situation, on March 18th, 2020, the
EC published a communication (EC, 2020) providing guidelines on the interpretation
of the EU passenger rights regulations in the context of Covid-19. In case of cancellations,
the transport provider must reimburse or re-route the passengers. If passengers themselves
decided to cancel their journeys, reimbursement of the ticket depends on its type,
and companies had to offer vouchers for subsequent use. However, the guidelines and
regulations were not followed and in April, twelve governments10
urged the EC to suspend rules forcing airlines to offer full refunds instead of vouchers
for future travel (Euronews, 2020). The interviewees expressed very different views
on this issue, but those believing that regulations had to be upheld considered that
the short-term survival needs of the industry had been placed above ethical business
principles, although short-term support may be wasteful or even detrimental in terms
of reputation for the really important task of long-term reconstruction of the industry.
Airline reputations are difficult to gain and easy to lose, and need a long-term sustainability
strategy based on stakeholder engagement (Amaeshi and Crane, 2006).
9
Conclusions
This paper presents a first approach to understanding the industry perspective on
the impact of Covid-19 on commercial aviation. We have provided a portrait of the
shock by looking into airline seat capacity and air freight demand for the first four
months of 2020. The data provided context for an assessment of the long-term impact
of Covid-19, according to the views of a sample of senior aviation executives.
The interviews have revealed some serious long-term consequences for the air transport
supply. First, the interviewees considered the crisis would lead to consolidation
and a significantly smaller industry. Second, they were concerned about the possible
differences in terms of state aid and how that could affect the level playing field
in a post-Covid-19 aviation market. Third, FSNCs were seen as the major losers since
the recovery in international markets will be slower and they may face new competition
with the potential entry of new airlines in their home hub markets. Airlines that
have built their hubs mainly on sixth-freedom traffic, like British Airways, KLM,
Emirates and Singapore Airlines, were identified as the weakest in terms of recovery
potential. Fourth, regional airlines were identified as possible short-term winners
during the recovery period, as they could potentially help FSNCs adjusting their feeding
capacity, and also benefit from a possible increase in the use of PSOs. Fifth, LCCs
are expected to concentrate in primary markets with the possible entry in hub airports,
and a general reduction in frequencies at the route level. Seventh, in terms of winning
and losing airports, regional and secondary airports would be the big losers as capacity
would be freed up in larger markets, which would attract airlines. On the contrary,
large airports hosting a hub could reinforce their leadership by attracting new airlines,
which would secure traffic volumes but also bring about a more competitive and aggressive
marketplace.
The differentiation between domestic and international market, which has been highlighted
in many online seminars organised during the Covid-19 crisis, did not come up that
clearly in the interviews, probably due to their European perspective. What came across,
however, is that most European countries are too small to sustain airlines. The focus
was more on the difference between LCC and FSNC, the latter being more exposed to
more distant countries with very different situations and therefore facing a more
patchy and slower recovery.
Experts were concerned about the recovery of business travel, mainly due to the cancellation
of MICE events, and the uneven lift of travel bans and reconnection of countries to
global trade networks. Teleworking was seen as serious threat to demand, as the current
context of digital transformation and cloud applications offer better solutions for
teleworking than the traditional videoconference. On the other hand, the recuperation
of the leisure passenger segment was expected to be quicker, but reduced disposable
incomes would curtail propensity to fly and require significant support, probably
in terms of route subsidies and marketing aid, but also with direct demand stimulus.
Finally, fear and health concerns were identified as major issues for the leisure
traveller, more so than for the business traveller.
Regarding regulatory aspects, all interviews considered that new health screening
controls would be imposed at airports, translating in higher costs for airports and
passengers. But they did not consider social distancing as a viable commercial option
for airlines. Environmental regulation was not expected to be relaxed and some saw
state aid as an opportunity to impose more environmental restrictions on airline operations.
On a positive note, the interviewees identified a couple of areas in which the industry
could be transformed towards a more ethical business. Firstly, in relation to supply
chains and more responsible consumption and secondly by improving the long-term reputation
of the industry through respect for customer rights as stated in the regulations.
The results of this paper represent an early assessment that can help the aviation
industry and other related industries like tourism in the preparation for the recovery
period. Future research could focus on many areas. First, reassessing industry expert
views during the recovery period. Second, analysing in detail the changes in supply:
details on airlines, aircraft and routes. This could include identifying the structural
changes in airline networks or the effects of consolidation processes. Third, studying
in detail the behaviour of potential passengers with regards to teleworking and digital
transition in their workplace. Fourth, examining the unsolved ethical and reputational
issues of the industry, which are needed to evolve within the business models that
acknowledge sustainable approaches in the long-term.