The coronavirus pandemic has devastated the aviation industry, becoming the worst crisis in its history and forcing airlines to take unprecedented measures to survive the staggering fallout.
The Covid-19 crisis, now crossing the 100-day mark, will have a profound and long-lasting impact on flying. It is expected to change the structure of the industry, reshape the way we think about travel and redefine a "new normal" for airlines, airports and passengers, analysts say.
"This is aviation’s darkest hour and it is difficult to see a sunrise ahead," says Alexandre de Juniac, director general of International Air Transport Association (Iata). "Without a doubt this is the biggest crisis that the industry has ever faced."
Airlines worldwide are fighting a severe cash shortage as the pandemic triggers country lockdowns and crushes air travel demand. Carriers are taking unprecedented measures to preserve their existence with broad reductions in capacity, grounding planes and preserving cash as revenue withers.
Iata estimates that global airlines could lose about $250 billion in passenger revenue this year while Sydney-based Capa Centre for Aviation warned most carriers will collapse by May without state support. In many respects the challenges for carriers are more dire than what banks and institutional lenders faced during the 2008 financial crisis.
The rapid spread of coronavirus combined with the depth of the drastic changes in the industry make it difficult to predict with any certainty the extent of damage or shape of recovery over the next 12 months.
Earlier comparisons to the 2003 Sars epidemic proved inadequate as the virus spread outside of China and lasted 18 months. Later comparisons with the 9/11 US terror attacks were eclipsed by unprecedented capacity cuts.
Much depends on how soon travel restrictions are lifted, the size of government rescue packages, the appetite to travel following the crisis and the possibility of a second wave of infections.
However, given what we know today, the Covid-19 pandemic is widely expected to change the landscape of the industry, expediting a shakeout in regions with an overcrowded airline industry.
The extreme stress-test will, as was the case with US banks during the 2008 financial crisis, lead to more consolidation among carriers. It will also result in the formation of new airline groups and solidify the position of a few well-capitalised key players once the virus is contained.
"Certainly there are markets and segments that are ripe for consolidation, for instance in the low-cost market in Asia," says John Grant, senior analyst at aviation data firm OAG. "At the same time some carriers will simply run out of cash and not reappear post the event, these are generally small carriers but in some cases operated niche routes connecting small communities."
Consolidation may take the form of bankruptcies among weaker carriers and shedding excess capacity, rather than through mergers, says Michael Wette, partner and head of Middle East and Africa transport division at Oliver Wyman. "Governments consider national carriers as indispensable for business and their economy, but since there’s huge overcapacity, they will not be willing to rescue all companies".
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National carriers with large networks are more likely to benefit from government aid, while privately-held or low-cost carriers are further down the pecking order, analysts say.
"This is the shape of consolidation that can happen. It’s not large carriers taking over rivals, because they won’t have the means to do so, rather it’s that low-cost, privately-owned and weaker carriers will be hit first and less likely to receive government aid," Mr Wette says.
Iata is calling on governments to accelerate aid for airlines, estimating a total of $200 billion is needed to rescue cash-strapped operators worldwide.
Governments pumping in billions of dollars to rescue airlines could lead to them to increase their stakes or even fully nationalise airlines, analysts say, drawing parallels with the 2008 financial crisis when banks in the US and Europe were bailed out.
"We will see more government involvement in airlines. It would be rational for government that put huge rescue funds in place for airlines to demand a cut from the beneficiaries," Mr Wette says. "We’ve seen it in the 2008 financial aid package in Europe to the financial sector. Government aid was provided and until now in some banks governments are still the majority shareholder now. Sometimes governments are slow in returning stakes."
Such increased state involvement in airlines could come at a cost.
"Re-nationalisation of privatised carriers or governments taking bigger stakes risks losing some of the benefits that a competitive market has brought and, in some cases, would be an adverse step," argues John Strickland, a London-based independent aviation analyst.
That means governments may prop up "status-symbol failed airlines," leading to unfair and distorted competition going forward, according to Mr Grant.
Widespread lockdowns aimed at containing the virus have disrupted daily life, changing the way people live, work, and play. Travel, tourism, hospitality, restaurants and other leisure sectors came to a near-standstill.
For travelers, the pandemic marks a division between flying pre-coronavirus crisis and post-crisis, raising concerns and prompting precautions.
"Even after Covid-19 has passed, aviation may also face a residual loss of confidence from passengers over travel, for fear of close contact with others," according to Capa.
People are adapting to new ways of doing business and communicating with colleagues, customers, and suppliers in the absence of air travel, helped by online video-conferencing technology.
"Technology is fast becoming a realistic substitute for some business travel by air," Capa says."Companies will set a higher bar when staff seek approval for corporate travel in future."
While face-to-face personal interaction is crucial, especially in the final stages of deal-making, the growing use of video communications is unlikely to reverse once the crisis passes.
"The aviation industry needs to include it in its future planning," Capa says.
Leisure travel is more difficult to replace with, say, virtual reality technology--nothing beats the thrill of a skiing trip or discovering a secluded beach.
Still, demand for air travel from leisure travel is "unlikely to snap right back quickly" to pre-crisis levels as travelers become wary of catching a disease and as a looming economic recession results in layoffs or slashes discretionary income, analysts say.
Further dampening both leisure and business travel demand is a "lingering mistrust of being in close proximity to other people, particularly strangers, whose medical history is unknown," Capa says.
Passengers can also expect screening changes at airports: For example, airlines may decide to conduct coronavirus tests pre-boarding when the tests become cheap, fast and more widely-available.
Plane makers and their suppliers will also suffer a setback as airlines negotiate deferring aircraft deliveries and pre-payments amid a cash crunch. The market for twin-jet airliners is likely to take the worst hit as international travel demand plummets, adding to pre-existing woes of overcapacity on long-haul routes and a shift towards single-aisle longer-range jets.
On Monday Boeing extended the suspension of production at its Washington state factories, where it makes 787 Dreamliners, until further notice.
"Next year in terms of [aircraft] demand, it will be a roller-coaster straight down," Teal Group's aerospace analyst Richard Aboulafia says.
The aviation industry may take years to recover from its largest peacetime crisis, analysts suggest.
"It is likely that when we get across to the other side of the pandemic, things won’t return to the vibrant market conditions we had at the start of the year," Olivier Ponti, vice president of Insights at data firm ForwardKeys, said.
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International airline capacity plunged nearly 80 per cent to 10 million seats in the week of March 30 to April 5, compared to 44.2 million seats a year ago, according to ForwardKeys.
About half of the world's passenger jets are currently in storage, according to data provider Cirium.
"Several years of growth will be lost and it may be 2022 or 2023 before the volume of flyers returns to what had been expected for 2020," according to OAG, which estimate half the world's airline capacity has been grounded by Covid-19.
Complicating the airlines' recovery from this pandemic, compared to previous crises, is that the global economy is tipping into a recession as lockdowns slow economies and dent consumer confidence, according to Iata's chief economist Brian Pearce. A second wave of infections could further delay recovery.
The Covid-19 crisis will reset the industry into a new normal.
"Even after recovery, 'normal' will not be the same as before," Capa says. "There are likely to be lasting impacts on demand for air travel... across the planet people are learning new ways to live their lives, both at work and at leisure."
