The unprecedented year of 2020 plunged the aviation industry into the worst period of its history, bringing the first decade of steady airline profitability to a staggering halt. The Covid-19 pandemic upended airlines, airports, plane-makers, and leasing firms in a dramatic, unforeseen way.
The pandemic wiped out 21 years of global passenger traffic growth in 2020, hurling airlines back to 1999 levels, according to aviation analytics firm Cirium. In 2020 alone, more than 40 commercial carriers stopped or suspended operations globally. The year ended with two-thirds of the world's passenger fleet grounded, with some jets never to take off again and those returned to service flying fewer hours.
Now, 2021 is set to become a transitional year with a long and bumpy road ahead to recovery. Meaningful progress on a travel rebound hinges on the speed of vaccine distribution, ability to restore passenger confidence, availability of state aid, access to financing, standardised government policies, economic recovery and containment of the unpredictable virus. Still, there will be some silver linings, including the introduction of digital health passports aimed at easing cross-border travel.
"We'll see a slow recovery with a nervous caution around spikes of Covid infection and the inconsistent actions of authorities weighing on airlines and their recoveries," John Grant, analyst at aviation data firm OAG, told The National. "We can expect to see very competitive fares and those normal fare rules being waived for some time."
The global industry is seeking to get back on its feet a year after the pandemic forced airlines to suspend flights, park planes, seek government aid and slash jobs.
Air tickets issued worldwide for the next six months are 17 per cent of levels in the same period last year, according to travel analyst ForwardKeys.
"The global outlook for aviation in the upcoming six months, March 1st to August 31st is extremely depressing," Oliver Ponti, vice president of insights at ForwardKeys, told The National.
One year ago, the UAE's General Civil Aviation Authority announced on February 25 that jets bound for Iran, where the coronavirus was spreading rapidly, would be halted for at least one week. Now, the UAE is faring better than average, with March-August bookings currently 21 per cent of what they were in the prior-year period. Russia and Egypt were the best performing tourism-origin markets. Bookings from Russia to the UAE issued from the start of 2021 to February 9, the most recent data available, were up 2 per cent year-on-year.
Global travellers are booking their tickets at the last minute due to concerns about new and sudden government travel restrictions that could derail their plans - making network planning for airlines difficult and expensive.
Many are now booking flights within just six to eight weeks of their travel date, compared to pre-pandemic bookings of six to 12 months ahead, according to Cirium.
The outlook is highly uncertain for the summer, the main holiday season whose profits usually carry airlines through the winter, due to lockdowns and changing travel rules.
"Airlines are not holding out much hope for early summer performance ... people are looking but not booking," John Strickland, an independent aviation analyst, said. "Late summer will depend on governments easing quarantine measures ... with airlines exploiting one-off evidence of demand as and where it may be."
Passenger traffic is unlikely to rise significantly until enough populations are vaccinated to reduce infection rates. Even then, airlines must convince people to board planes again. Many have offered ultra-low ticket prices, deals for students, kids flying for free, free hotel stays and free travel insurance to lure people back into cabins. The main question is for how long fares will stay depressed. A recovery in leisure travel should begin in most regions by around August, but the more lucrative business travel market will lag behind.
"Ultimately when business travel begins to return to near normal levels then airlines will look to re-introduce those normal fare rules and create a bigger distinction in their prices to leisure and business segments," Mr Grant said. "But and this is a big but, there will be some airlines that will equally seek to secure competitive advantage by not imposing those rules so people shop around for a bargain."
Smart airlines will try to generate non-ticket income from ancillary revenue streams such as loyalty programmes, Peter Harbison, chairman of the Centre for Aviation (CAPA), said.
Digital health certificates
The pandemic will accelerate the digital travel experience with more touchless points at airports, implementation of AI technology, use of biometrics and the roll-out of digital health passports.
"Think post-9/11 security inconvenience. Travel is going to lose a lot of its sheen as health requirements are going to be with us indefinitely," Mr Harbison said. The early days of digital health passports will be chaotic for a couple of years until industry bodies, governments and multilateral bodies gradually establish common standards. Earlier this month, Bahrain became the first Gulf state to adopt a digital vaccine passport that acts as proof of inoculation against Covid-19 for its carrier.
Narrow-body jets to lead recovery
Fuel-efficient new-generation narrow-body jets such as the Airbus A320 Neo will lead the post-Covid fleet recovery as airlines adjust to a smaller travel market. In contrast, larger aircraft such as the Airbus A380 will be retired sooner than projected as operators struggle to fill bigger aircraft while demand for long-haul travel remains weak. Smaller, more fuel-efficient wide-body aircraft such as the Airbus A350 and Boeing 787 will trickle back into service during the year, Mr Grant said.
Some aircraft in storage will be converted to cargo, with about 90 aircraft conversions expected this year, up from 70 in 2019, according to Cirium. This is driven by strong e-commerce growth as shoppers stuck at home make their purchases online. Over 150 commercial jets were used for cargo in 2020, without physical conversions, to replace the loss of belly-cargo as passenger jets were grounded.
A changing aviation landscape
The pandemic forced dozens of airlines to file for bankruptcy or disappear entirely. Others are surviving on government life-support or facing acquisitions by stronger rivals. There will be more failures this year as the market continues to shrink in terms of operators and fleet size, CAPA's Mr Harbison said.
As cash-strapped airlines struggle under the strain of financial pressures during the pandemic, plane leasing firms will play a bigger role. Lessors will own more than 50 per cent of the global fleet, according to Cirium. Deals with airlines to buy and lease back their jets, an immediate source of cash, will become more popular as airlines desperately need more liquidity.
The quest for capital
Airlines will need another $80 billion this year in aid to survive the crisis, on top of the nearly $200bn they received from governments last year, according to the International Air Transport Association (Iata). As they burn through their cash reserves, airlines will need to raise more money this year. Stock sales, bond issuances, new equity, long-term debt instruments and loan guarantees will become more important as viable carriers seek to buffer their balance sheets.
"Debt instruments need to be very long-term to provide airlines a realistic change to repay or convertible so that a reasonable, healthy debt-to-equity ratio can be maintained," Michael Wette, transportation and services partner at Oliver Wyman, said.
Survival of the fittest
There are tentative signs of recovery in domestic markets ahead of international ones while short-haul routes will recover faster than long-haul journeys. Airlines operating point-to-point services with the lowest cost base will be best placed to recover first, OAG's Mr Grant said. Carriers with mixed fleets, complex networks, a high reliance on connecting traffic and products geared towards business travellers will be the slowest to recover, especially if they operate a medium to long-haul network. Critical success factors will be maximum cash resources and access to liquidity when needed, combined with the ability to be flexible, agile and opportunistic, Mr Strickland said.
A cloudy outlook
Airlines could face a slower-than-expected recovery in travel demand this year as governments impose tighter travel restrictions to curb the spread of new Covid-19 virus strains.
Iata's baseline forecast sees a 50.4 per cent year-on-year improvement in air traffic in 2021, which would bring the industry to 50.6 per cent of pre-crisis levels. However, there is a "severe downside risk" if strict travel restrictions persist. In such a scenario, traffic may improve just 13 per cent this year, compared to 2020. This would leave the industry at 38 per cent of pre-crisis levels.
The Middle East's air traffic will rebound 43 per cent in 2021 if travel restrictions are not tightened further.
Despite the gloomy and uncertain outlook, there are some silver linings on the horizon for aviation. New airlines are being launched and, unencumbered by debt, they may be well placed to be successful in the coming years, analysts said. Domestic markets, such as in China and Russia, are nearing a full recovery, according to Iata.
The economic outlook is more positive, with the IMF raising its forecast for global economic growth in 2021 to 5.5 per cent in 2021, an increase of 0.3 percentage points from its October projections. The aviation industry has proven resilient after previous crises, indicating that once the virus is contained, pent-up demand will see globetrotters packing their suitcases again.
"We are seeing some significant positives, which is the rate of vaccinations in certain countries, ours being one, and as that comes into critical mass in some territories, we believe that will give opportunity for air corridors or some degree of air transport to grow again," Terry Daly, executive director of guest experience, brand and marketing at Etihad Airways, told The National. "I do believe this is the year where the vaccine will enable us to see growth again, what exactly that looks like and what timescale, it's hard to say."