During its latest webinar on the impact of the coronavirus
crisis on global aviation, OAG senior analyst John Grant said the company is
hopeful that a slow-down in capacity reductions in China may be the “green
shoots of recovery”.
While the webinar focused on the Asian market, Grant said
capacity across the world was down 29 per cent last week compared to last year,
though he warned this data didn’t include schedule changes being prepared by US
carriers for the coming weeks or the impact of China closing its borders to
foreign nationals.
Europe had the most severe cut in scheduled flights last
week, down 60 per cent, followed by the Middle East at 45 per cent and APAC at
30 per cent (though again this did not include the suspension of domestic
services announced in India this week). In the US, schedules were only down 5
per cent year on year, as major carriers have been slower to reduce capacity.
However, Grant added Europe could see a greater financial impact
from slowing passenger demand and border closures. “If you look at the number
of airlines in Europe, it’s much more fragmented than in other markets, and
some of those airlines were already cash starved. From an industry perspective,
this could not have happened at a worse point in the calendar year because
January, February and March are typically their hardest months for forward
bookings and cash reserves do take an impact. So for this to have happened at a
time when people are just beginning to book their holidays in the summer season
is alarming for airlines. That’s probably why rather than issuing cash refunds
for cancellations, a lot of airlines are giving credit notes for future travel
so they can hang onto that cash. They’re also extending tier status expirations
and offering air miles for loyalty schemes to try and keep some momentum in
forward bookings.
“I’ve never witnessed anything like this in my career in
aviation,” Grant said. “But the rate of reductions is slowing in China and
South Korea, so we’re hopeful these are the green shoots of recovery.”
Professor Zheng Lei from the Institute for Aviation Research
agreed, saying: “In China, the worst period was in February, at which point
most flights were grounded. But what we’ve seen recently is airline traffic
starting to pick up again. For example, China Southern is operating with an
average of 60 per cent load factors. Consumer confidence hasn’t come back yet
and that will take a while, but the airlines have done a great job of trying to
improve consumer confidence in terms of aircraft hygiene.”
Analyst and consultant Brendan Sobie from Sobie Aviation
said that while the situation in South Korea was not as improved as in China,
there were signs that the market would be heading in the same direction soon. “We’re
hoping to see some recovery in the next few weeks, particularly in the domestic
market. Korea doesn’t have a large domestic market – it’s really just Jeju Island
– so it could take a little bit longer than China.”
When asked whether the situation is survivable for airlines,
Grant said he believes it will be “survival of the fittest”. “I think
mid-market airlines, particularly those that don’t operate public service
routes and without the scale of the larger carriers, will be more vulnerable to
collapse.
“What we really need is a unified, global solution, because
the unfairness in terms of state aid being offered is becoming more and more
apparent, particularly in the UK where the government has said it will look at
finance packages on a case-by-case basis.”
Sobie added those airlines that do survive will likely be
taking a closer look at their operations “and we’ll see them using smaller,
more efficient aircraft on some routes”.
Looking at the potential bright side of a grim situation,
Grant said he believed air travel growth over the last ten years has been too
rapid and perhaps unsustainable. “Essentially, the event we’re now in is
providing us with a reset, and it would make a lot of sense for an industry
that wants to be both environmentally responsible and profitable to perhaps think
long and hard about the destinations that are served and some of the capacity
and how markets are served, because we were perhaps growing too fast.
Especially when you look at some of the infrastructure challenges around the
world, with China struggling to build enough capacity for all the flights, new
runways being built in various countries, the argument for a third runway at
Heathrow… Maybe this is the reset we need.”
At any rate, Sobie said he believes the global aviation
market will “hit the bottom” in terms of capacity reductions in the next couple
of weeks. “The real question is how quickly it will pick back up, which is
difficult to answer at this point.”