The below article is as seen on Forbes by James Asquith.
The quick answer to this question is, unfortunately, not for a very long time. The recovery in demand will be long and slow. However, it will happen.
The second golden age of air travel has just been and gone, and it will be a significant period of time before we see the aviation sector back at its peak.
Aviation is undoubtedly one of the industries hit hardest by the outbreak of COVID-19. More than 40 major airlines have now grounded their entire fleets and many other airlines have suspended over 90% of their flights.
International flights have been hit hardest, due to the widespread border and entry restrictions around the world. The overriding issue with this is that most airlines make the vast majority of their profits from international flights, with many domestic routes being loss-making if less than 75% of seats are sold.
Therefore, airlines around the world have currently temporarily laid off or furloughed staff along with grounded fleets to reduce costs. However, with revenue and ticket sales being a fraction of what would be expected in a normal market, there are still other costs to consider such as maintenance, technology costs and even marketing. Airlines need to capitalise on any revenue they can get for when the aviation sector begins to reopen, and with serious concerns that much of the lucrative summer season revenue may be lost, many airlines may struggle to survive for several years to come.
Without a doubt, many airlines around the world need, and will very likely receive government support, ranging from loans to bailouts and even part-nationalisation. We have already seen the Italian flag-carrier Alitalia re-nationalised, and in countries such as France and Germany which have a clear, incumbent national airline, we can expect to see extensive government support.
Some analysts are predicting and even hoping that aviation and travel will bounce back stronger than ever once travel restrictions ease. The major concern is that the economy has been so badly impacted that demand simply will not be at the level is previously was, for the foreseeable future.
In addition to low demand, the uncertainty as to when international movement will be allowed again will continue to weigh on the sector, even with temporary government support.
The last golden age of air travel was between the 1970s-1980s. The likes of Pan Am and TWA glorified far-flung destinations at a time when Boeing made the iconic 747 Jumbo Jet. This was a glorious time for air travel and the last 15 years has been somewhat of a second golden age of air travel.
Low-cost airlines have opened up a plethora of new destinations to a market looking to travel with a lower budget, and on the other end of the spectrum, airlines have introduced opulence on aircraft such as the mammoth a380 double-decker aircraft. Private first-class suites with fully closing doors, on-board bars and showers are just a few of the extravagant facilities now offered.
Although that won’t go away overnight, with an almost guaranteed period of suppressed demand due to what will be a weak consumer market through economic recovery, we can, at the very least, expect to see consolidation.
Consolidation of not only some airlines, but also of routes and customer options.
Passengers have been afforded rigorous price competition due to low-cost carrier putting pressure on full-service airlines and widespread optionality in terms of routes and even schedules. For a passenger flying from London to New York for example, on any given day there would be a flight at least every hour of the operational day, from a range of city airports.
What we can expect to see is a lot of this optionality be consolidated in the short to medium term. Ticket prices may offer some great discounts initially to stimulate demand when international routes are tentatively reopened, however, I would expect to see average ticket prices actually increase. The effects of worldwide groundings will be felt by airlines and passengers alike for several years.
If we rewind to just six months ago, airlines were competing for traffic aggressively. Now, airlines will be fighting for survival. Many airlines will indeed survive but with business expenditures cut, the premium sector of the market that has supported such a large extent of airlines revenue and profitability will take a severe hit.
September 11, the SARS outbreak and the 2010 eruption of the Eyjafjallajökull volcano in Iceland were short term shocks in comparison to the COVID-19 outbreak. In 2010, 20 European countries closed their airspace for nearly three months but passenger demand was able to bounce back sharply after. In addition to this, these shocks did not for any sustained period of time ground the vast majority of air traffic globally.
A further point to consider is that trade protectionism between countries will become even more apparent after this. That will spill over into how countries protect their major airlines. We have entered an era of protectionism that will stem the growth of globalization and the ability for airlines to freely open into new or even continued air routes.
This year will likely be the worst in modern history for aviation, and a bounce back will be long and arduous. However, if there is one industry that can adapt to shocks, it is aviation. From climate change pressure to labor strikes, inclement weather issues, maintenance and safety concerns, and almost any external factor that one could consider, the aviation sector has to contend with a vast array of challenges.
However, time and again, the aviation sector prevails and bounces back. The effects of the COVID-19 outbreak will be felt in aviation for several years to come, and it will bounce back, it always does. Just expect the recovery to be slow.