CAPA LIVE – ‘This is a big downturn, beyond comprehension’

4 November, 2020

The Covid-19 pandemic has caught us all off guard. While the industry has faced numerous previous crises, the fact that subsequent recoveries occurred at different rates had led to complacency and ill-preparedness for an event of such magnitude.

"Initially when we started on this horrible expedition, there was an assumption it would be over in six months. Governments thought so as well but it's obvious now that won't be the case," Peter Harbison, chairman emeritus highlighted on 14-Oct-2020 at the inaugural CAPA Live - a new monthly virtual summit offering insights, information, data and live interviews across a next-gen virtual event platform.

"These priorities - which involved government subsidy of one form or another and airlines raising debt and equity - have now been overtaken, as the cash bleed will continue well into 2021. This is a big downturn, beyond comprehension, and a vaccine won't have a widespread impact at least before the middle of 2021," he warned. "Consumer confidence will be a key part of recovery; if consumers don't come back then obviously there is no industry … finding a uniform formula is key but still remains elusive."

It is clear that travel and transport will remain subdued through 2021 and into subsequent years and the industry needs now to come to terms with the new landscape. But within this space there are pockets of demand that can support those that are adaptable and accept the world for what it is right now. That is a changed world where leisure demand dominates and business travel remains near-dormant.

The new CAPA Live series of online events is highlighting the key issues confronting the airline and travel industries. Held monthly, the series includes interviews with major players, as well as analysis from experts within the CAPA and Aviation Week Group.

The second edition of CAPA Live will run on 11-Nov-2020 with the topic of 'Back to the future … winners and losers of the pandemic - looking forward ten years'. It will feature 13 hours of global content spread over a 15 hour window with sessions timed for their relevant audience time zone, but all available on-demand after. Key industry insights will be delivered from a wide-ranging set of guests, including airline CEOs including Pieter Elbers, president & CEO, KLM; Eddie Wilson, CEO, Ryanair; Anko van der Werff, CEO, Avianca; Adel Ali, Group Chief Executive Officer, Air Arabia; and Shai Weiss, CEO, Virgin Atlantic.

We have highlighted that the continued threat of COVID-19 and spikes in infections across parts of the world mean there is a significant variance in the recovery rates of air travel capacity and demand across the globe. Ahead of the November edition we bring together a round-up of regional reports from the first edition of CAPA Live delivered by experts within CAPA and the wider Aviation Week Group.

NORTH AMERICA

The big story in North America is that US airline operators are bracing for a long road back. It is hard to fathom that North America and the rest of the world have been battling the COVID-19 pandemic for nearly eight months. And for the majority of operators worldwide the reality is setting in that the recovery is likely to be wildly unpredictable and slower than expected.

In the US, capacity in the domestic market is projected to reach approximately 50% of 2019 levels by YE2020, but the road to revenue recovery will be long, as business demand remains essentially stalled and international travel is severely constrained. Even as airlines accept the reality that a long road lies ahead in recovering from the COVID-19 crisis, they are pointing to sequential improvements in revenues losses and decreasing their daily cash burn, which are relative achievements in the new reality that US operators and airlines worldwide find themselves in.

TO READ ON, VISIT: North America


EUROPE

For Europe, the challenge is how to reverse the slide in momentum since Aug-2020. RPK growth in Europe 'recovered' to -73.0% year-on-year in Aug-2020, from -81.3% in Jul-2020 (and worse before that). However, Aug-2020 represented 'peak recovery' for seat capacity and traffic. Moreover, the number of aircraft back in service in Europe has reached a plateau since mid Aug-2020. LCCs have returned a higher percentage of aircraft to service (74% versus 66% for all of Europe's airlines), but this is no longer climbing.

There are currently few signs in any data that Europe's aviation recovery will regain positive momentum as COVID-19 case numbers continue to increase and governments continue with fragmented quarantine requirements. For Europe's biggest aviation market, the UK, CAPA projects seats at 35%-40% of 2019 levels through the coming winter - no higher than in early Oct-2020.

The stalling of Europe's aviation recovery since mid Aug-2020 is clearly visible in data on seat capacity, passenger numbers and numbers of aircraft in service. This can be explained by a steady increase in the number of COVID-19 cases in Europe since early Jul-2020 and quarantine regimes across the continent that are unpredictable, fragmented and inconsistent. There is currently little sign that positive momentum will return to Europe's aviation recovery in the near term. Nevertheless, some encouragement can be found in Norway currently, where two developments indicate some optimism for the future.

TO READ ON, VISIT: Europe


SOUTHEAST ASIA

In this region there has been significant recent developments with the airlines. Two of the region's major players - Singapore Airlines and Cathay Pacific - have been reviewing their operations to realign themselves with the new industry environment. Both have been relatively hard-hit thanks to their reliance on international connecting traffic, although they have also both benefited from extensive state support.

Other carriers in Southeast Asia are also undertaking restructuring processes to varying degrees, including Thai Airways, Garuda, and Malaysia Airlines. As government owned - or majority government owned - airlines, they will likely receive further bailouts to survive. In the case of Thai Airways, the government sent the carrier to bankruptcy court to restructure its debt.

Things are a bit more difficult for the independent LCCs in Southeast Asia. They generally do not receive the same level of government support as the major flag carriers, so they have more challenges in obtaining funding. However, the short haul LCCs do have the benefit of fleets and networks that could be well suited to the post-COVID-19 world.

AirAsia is looking to a range of measures to raise the liquidity it needs to survive the COVID-19 crisis. It also appears to be focusing more on its core Southeast Asian operations. AirAsia's Japanese franchise shut down on 5-Oct-2020, and the group has also reportedly held discussions regarding the sale of its stake in the AirAsia India joint venture.

TO READ ON, VISIT:Southeast Asia


LATIN AMERICA

The talking point in Latin America is if Brazil can offer clues to the pace of recovery as Latin America opens? Much of the world has some sort of recovery scenario from COVID-19, but Latin America is different. A significant portion of the region has remained closed off to air travel, starting in Mar-2020, and the restart process has been occurring during the past couple of months. The next few weeks will be crucial to gauge Latin America's path to recovery.

One country that has remained open during the pandemic is Brazil. Its passenger levels, while low, are starting to climb, and two of its largest operators have been adding capacity back at a solid rate. However, traffic still remains solidly depressed, and Brazilian airlines and other operators in Latin America may have to join their counterparts worldwide in engaging in testing schemes as a means to accelerate a recovery in demand.

Most markets in Latin America have restarted their commercial aviation operations and Colombia and Peru are in the midst of restarting international flights. Those mass closures of airspace resulted in traffic in Latin America hitting bottom in Apr-2020 and May-2020, before starting to gain traction slowly in Jun-2020. But in Aug-2020 traffic was still down significantly - more than 75% - and it will be interesting to see if the increases accelerate now that markets are reopened and some international services are resuming.

TO READ ON, VISIT: Latin America


AUSTRALASIA

There have also been some key developments for airlines that will shift competitive dynamics in the Australasian market

First of all, Virgin Australia's sale to Bain Capital means that it will remain a force in the domestic market, although it will be smaller. It won't be a player on long haul routes for the immediate future, as it has dropped its current widebody fleet. However, it does intend to operate short haul international routes using its narrowbodies. An eventual return to long haul is also on the cards. A major question yet to be resolved is what happens with Virgin Australia's Boeing 737 MAX orders, and whether these will be reduced, or some switched to 787 orders. Virgin is still in talks with Boeing about the MAX orders, and more news on this is expected by the end of the year.

Another development is the emergence of a new player on domestic trunk routes, as Rex (Regional Express) plans to introduce a fleet of Boeing 737s for this purpose. The airline has plans to lease six 737s to serve the Sydney-Melbourne-Brisbane triangle, and intends to build up to 10 aircraft. Rex plans to begin on 1-Mar-2021 with the Sydney-Melbourne route, which was one of the world's busiest domestic routes before COVID-19. This is a pretty big move for Rex, as until now it has operated turboprops on regional routes. However, it has recognised an opportunity with the two major players in the domestic market in a weakened condition.

TO READ ON, VISIT: Australasia


AFRICA

Africa's prospects were looking promising, supported by improvements in infrastructure, better air transport connectivity and easing visa regulations, but despite managing COVID-19 better than expected, the continent has reached a tipping point that could see some of the barriers raised to reduce infection spread remain in place and weaken plans to finally open up the market to its full travel potential.

The return to some form of normal is the dream for most of the world, but in the case of Africa a return to normal could actually represent a step back. This year's unprecedented events could now provide the ideal platform for Africa to catch up with the rest of the world when it comes to air connectivity.

Africa had been slowly breaking down barriers between countries as it seeks to final deliver a long promised liberalisation. This year, it has been following the rest of the world in putting them back in place, closing ports of entry and imposing travel bans. Hopefully, these will be just a short-term measure in the fight against a virus that still has the potential to ravage the continent.

Safely re-establishing the continent's air connectivity is essential to re-building battered economies and the choice is revert to normal or use the current situation to finally reinvent Africa's air transport strategy and look to the future.

TO READ ON, VISIT:Africa


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