Previewing the third edition of the monthly CAPA Live event, which takes place though 09-Dec-2020, CAPA - Centre for Aviation chairman emeritus Peter Harbison said: "It's important to recognise the fact that the news on the vaccines reflects an amazing feat of science, to go from a gene sequence on 10-Jan-2020 to a vaccine by the 10-Nov-2020. It was probably never believed that anybody could do this when we talked about it earlier in the year, but it's been done and it's remarkable. The rollout goals are really very aggressive too - and I suppose that's reasonable having been able to get to this state so quickly".
But it's not going to be plain sailing. We're looking at really big second or third or even extended first waves occurring, in America particularly, and in Europe. There's the continuing tug of war between looking after the economy and looking after the populace. "For the US and Western Europe, it's going to get a lot worse before it gets better," says CAPA. And for airlines getting from here to there is a question of 'How long can you hold your breath in terms of cash burn?'
IATA is forecasting another 12 months of cash burn, until we start to see an industry which is profitable again. And that has implications because it has got to be planned for. We cannot just continue to hold our breath and hope it's going to go away. And during this coming 12-month period we're going to have something like USD200 billion of additional debt added by the industry. Now, just the interest payments on the industry's debt load will be greater than most of the annual profits for the entire aviation industry over the last 20-30 years.
"So there are going to be some really serious headwinds, however quickly we can get the vaccine operational and markets opened up. It's going to hurt, and we've got to have contingencies in place to prepare for that, and/or see some radical changes in the industry," says CAPA.
The economic recession we're going into will be the worst since the Great Depression. The OECD warns that the median advanced and emerging market economy could have lost the equivalent of four to five years of per capita real income growth by 2022.
Now, that's not just a 'side issue'. That does say a lot about what the purchasing power of likely consumers of the aviation product is going to be - it will be impacted. It is also going to be hard for airlines to get the premium traffic flying again, to get large numbers of what has become, particularly in Asia, a very price sensitive market.
IATA's median baseline traffic forecast sees the industry overall in terms of global RPKs not getting back until 2025 or beyond. And at the lower end of IATA's prediction - the forecast sees 2010 levels of demand still persisting right through 2024. And on the top range, almost back to the baseline projection.
"So much depends on what happens in international markets," notes CAPA. "If we're going to regrow the international markets, there has got to be some intermediate period before the vaccines are fully effective. Some strong interim capability of allowing people to travel between nations. And that means crossing borders in some way that's acceptable to each of the countries involved," it says.
Then there is the saying, 'but there's a massive pent-up demand for travel'. Yes, of course there is. We haven't been travelling internationally since early 2020, but there's also a large proportion of the passenger cohort that will remain fearful well into 2021 and even beyond, even with the vaccine and any alignment on procedures and processes in the travel chain.
But we can't rely on the vaccine as the saviour for the industry. IATA's forecasts are based on the expectation that the vaccines will be deployed in the second half of 2021 on a wide scale. There's still a lot of production and distribution issues that have to be gone through, and add to that, inevitably, a lot of political issues too. In terms of rollout of the vaccine, it will be lumpy between different emerging and emerged markets.
"As a result, government support or progress on the use of testing to accelerate market opening will be critical for the survival of airlines in many regions over the next six to nine months," says CAPA.
CAPA offers a regular and predictable programme in these unpredictable times with CAPA Live, a virtual monthly programme spanning the rest of 2020 and the whole of 2021, delivering great content, news, data and opinions from the leaders of the industry.
