The past couple of weeks have highlighted the reality that despite the start of vaccination programmes it will still be a challenging year ahead for us all. For air travel the prognosis still remains especially bad as COVID-fuelled government mobility restrictions, self-isolation requirements and quarantines continue to limit demand.
CAPA – Centre for Aviation founder and chairman emeritus, Peter Harbison, has issued a blunt warning to the global aviation and travel industry at the outset of 2021 – that vaccines are “not the solution” to the problems the industry faces. He also warned that the absence of corporate travel will significantly undermine the economics of long haul flying.
The call comes prior to this week’s CAPA Outlook presentation that Mr Harbison will deliver as part of the monthly CAPA Live virtual event series. The January edition will play live, globally, on 13-Jan-2020. “There seems to be a failure to diagnose what the problem is, rather than rushing straight to the solution for airlines and particularly international airlines. So, diagnosing the challenge is essential to solving it, for without diagnosis there can be no cure,” he said.
According to Mr Harbison, vaccines will just be a ‘sideshow’ for international aviation for most of 2021, and the direct and flow-on impact of the new vaccines will be ‘very limited’, for a variety of reasons. These, he says, include the key fact that the roll-out of vaccines will take many months, and we have already seen significant delays and clear indications of difficulties in the supply chain.
Additionally, he notes that vaccination priority is going to be given to categories who actually have, in most cases, lower travel propensity. The younger, healthier people will not receive vaccinations till later in 2021 – that’s if they receive them at all in 2021,” says Mr Harbison.
Then, he acknowledges, there’s the point that no one is vaccinated until everybody is vaccinated. Many countries will be left out in the first rounds, while the rich countries sadly seem to claw the vast bulk of vaccines to themselves.
Then, he says, there’s the issue of the number of vaccines and recognition of the many vaccines and setting of safety standards. This remains with national health authorities, and they have varying levels of risk tolerance. Consequently, quarantine requirements will persist for many months, and borders will close and open unpredictably, as circumstances change, he warns.
It will be a very different environment when air travel returns and most trunk routes “will not be commercially viable,” according to Mr Harbison with the absence of corporate travel significantly undermining the economics of long haul flying.
The revenue profile for airlines in this first half of 2021 looks ‘something close to catastrophic’, given that they’ve been holding their breath for so many months already. It should improve in some markets in the second half of 2021, particularly towards the end of the year, but with only modest acceleration after the end of the first half.
There will also be very limited business travel, “perhaps as much as 50% of previous levels” in the second and half of the year, “but even that’s probably optimistic,” warns Mr Harbison. Many countries will only allow very limited and fluctuating access, making scheduling, and pricing, and the whole array of things extraordinarily difficult.
Most European and US major airlines rely heavily on international profits, especially on the North Atlantic where there’s less competition, and there’s a lot of business travel. And at the other end of the line, shorter-haul feeder services are increasingly competitive and lower yielding.
“So, the whole supply chain, as it were of the full service carrier, is being very, very significantly attacked in this environment”, says Mr Harbison. As a result, the CAPA Founder concludes that in one way or another, “government subsidies are going to be needed to maintain core international truck routes, at least in the short term, because they’re going to be largely unviable at least until well into 2022”.
Mr Harbison explains which airline business models are best suited to the current and evolving circumstances, noting that conditions will suit the LCC models best. “They’re usually best positioned to benefit from the recovery process after a major shock. And the recovery will be led by domestic and international short haul leisure markets”, he says. In his presentation he also explains the outlook for major transit hubs in the Middle East, Singapore, Hong Kong, as well as the establishment of bilateral bubbles.
Mr Harbison’s presentation will screen at 13:00 GMT on 13-Jan-2021, and registrations are available here: CAPA Live Jan-2021
This month’s CTC – Corporate Travel Community supported corporate travel content includes:
- The CTC Masterclass where Neil Glynn, managing director, Credit Suisse; Jen Barclay, a CTC council member; and John O’Shea, senior research analyst, Ord Minnett; analyse the year ahead.
- Benson’s Bow-Tie Briefing where Dr Benson Tang, executive director, CTC – Corporate Travel Community speaks to Hansang Lee, purchasing manager, Continental to get the travel buyer perspective.
- The Corporate Travel Critical Thinkers Panel which this month is entitled ‘A new TMC pricing model is inevitable – Help us shape it, or accept it’ with Martin Warner, principal, MW Travel Consultancy, being joined by Clive Wratten, CEO, The BTA, and Dr Benson Tang, executive director, CTC – Corporate Travel Community