Aviation and Coronavirus.

There is perhaps no industry more severely impacted by Coronavirus than aviation. The European low-cost airlines Easyjet and Ryanair have grounded their entire fleets and other major airlines such as Britsh Airways and KLM are operating bare-bones services focusing only on repatriation and cargo flights. This story is replicated in every country globally. The aviation industry has seen similar albeit smaller shocks in the past - 9/11, SARS and financial crises have all in some shape or form fundamentally changed the way in which the industry operates. I believe the short term will bring little change other than the cessation of already weak airlines and business models, with the longer-term bringing a paradigm shift in the way the industry functions.

Aviation has traditionally been very reactive with little emphasis focussed on predictive measures to lessen the impact of events. The industry was blindsided by the 9/11 attacks and it didn’t take a genius to understand basic weaknesses in security that were easily bypassed. It took years for the industry to recover with many large scale bankruptcies and government bailouts in-between. This brings us to issues of liquidity and profitability. In recent years the global industry has been consistently profitable which is a great thing, but due to the unpredictable nature of the industry, the majority of the profits are skimmed off by investors leaving little cash for airlines to operate on. A prime example of this was Easyjet failing to halt its dividend payments despite being fully aware of the severity of the pandemic. Taking this into to consideration, I don’t believe state bailouts are necessarily a good option as it would mainly rescue creditors and, potentially, shareholders, who knew they were taking a risk when they lent funds to or bought stock in these companies.

The aviation industry will, of course, bounce back as it has done in the past, however, I believe that there will be a few significant changes. This pandemic has highlighted the importance of air cargo and the need for the fast, efficient, transport of goods globally. Commercial airlines are already adapting to this with the bulk of their current traffic being cargo, a potential reduction in the cost could come from the increased and scalable supply that is currently available making air cargo more accessible.

We may also see a very fast and very steep resurgence in the number of passengers as quarantines are lifted globally. However, I believe business travel will reduce over time especially as we’re all going to become more accustomed to doing video conferences and virtual summits through zoom and other means. The advent and roll out of new technologies such as 5g and virtual reality will facilitate this further.

Not even taking coronavirus into account, it is difficult to put sustainability and aviation into the same sentence, given the carbon-intensive nature of aircraft. Airlines may be able to take advantage of the current oil war between Saudi Arabia and Russia and hedge fuel prices, but in the longer-term investors may start to look for more sustainable forms of rapid transit - Hyperloop is only 10/20 years away from being a reality and it is perfectly feasible seeing this replace the majority of short-haul air traffic.

The industry will emerge in the short term with the same high-density seating, unhygienic airports and unfair baggage charges. In the longer term, we will see the emergence of something novel and new, perhaps it will lead to a more prepared and financially robust industry. Only time will tell.


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