WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
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COVI D -1 9: TH E B I G QU E S TI O N S
WHAT WILL THE AIRLINE INDUSTRY
LOOK LIKE POST COVID-19?
Why the era of cheap flights may be over
JUSTIN WASTNAGE | APRIL 2020
Introduction There are, of course, forecasts that are far more
pessimistic than President Trump’s initial hopes
The novel coronavirus is first and foremost an for a resurrection by Easter weekend. There
international health disaster. A quarter of the are many epidemiologists and virologists who
world is under restricted conditions, if not total recognise this as the devastating pandemic they
lockdown. Yet, sadly, this pandemic will be meas- have warned about for decades.4 Both health
ured almost equally in the economic damage it professionals and economists recognise this as a
wreaks as in the tragic loss of life that it will no pandemic that could shutter the global economy
doubt provoke in its months-long reign of terror. for years and lead to another great depression.
COVID-19 will destroy the travel and tourism This pandemic was caused, in part, by air trans-
industry. The World Travel and Tourism Council port. Just as the (erroneously named) Spanish
estimates a decline of 13 per cent of economic influenza pandemic of 1918-19 was spread by
input from the sector globally within a month. In the global transport of returning troops from the
February, inbound flights to some Asian cities fell Great War, so too, COVID-19 was spread to all
by more than 75 per cent.1 The same happened four corners of the globe by rapid travel. The
globally in March.2 By April, ghost flights within most effective method was by air; infected trav-
the United States were flying with sole passen- ellers from the epicentre in the Chinese city of
gers on board.3 The United States Transporta- Wuhan on work trips to Singapore and Tehran,
tion Security Administration screened fewer than among other transit hubs. Of course, some of
130,000 air travellers on 3 April 2020, compared the most effective vessels of transmissions have
with 2.5 million on the same day in 2019. proved to be cruise liners, whose capacity to
incubate disease has long been known.
Commercial air travel is the leading In Australia, Rex Regional Express has entered a
edge of COVID-19 industrial impact trading halt and Virgin Australia has announced
mass redundancies. Qantas Airways, with
Commercial air transport is at the forefront slightly more time up its sleeves, has been
of COVID-19. No industry has been hit harder redeploying staff and grounding flights while
or more rapidly. In February 2020, more than taking up its case with government, hoping
20,000 cities were connected by commercial the extent of its workforce, the reliance by
flights. In late March 2020, this had fallen to just government on its services and its national
6,500.5 carrier and challenger status will hold it in good
stead.
Travel bans have descended not just between
countries, but in many federal countries, along
state lines too.6 By early April 2020, commercial
air transport had ceased to exist as a frequent
means of travel in most developed countries.
Domestic, as well as international flights are
unviable as physical distancing measures
mean no movement outside personal homes
is permitted.
In a matter of weeks, the airline industry
worldwide has been brought to its knees by
this new coronavirus, with carriers slashing
schedules, thousands of aircraft grounded,
employees put on indefinite leave, and airports
devoid of passengers.
A Boeing employee rides a lift in front of a Boeing 777 passenger plane
engine on one of the assembly lines in Everett, Washington state (Getty)
Aerospace, the industry of making aircraft has
been hit hard as well. Although there is a usually
a four- to six-month lag between dips in airline
The United States commercial
fortunes and those of the airframers, Boeing and
air industry is already
Airbus have both been eyeing up government
bailouts since mid-March. Their teams of
teetering on the edge
economists know just how catastrophic this Looking at the United States, the highly interwo-
pandemic will be, even if some are still talking ven air transport industry already appears to be
of 15-day crises and temporary blips. fraying at the seams. In the week to 18 March
2020, US airlines said they needed US$50 billion
Australia’s dramatically smaller aerospace
to survive, United Airlines grounded half its fleet,
industry has seen subcontracts dry up as
WestJet suspended its international opera-
backlogs disappeared overnight following the
tions. US regional carriers Compass Airlines and
scramble by global airlines to cancel aircraft
Trans States Airlines were the first US carriers
orders planned into 2024.
to announce plans to cease operations in early
April. Transat and Porter Air all followed suit,
while dozens of air traffic control towers are now
closed due to staff testing positive for the virus.7
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
2
The knock-on effect is that despite Boeing’s The United States, responsible for some 37 per
request for a US$60 billion bailout for the entire cent of all air traffic across the globe, is in lock-
aerospace industry (which led to former US down in most states.8 Pandemic is not covered
Ambassador to the United Nations Nikki Haley by most insurance policies for businesses, leav-
resigning from the Boeing board in protest at ing many employers to push the envelope,
state aid), aerospace manufacturers have already potentially exposing many more to the virus.9 The
started hitting the wall. Boeing, which has major United States is not alone in its slow response,
operations in one of the COVID-19 hotspots of other countries like Australia and the UK have
Seattle, Washington, has closed its assembly lagged behind economies such as Taiwan and
lines until further notice. Smaller US firms, like Singapore in flattening the infection curve.
Longview Aerospace have also announced they
Many of the world’s southern states, especially
will suspend production of Bombardier Dash-8
those in South America — on whose economy
Q400s and de Havilland DC-8 Twin Otters.
the United States is interlinked — have neither
So what does this mean for the future of air the resolve (in the case of Brazil) nor the fiscal
travel? The plain answer is that its future is in space to invoke the massive public intervention
grave doubt. required to halt the spread.
Figure 1. Change in the number of flights tracked compared to the same day a year earlier
Global United States China Europe Middle East
January 23 January 31 January 31
Wuhan is United States partially United States bans
locked down bans flights from China flights from Europe
25%
0
-25
-50
-75
-100
January 2020 February March
Source: Reuters; flightaware.com
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
3
What’s next?
The current estimate as to how much the airline
industry will lose this year has been published
by the International Air Transport Association.10
It points to around US$250 billion in lost
income for the year. This would see 2020 some
45 per cent down on 2019, assuming the travel
restrictions ease by the middle of the year.
In Europe, most low-cost airlines are grounded
until May, with airports also closed. In the
United States, meanwhile, some US$40 billion
of the US$2 trillion federal government bailout is
earmarked for airlines, to cover their operations
Flight routes may move back to the hub and spoke model, putting a pause
just until the end of April. on the more recent move towards secondary cities (Getty)
That assumes the peak is in April.
But if, as some epidemiologists suggest, that the 1. How the air industry may respond
peak is more likely to be July, August or October › Onboard social distancing once business
in the United States, then a far different scenario resumes. For commercial flights, this
will emerge. The World Trade Organization may mean leaving the middle seat free
rules on state aid to airlines will come under in economy. For those with access to
test, as more and more comprehensive bailouts business jets, there will likely be a boost in
and nationalisation programs take hold. private aviation as the super-rich exercise
For now, airlines will focus on flying in medical social distancing via executive jets whisking
supplies and aerospace manufacturers can them and their families between meetings,
convert some of their facilities to produce with little risk of exposure to COVID-19.
ventilators. This will provide short-term Although private aviation is currently
meaning to their employees and communities. down some 75 per cent, due to movement
But longer term, things look dire for the global bans, the National Business Aviation
air transport industry. Association predicts an upswing from
those needing to access remote airports.11
Likely trends and potential scenarios › A rise in cargo operations from all
commercial airlines offsetting lost
Should border shutdowns proliferate and passenger traffic, leading to a price war
air travel effectively be banned until the end that could undercut sea freight. Coupled
of 2020, the global air transport system will with the boost in home delivery, express
collapse. This is clearly the worst-case scenario package couriers like DHL, FedEx and
and there are other, less severe potential UPS will face competition from postal
endgames for the air industry, governments services using national carrier’s belly
and passengers. freight holds. The Australian Government,
for example, released a A$110 million
International Freight Assistance Mechanism
to assist Australia’s agricultural and
fisheries export by subsidising flights.12
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
4
› An end to thinner routes and a return to › The proliferation of novel start-ups President Donald
Trump holds
hub-and-spoke operations. During the beginning in 2021. The availability of up a picture of
early 21st century, airlines globally used low-interest credit, combined with a a Boeing 747
Dreamlifter
300-seater aircraft such as the Boeing glut in pre-owned aircraft becoming during a
787 Dreamliner and the Airbus A350 to available at discounted costs will allow briefing on the
coronavirus
open up new city pairs, linking secondary for a third wave of budget carriers. pandemic
briefing (Getty).
cities with secondary city, bypassing
the hubs. After COVID-19, however, with
2. How the government may respond
a severe curtailment to international
routes, only the thickest (also known as › The government takeover of privately-
trunk routes) will survive. The Boeing 787 owned national carriers, reversing
Dreamliner and the Airbus A350, while 40 years of liberalisation. While less
essential in a few years’ time, will be likely in the United States, the national
furloughed as the far larger Boeing 747 ownership provisions of the Chicago
jumbo jet and Airbus A380 superjumbo Convention seem comforting right now.
continue to ply the long-distance, high- The ability of national governments to
capacity air routes that remain. protect air routes into their territories,
while loosened over decades, provided
› The focus on synthetic fuels and alternate
some cover after 9/11, with bankruptcies
propulsion to ease as airlines scramble
limited to Belgian national carrier Sabena
for survival. With biofuel costing at least
and Swissair in Europe. US carriers were
five times more that of traditional ‘jet A
able to enter bankruptcy protection.
fuel’, airlines will be asking for extensions
in their environmental pledges. › Increased state intervention in airline
activities. This may be operational,
› The tumbling of airline CEOs’ salaries.
but more likely to be in the form of tied
The US aviation assistance package, some
bailouts or conditional restructuring loans.
US$78 billion of the US$2 trillion, is for
Either way, expect government around
loans and payroll support for airlines and
the world, even the United States, to start
aviation industry workers. However, in
specifying what they expect to extract for
a portent of a correction, executive pay,
their interventions. These conditions may
stock buybacks and dividend restrictions
be counter to what an unchained business
are all in place to ensure the money
community would ordinarily want, but a
flows to maintain employee levels, rather
necessity in these unchartered times.
than reward the highly paid C-suite.
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
5› A government intervention of filling 3. How airline customers may respond
planes with government employees in
order to restore connectivity between › Corporates become reluctant bookers
cities as part of recovery efforts. More of air travel even once routes re-open.
likely are generous bailout packages that The duty of care provisions will bar most
expand airline route subsidies like the employers from allowing staff to travel to
US Essential Air Services scheme, or the COVID-19 affected territories. This will have
Regulated Routes program in Australia. knock-on effects for high-value forward
These schemes are funded by federal or bookings for airlines. For example, if a
state governments to underwrite air routes company’s health insurance provision
that in theory would not be economically prohibits placing that employee in danger
viable without government support, in for health reasons, that is likely to include
order to provide economic linkages. The unsanitised hotels, certain destinations
US scheme, designed in the 1970s, is often and even airlines that do not comply.
regarded as part of the pork barrelling The compliance industry conversely
armoury of senators and congressmen, will be bolstered as corporates will seek
who deliver cheaper air travel subsidies assurance from an accreditation body
to their communities. The Australian that the accommodation and transport
schemes, largely delivered by the states, options chosen by their employees are
are also useful in supporting regional safe and clean. In the United States, with
communities, albeit less overtly politically. health insurance provided by employers,
the last thing they want is employees
› A new virology status is demanded exposed to new COVID-19 infections.
between countries. Akin to yellow
fever certificates — a certificate proving › Premium economy seating spaces
that an individual has received a yellow become the norm, albeit at a higher
fever vaccination — travel will only be cost. As physical spacing rules become
possible between countries declared commonplace, passengers will request
COVID-free for at least 40 days. Once air greater seat pitch once they resume
travel resumes, it will be only between flying. More legroom, even if the
those territories declared virus-free. tradeoff is less frequent flying, could be
a feature of mid-2020’s air transport.
› More checkpoints at many more points
in the journey. As with previous epidemics,
such as Severe Acute Respiratory Syndrome
(SARS), heat sensors will be a part of
airport protocol. More onerous will be
itinerary disclosures that will allow local and
national health authorities to track arrivals’
movements. This may not be Chinese-style
electronic tracking, but rather a handing
over of travel agency data to authorities.
› The waiving of departure taxes, fuel taxes
and visa fees — all designed to recoup costs
borne by government for air travel — waived
in an attempt to stimulate growth. For those
able to fly, there will likely be some very
attractive fares in the market for 2021.
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
6ENDNOTES
1. “As Western flights shut down, Chinese routes 7. Pilar Wolfsteller, “Week of 16 March in
are opening again,” The Economist, 21 March review: North American carriers reel
2020. Accessed online: https://www.economist. from coronavirus fallout,” Flight Global, 21
com/graphic-detail/2020/03/21/as-western-flights- March 2020. Accessed online: https://www.
shut-down-chinese-routes-are-opening-again flightglobal.com/air-transport/week-of-16-
2. Jamie Freed and Tracy Rucinski, “Airlines march-in-review-north-american-carriers-
and governments put the brakes on travel reel-from-coronavirus-fallout/137452.article
as coronavirus continues to spread,” 8. Elena Mazareanu, “Available seats in aviation -
World Economic Forum, 13 March ranking of countries 2019,” Statistica, 9 October
2020. Accessed online: https://www. 2019. Accessed online: https://www.statista.
weforum.org/agenda/2020/03/travel- com/statistics/270191/ranking-of-the-countries-
industry-coronavirus-contagion with-most-available-airline-seat-kilometers/
3. Tracy Rucinski, “Single passenger flights: 9. Todd C. Frankel, “Insurers knew the damage a
The daily woes of airlines, and the crew still viral pandemic could wreak on businesses. So
working,” Reuters, 5 April 2020. Accessed they excluded coverage,” The Washington Post,
online: https://www.reuters.com/article/ 3 April 2020. Accessed online: https://www.
us-health-coronavirus-airlines-usa/single- washingtonpost.com/business/2020/04/02/
passenger-flights-the-daily-woes-of-airlines- insurers-knew-damage-viral-pandemic-could-
and-the-crew-still-working-idUSKBN21M0TW wreak-businesses-so-they-excluded-coverage/
4. Peter Daszak, “We Knew Disease X Was 10. Mark Caswell, “New IATA estimate shows
Coming. It’s Here Now. We need to stop coronavirus could cost airlines $250 billion,”
what drives mass epidemics rather than just Business Traveller, 25 March 2020. Accessed
respond to individual diseases,” The New online: https://www.businesstraveller.
York Times, 27 February 2020. Accessed com/business-travel/2020/03/25/
online: https://www.nytimes.com/2020/02/27/ new-iata-estimate-shows-coronavirus-
opinion/coronavirus-pandemics.html could-cost-airlines-250-billion/
5. Imam Ghosh, “This chart shows how 11. “Point of Impact: COVID-19 Impacting General
airlines are being grounded by COVID-19,” Aviation Airports,” National Business Aviation
World Economic Forum, 21 March 2020. Association, April 2020. Accessed online: https://
Accessed online: https://www.weforum.org/ nbaa.org/aircraft-operations/safety/coronavirus/
agenda/2020/03/this-chart-shows-how- covid-19-point-of-impact/point-of-impact-
airlines-are-being-grounded-by-covid-19/ covid-19-impacting-general-aviation-airports/
6. “Some American states are curbing travel to fight 12. “COVID-19: Support for Australian businesses,”
the coronavirus. More restrictions are likely to Austrade, 6 April 2020. Accessed online:
follow. So are lawsuits,” The Economist, 5 April https://www.austrade.gov.au/news/
2020. Accessed online: https://www.economist. news/novel-coronavirus#heading0
com/united-states/2020/04/05/some-american-
states-are-curbing-travel-to-fight-the-coronavirus
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
7ABOUT THE AUTHOR
JUSTIN WASTNAGE
Non-Resident Fellow
Justin Wastnage is a Non-Resident Fellow at the United States
Studies Centre at the University of Sydney. He is the principal at
aviation and tourism policy consultancy Message Shapers. In this
position he has led research projects into cruise ship access options
for Sydney Harbour, air transport access to New Caledonia and
work around privatisation of council-owned airports in New South
Wales.
Justin currently sits on the board of Aviation/Aerospace Australia,
the country’s peak body for the aviation and aerospace industries.
Previously, Justin was the director of aviation policy at the Austral-
ian industry group Tourism & Transport Forum. In this role he led
several successful research projects around issues including the
Australian-New Zealand air transport market, the impact of visa
facilitation on air transport demand to Australia, and the integration
of public transport to airport precincts.
Prior to this, Justin worked for more than ten years in aviation and
travel journalism.
Cover photo: Travellers arrive at a nearly-deserted O’Hare International Airport
on April 2, 2020 in Chicago, Illinois (Getty)
This publication may be cited as:
Justin Wastnage, “What will the airline industry look like post
COVID-19? Why the era of cheap flights may be over,” United
States Studies Centre at the University of Sydney, April 2020.
UNITED STATES STUDIES CENTRE
WHAT WILL THE AIRLINE INDUSTRY LOOK LIKE POST COVID-19?
8The United States Studies Centre at the University of Sydney is a university-based research centre, dedicated to the rigorous analysis of American foreign policy, economics, politics and culture. The Centre is a national resource, that builds Australia’s awareness of the dynamics shaping America — and critically — their implications for Australia. The Centre’s Innovation and Entrepreneurship Program is a research initiative focused on under- standing the United States as an innovation leader with a view to developing insight for the benefit of Australia. Research areas include business, technology and policy trends in the United States in the areas of innovation and entrepreneurship, including in AgTech, venture capital, industry clusters and defence industries. UNITED STATES STUDIES CENTRE Institute Building (H03), City Rd The University of Sydney NSW 2006 Australia +61 2 9351 7249 us-studies@sydney.edu.au USSC.EDU.AU Research conclusions are derived independently and authors represent their own view, not those of the United States Studies Centre.
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