Radically Remaking the Future of the Airline Industry Post COVID

November 4, 2020 by David Nitkin | Categories: Radical Remaking | Tags: air crew, mechanics, pilots No Comments ↓

The Issue:

Expert opinion published in the past four months (July 1-October 15, 2020) on the future of the airline industry is of two types. Side-by-side, at the same time, there are some reports, articles and forecasts where the author(s) focus on industry recovering in a short one-to-two year time versus others suggesting five or more years to recover. The former might be characterized as light at the end of the tunnel revival and recovery thinking whereas the latter are gloomy, more sombre reflections on renewal and survival in an ever changing, various natural disaster possibility, risk landscape.

This blog addresses three questions:

What are the recovery versus survival interpretations of Trends, Forecasts and Challenges?
What adaptation versus mitigation innovations are proposed by sector thought leaders to develop revival, recovery, and renewal strategies?
Are the industry’s airlines, airports and service sectors so focused on massive economic challenge today that they are avoiding looking at longer range, ten to twenty year horizon, scenarios in the hope of clarifying choices?

COVID-Related Trends and Forecasting

Some industry sectors that face COVID challenges (such as aviation and transit) sustain many good jobs, whereas others (such as restaurants, retail) employ more precarious, contingent workforces. Some sectors (like aviation) generate “new normal” mitigation survival questions; others (transit, grocery retailing) discuss adaptation actions without jeopardizing long-term competitiveness.

The aviation ecosystem is a complex one, featuring airlines, pilots, air and ground crews, airport-management agencies, security agencies, cargo carriers, hotels, tourist agencies, railroads, mechanics, maintenance and sanitation-support services, commercial and retail services, regulators, and travel customers, as well as passport control and travel regulators. The major COVID-related current trends identified by these industry experts are:

commercial air travel has come to a standstill for several months
about 20 airlines globally have shut down operations or declared bankruptcy
hundreds of thousands of airline workers have either already lost their jobs or face that prospect as governmental bailouts run out or prove insufficient
of the 27,500 aircraft in service at the beginning of 2020, less than 7,500 are still flying
thousands of aircraft have been sent to storage or retired before they needed to be.

Aviation industry experts identify the following likely, near term COVID-related “new normal” forecasts:

1. No full recovery for business or leisure travel: Any “new normal” will reflect reduced air-travel demand, both for business and leisure air travel. Businesses and consumers alike will opt for virtual connections and remote working in light of budget constraints, enforced national government cross-border travel constraints, and virus uncertainties.

2. Health security is a major influence on traveller and carrier behaviour: Making passengers feel safe and secure will be essential if demand for air travel is to rise. Passenger health and safety will be a core element of the customer experience for the foreseeable future, joining speed and retail/commercial amenities.

3. There will be corporate casualties: Some airlines will emerge in a stronger position, others will weaken, and still others may fold. Consolidation and strategic repositioning is virtually assured.

4. More airline workers will lose their jobs: The United States may be looking at as many as 225,000 more airline workers losing their jobs this fall. Job losses would amount to about 30% of the total US airline workforce, and include layoffs, paid and unpaid leaves and early retirements. Those projected losses would come on top of tens of thousands of others across the global industry.

5. Pre-arrival sanitation and security upgrades: Security screening, especially pre-airport arrival, will evolve to accommodate health checks, physical distancing, and passenger self-processing. Airports will need to shift aspects of the check-in process upstream, so that passengers can complete them prior to arrival.

6. Traditional travel pricing strategies will change: The usual methods of determining prices, routes, and incentives will no longer apply in a world where passenger preferences, expectations, and even demographics may change irrevocably. For example, cheap fares may no longer attract price-conscious consumers now worried more about their health and well-being. Discounts are also likely to last only until the industry begins to see a sustained demand rebound, which will depend on the virus and development of a widely-efficacious vaccine.

7. Governments will have limits on bailout funding: With serious reduction in taxpayer revenues, government’s ability to continue relief and subsidy programs are unlikely.

8. Uncertainty about travel restrictions: Even after the pandemic begins to abate, governments may make sudden policy changes restricting travel to or from their countries or impose new requirements to protect the health of their citizens, throwing the finances of aviation organizations into disarray.

9. Fewer airlines: Between bankruptcies and consolidation, there will certainly be fewer airlines flying globally by 2023. Many of those that survive will operate simpler networks, almost exclusively built around connections through their larger hubs and markets.

10. Cheaper flights, but fewer options: For consumers, the industry contraction is likely to mean fewer nonstop flights and less choice in flights out of smaller cities. Initially, carriers may cut fares to increase demand, but the effectiveness of that strategy will be limited by economic uncertainty and high levels of unemployment in many countries.

11. International travel will remain sluggish: Only China, South Korea, Italy, Norway, New Zealand and Greece—countries seen to have shown some first wave COVID fighting success– will be able to reach levels of 75% of 2019 domestic travel demand.

12. Climate Change: Operators will be required to comply with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) which will be gradually implemented starting next year. At an IATA Green Recovery: Speaking at the Global Sustainable Aviation Forum, industry leaders reiterated that long-term climate action should be a priority alongside economic recovery in the coming years. To achieve sector long-term climate change goal to cut CO₂ emissions in half by 2050 will require:

(a) a transition in our energy source from fossil fuel to sustainable aviation fuel,
(b) the acceleration of research and development of electric, hybrid and potentially hydrogen aircraft, and
(c) investments in carbon offsetting, sustainable fuels, and radical green technologies.

COVID Recovery—Both Adaptation and Mitigation Actions:

Sustainability strategists speak of adaptation and mitigation strategies. The terminology isn’t widespread in literature on aviation futures but I’ve used the dichotomy to organize the various action proposed for this sector:

Specific adaptation category actions for specific airlines have been cited as worthy of emulation include:

1. Plan for the long-range future: Airlines, airports, and others in the aviation sector should invest in future-to-present scenario testing which could improve their ability to test aviation ecosystem assumptions as well as monitor and anticipate key trends that influence customer demand for air travel.

2. Commit to distancing and other low inter-personal travel experience contact procedures: Invest in state-of-the-art physical distancing procedures both near and long term, even once a vaccine is available.

3. Adjust your thinking on capacity: Fleets will be trimmed as older aircraft are retired more quickly and wide body aircraft, built for a pre-pandemic environment, are mothballed to save on operating costs. Fleet cuts and airline failures will undoubtedly take capacity out of the market—and no one will or should rush to replace that capacity, viewing it simply as a necessary market correction.

4. Re-engineer airports: Airports will need to strive to make as much as they can touch-free. That includes mobile concession ordering, cashless payments, touchless baggage pick-up/drop-off from the passenger’s home, and more.

5. Look to different and better answers for recognizing and rewarding workers: There is a need for alternative talent hiring and re-hiring models such as outsourcing, insourcing, reward and recognition, and gig workers—depending upon the functions. How do you best manage talent retention, given the significant financial impact of the challenges facing the aviation industry? How will you engage and work with unions to adapt the workforce to a new normal?

6. Act on shared remediation action knowledge: The June Uniting Aviation Conference identified various positive actions that were being taken throughout the COVID-19 pandemic, including:

reviewing contingency plans on a regular basis;
resource optimization;
raising awareness;
focusing on repatriation flights to minimize impact on the supply chain;
expanding cargo capacity by granting airline exemptions to carry cargo on passenger compartments;
strengthening coordination with neighboring ANSPs;
maintaining ATCOs proficiency by using simulators to manage complex ATS scenarios;
enhancing some ATS routes on a temporary basis such as between Oman and UAE;
ensuring that staff is ready to perform once operations restart;
forming different committees dealing with different crisis management aspects;
defining different scenarios/actions to manage the crisis based on the safety risk management methodology.

New Tech: Thermal Screening Helmets

7. Integrate remote and local digital system solutions: Maintain support for safety-critical and cyber-secure systems like ATM systems through a combination of local and remote solutions. Local solutions included physical support personnel and the use of support and maintenance training allowing customers to conduct these activities utilizing remote access to systems through secure connections.

8. New regulatory requirements and restrictions: In order to reduce virus transmission, airlines and airports will be required to comply with new regulatory requirements which may not be implemented consistently or in a co-ordinated fashion globally. Numerous travel restrictions will continue to change without significant notice to operators. They will include:

(a) damage claims;
(b) data breaches in health screening for COVID-19 and/or antibody certification; and
(c) compensation obligations for limited-notice customer service liabilities.

Specific mitigation category actions include these:

1. Seek patron mobility partnerships: Airlines and rail operators may sell passenger tickets on each other’s behalf, as Air France and France’s national railway company SNCF do with their TGV Air offering.

2. Enhance recovery management for equipment and Infrastructure: Aircraft stored for weeks need to be reconfigured from parking to flight mode and airports need to be made ready to receive passengers. Both processes could take several weeks. The aviation ecosystem’s ability to accelerate from a prolonged period of reduced operations – processes that can take several weeks– will need to be carefully managed.

3. Address the skills shortage of operational personnel: Thousands of skilled workers from various parts of the industry have been furloughed or had their contracts terminated. There will inevitably be a skills shortage as both capacity and passenger numbers rebound. Challenges include:

(a) updating certifications;
(b) satisfying rules in different jurisdictions;
(c) new roles and positions;
(d) seniority recall rules; and
(e) mental well-being initiatives for staff.

4. Contingency and discontinuity planning: Society was not sufficiently prepared to handle the fallout from a global pandemic. It has been known for some time that aviation can serve as a vector for communicable diseases yet significant steps were not taken to change operations when the scale of COVID-19 became apparent. Now facing a second wave, the industry will need to demonstrate preparedness.While global demand for air travel is unlikely to return to pre-COVID-19 levels for possibly several years, businesses need to be prepared for a sudden spike in demand if and when a proven vaccine is found and made available.

5. Address insolvency and debt affairs: Many businesses in the aviation sector will be technically insolvent and/or have significant debt when normal operations resume. This may complicate the running of the business and will necessitate a cultural change within many organizations on issues such as

(a) de facto nationalization obligations;
(b) aircraft owned by operators;
(c) collateral issues since most future airlines will own almost no physical assets;
(d) levels of commercial contract liability; and
(e) the implications of power by the hour arrangements with lessors.

6. Contingency Planning: Society was not sufficiently prepared to handle the fallout from a global pandemic. It has been known for some time that aviation can serve as a vector for communicable diseases yet significant steps were not taken to change operations when the scale of COVID-19 became apparent. In the event of a second pandemic, the industry will need to be better prepared, including:

(a) contingency planning for recurrent existing or new viruses;
(b) mitigation against reduced demand; and
(c) strategies addressing a sudden spike in demand if and when a proven vaccine is found and made available.

Aviation Ecosystem Scenarios

Most of the future of aviation literature has focused pragmatically upon short-term survival outweighing long-term planning. You need to survive in order to operate years down the road. The dominating factors of recovery planning were addressed only after it was assumed or explained how survival and business continuity came first, followed by re-prioritization of products and services and reaching to look for new opportunities using data analysis and think tanks.

COVID-19 will have three phases of impact on air transport: initial, current and future. In the initial phase of the pandemic, suppliers for example agreed that the safety of their personnel and security of their assets took first priority. The challenges during that phase were mainly revolving towards access to their facilities and how the situation was affecting the supply chain, while in the current and future phases the challenges involved service, strategic and investment priorities.

Publicly-cited scenarios are typically two to three year horizon. An ICAO effort involved four different paths considered across ten Scenarios for passenger seat capacity compared to Baseline (business as usual). The four paths plotted against actual (January to September 2020) and a V-shaped path (reference only, based on the latest airlines schedules), included the “Nike swoosh”-shaped path; a W-shaped path; a U-shaped path; and an L-shaped path.

Conclusion:

Aviation will recover. But it will take unprecedented collaboration, greater digitalization and data-sharing, and better-executed adaptation and mitigation strategies across the ecosystem to ensure the industry emerges from the pandemic more responsive, more agile, and more financially sustainable than ever before. There is opportunity now to develop a new model for the future of aviation which puts assumptions involving longevity, disaster preparedness, and sustainability of the industry at its core.

The Issue:

COVID-Related Trends and Forecasting

COVID Recovery—Both Adaptation and Mitigation Actions:

Aviation Ecosystem Scenarios

Conclusion:

Further Reading: