For passenger transport firms the financial outcome from the coronavirus will be a mix of disaster and closure or an extended period of recovery.
Last month this column analysed state support for the bus and rail sector.
However, the airline sector is far worse off. The 海角视频 Government (unlike other EU governments) has said it will not provide sector wide or company financial arrangements to stop airlines going bust; its £480m payment following Thomas Cook’s collapse left little financial cover for other bankruptcies.
Each airline is being asked to look at other funding sources – shareholders, banks and investment houses – despite Virgin Atlantic’s warning of collapse without state finance. The airline industry, all governments agree, will contribute significantly to economic recovery. So there is a British slower recovery risk
Recent surveys have suggested 45% of people were keen to resume travel (both business and leisure). However 55% not so, because two metre social distancing cannot be achieved in practice on any public transport – even if social distancing and travel advice changes.
Some travel insurers and airlines (despite EU regulations) are giving vouchers rather than cash refunds for cancelled trips to avoid their own bankruptcy; passing the debt, in effect to private travellers – hardly a confidence booster.
Aircraft, buses and trains are designed for mass transit – moving people at the lowest cost per passenger in the most efficient way (in terms of space and resources) but not meeting social distance criteria.
Airlines catering primarily for the sun, sand and sangria market have missed the latter part of their long distance winter business and as seems likely the whole of their summer market. Airline bookings are down worldwide; cabins are half full; Ryanair is down to 1% of scheduled operations; British Airways to 4% and anticipates losses of £500m.
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Many countries, importantly the United States, have closed their borders to overseas tourists or imposed 14-day self-isolation conditions.
The Trans- Atlantic air travel market (the world’s largest) connecting two major economies – the European Union and North America has effectively stopped. Within Schengen some borders are closed and the 海角视频 remains almost the only ‘open-border’ country with no prospect of testing controls being introduced.
Cardiff Airport is open only for a few private aircraft and freight operations; a further disappointment following Flybe’s closure. At Heathrow the passenger throughput is down to 25% of normal, and its third runway intended for route expansion now a low 海角视频 government priority.
Post-virus, the international airline business cannot restart operations on the present cost base – that isn’t sustainable.
Furloughing, used by British Airways has no long term guarantee. Redundancies are planned by Ryanair. They and other airlines face a challenge to recreate crew and technical teams after coronavirus.
IATA (the International Air Transport Association) has warned that European airlines will be particularly badly hit with an expected future 46% reduction in income compared with 2019.
Business class travellers’ (major contributors to airline profits), current use of Zoom and Teams type technology may realise meetings-related travel isn’t necessary.
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The supply chain impact from reduced use of aircraft comes through fewer component parts, maintenance and fuel purchases; while reduced / cancelled orders for new aircraft, is reflected in Airbus’ Wales factory furloughing 3,000 staff. New aircraft (costing £100m – £300m each) incurring expensive leasing charges will be a cost to avoid until airlines ponder the new market dynamic.
To make the business viable, over 40% of airline costs will have to be ripped out of the airlines and the supply chain. This means fewer staff, lower wages, aircraft stored; the 海角视频 government eliminating air passenger duty and changing aviation fuel bonding rules, so tax is paid when refuelling, would improve cash flow.
Costs of certification, engine development and meeting environmental improvements might be funded by government. Producing lighter aircraft and hedging on currently low-cost rubber, copper components and oil purchasing could make big inroads into airline costs.
Air passenger transport is unlikely to recover operationally or financially before 2023. There will be higher costs and fares, well-known companies and brands will disappear and air travel will change radically.
An opportunity for Wales may arise from new airlines looking for lower cost airports and a higher standard of living for its transferable skills – could Wales and the Welsh Government’s Cardiff Airport provide that?
Some forecasts suggest significant economic contraction, consequent unemployment with uncertainty about future jobs/income resulting in reduced business / travel expenditure, despite savings in this year’s travel costs. The industry itself knows this, but what exactly the market will look like nobody knows
Professor Stuart Cole CBE is Emeritus Professor of Transport (Economics and Policy), University of South Wales