When I wrote the first version of the story that was published in WiT three weeks ago, I used less data than is now available. Now I think we have a better view of the situation. Thus I am revising my timeline and it’s not pretty.
Stage 3 was supposed to end with March. There are still repatriation flights occurring across the world. The UK is repatriating citizens from India. The Cyprus government is helping to repatriate UK citizens back from the island nation. The US State Department is still getting people back from Africa. The vast majority will be complete by the end of next week.
Stage 4, I believed previously, would galvanise the stakeholders in the airline industry – not least of which would be the governments – to form consensus groups together to create solutions that would start the process of a planned return to some degree of normalcy. Sadly, this is not happening.
Unlike the period after 9/11 when there was unprecedented cooperation between countries and commercial stakeholders in support of the air transportation system, there is little of that going on. Much criticism needs to be levelled at the USA for its failure to participate, let alone lead.
Thus I believe now that Stage 4 will extend out – for Europe and North America this will likely mean Stage 4 will last until September. Thus the Northern European summer season is now shot. This recession, at least as far as the aviation market is concerned, is an abrupt “L” rather than the somewhat rosy view of traditional economists who wrote reports showing “V” or “U” shaped recovery models.
I fully expect to see World Travel Market cancelled or drastically reduced in size. Other major events too will be cancelled and some events will never return. What happens in stage 4 and the extent of positive action will have a direct impact on the speed and slope of recovery. China’s singular focus will pay dividends. USA’s procrastination and stumbles will doom it to a long and painful period. The USA economy which depends so much on air travel will falter.
Stage 5 – most of the airline industry has accepted this new truth which includes a three- to five-year recovery model, but the looming challenge is the cash burn of so many of the airlines will mean that many of them will now be facing down the barrel of bankruptcy. The unevenness of the recovery will start to appear.
I believe that China and certain other countries such as Taiwan and South Korea will also be at the new normal a lot faster. The balance of this year (2020) will dissolve into recriminations, more bailouts and no cross industry solutions. As we enter the fourth quarter – irrespective of the success of containment of Covid-19 – fears of the next wave of a virus-like disease will curtail any possibility of recovery.
The sheer magnitude of the downturn will now start to dawn on the human race that the extent and length of the downturn will be three to five years, rather than just a correction. Stage 5 will occupy a time period now well into 2021. Already there is some talk of the Olympics not making it even in 2021.
My view is that the longer there is a delay in bold decision-making in Stage 4, the greater the likelihood is of regulation and the more extensive its form. Recognition that the air transportation system is a strategic asset will see (re)nationalization of some airlines. And right in the cross-hairs is IATA. This venerable organization will have to face the reality of a massive cut in its budget. That impact will start to become apparent at the end of 2020.
Stage 6 – the recovery will be slower and start a lot later. That gentle slope will hide the extent of the re-crafting of the airline sector and the travel industry as a whole. We will see far fewer players. We will see higher prices and subsidies. Travel will lose a lot of the edge of attractiveness. With unemployment in many countries like USA hovering at an unprecedented 10% into late 2021 or even into 2022; discretionary spending priorities will change for a very long time.
My sense now is that the hard line between stages 6 and 7 will not be as apparent. There will be no cheering on reaching that milestone.
Whatever the timeline – we will have a lot more “have” vs “have not” discussions in the coming years. Over capacity of supply, and “over-tourism” will be far less of an issue.
The biggest change will be the revolution in the infrastructure of our industry. Digital will sweep away so much that is manual. Legacy structures will collapse in the face of the need for low cost solutions. Governments will have to step back in to regulate and preserve the system in ways they have not had to consider in now decades. I remain cautiously optimistic but the lack of progress haunts my thinking.
• Timothy O’Neil-Dunne is principal of 777 Partners
• Featured image credit: LuckyTD/Getty Images
