Low cost carriers might just be the right model for the post-Covid world, said Scoot’s CEO Campbell Wilson, but recovery is still some distance away.
Speaking at CAPA’s virtual Australia Pacific Aviation Summit, Wilson suggested “this is a good time to be an LCC for a few good reasons”.
“One, we are typically point-to-point operators and not hugely reliant on hub aggregation. Two, we mostly carry leisure and are not so reliant on corporate budgets and business class travel; three, typically it’s regional travel so it’s close to home and people’s risk perception follows familiarity – household budgets, annual leave, quotas will all play into regional travel; four, it is low-touch service model and people don’t like touch at the moment; it’s lower cost and lower price.
“For all those reasons, at the moment, I feel the LCC model is probably going to recover faster and more strongly than perhaps the full-service model, but obviously contingent on borders being open and people being able to travel,” said Wilson (pictured).
But here is where the harsh reality emerges. Wilson said he doesn’t see a rapid recovery in this area since almost all the borders remain closed. “We started out with a lot of optimism, but we’ve been disappointed repeatedly throughout the past nearly eight months,” he said.
“From the government’s perspective, it is hard to see what would trigger them to take a more progressive approach because this is very much driven by domestic politics,” added Wilson.
Questions around each government’s political capital, each country’s dependence on trade and tourism, the degree of isolationism that resides within the populace at the moment (and there are many that have become very isolationist) will impact the decisions governments make.
“To whom they open up is probably a function of familiarity, and proximity and economic ties. We’re going to see neighbours open up to neighbours more than from far afield,” suggested Wilson.
He said the rest of this year will likely not be much different to what we’ve seen thus far, and looking ahead, it is more a question of how far into 2021 before we see material recovery.
As far as demand goes, Wilson is optimistic. “People still want to travel, and they are at least somewhat assured by the steps that the industry is taking to make travel safe.”
However, the changing regulations around quarantine (will the quarantine regulations change whilst I’m away?) presents a big concern for travellers.
Addressing questions around the survival chances of airlines, Wilson said while flag carriers have the support of governments, private carriers will have a more difficult time.
How long can carriers hold their breath without government invention and still stay conscious?
“Most carriers are enjoying some degree of support or concessions, but these are winding down or will wind down. The variable costs that can be controlled have been controlled for the most part…the consequence will be that almost all airlines will shrink a bit. Some will shrink a lot, and some will disappear,” said Wilson.
But Wilson said the cycle will continue, because while the appetite for launching new airlines is obviously weak at the moment, aircraft and fuel are cheap, and staff are available.
“Whether it’s green fields or relaunches as in the case of Virgin Australia, the cycle will continue. We’ve been here before,” said Wilson. “The cycle of creative destruction will happen.”
