ATW Monthly Highlights
World Airline Report
<big><b>From Crisis to Recovery:
Air Travel is Back
<small>Video: Freemanfootage/Getty Images</small>
Use Human Adaptivity
to Reopen the World
There’s a lot of talk about how the COVID-19 coronavirus adapts, and understandable concern about the infection rates of new mutations. What’s often overlooked, however, is how significantly humans have adapted, individually and as collectives, and how much has been learned over the past 18 months.
Scientific understanding of the virus is immensely deeper today than in early 2019 and has been a critical contributor to the rapid rollout of effective vaccines that are an astounding human answer to the virus’ deadliness. People in the global air transport and travel industry have adapted rapidly, too.
The suddenness and extent of COVID’s spread dealt a cruel, devastating blow to an industry that went from boom to bust almost overnight. But, like a lot of individuals who suddenly asked, “So how can I use this Microsoft Teams thing on my computer do x?,” airline and airport managers looked at tools already at their disposal in a different way.
How do crisis communications’ plans—typically geared toward a one-off event like a crash—hold up against a prolonged crisis that threatens everything at once, including human life (employees and customers), financial stability, connectivity and, indeed, the very business itself? How to convey information, confidence and reassurance to a widely spread (in many cases global) employee and customer base on a daily, even hourly, basis over extended periods? How to apply this industry’s particular expertise in risk assessment and safety to a threat that is oblivious to aircraft envelopes, airworthiness directives and FAA certifications?
Airlines and airports, and the entire air transport supply chain, have adapted. Safety remains the top priority, but the definition of safe flying has broadened. Flexibility has become a highly prized asset. Cost control has taken on a whole new seriousness, perhaps not before time. Customers—be it those who fly or those who buy aircraft—have probably never been more appreciated and there’s perhaps a touch more humility about those relationships, or at least a recognition that some of the less-humble customer service practices of the past will no longer be acceptable. There is far more collective industry advocacy and common speech on common issues, with airlines, airports, suppliers, trade associations and the global alliances speaking with one voice.
In their information sharing and discussions on issues related to the pandemic, all have learned much about how the virus works and how to mitigate infection risks, from check-in through departure and arrival in a foreign country.
The industry has shared that learning, and the scientific data that support it, with governments worldwide, which have their own direct access to data from experts in human health, pandemics and viruses. Governments now need to follow the logic of that scientific data, set timelines for the reopening of borders, and stick to those timelines. No more vague talk about task forces and ongoing discussions about when the time will be right. No more flip-flopping and traffic light systems that screech from green to red. The restart should start now, especially in key air traffic corridors like the transatlantic market, and it must be consistent.
Canada, after a months-long freedom-of-movement freeze that would have been unthinkable in 2019, is finally lifting its international travel bans, first opening to Americans and Canadian citizens in the US and then to the wider community this summer and fall. Canada is showing the path that others can follow. It has set actual dates—allowing travelers, airlines and airports time to prepare—and is basing the initial reopenings on proof of vaccination.
Governments also need to fast-track the setting of common standards for vaccination and testing credentials so they can be digitalized, verified and synchronized with a passenger’s passport before they arrive at the airport—a travel practice long-established and trusted in international visa programs. Testing will continue to be an important part of quarantine-free international travel while vaccination programs are established worldwide, but they should also be simplified and standardized. Rapid tests are growing more accurate; governments can again follow the science of their increased usefulness and make these the standard for international travel where testing is required. They are easier to access and cheaper; governments should ensure they stay that way and are not subject to price gouging.
Crucially, international transit passengers should not be subjected to government quarantine or testing requirements of any country beyond those whose immigration lines they cross. The restoration of global air connectivity cannot depend solely on point-to-point flights. This industry was built on a highly efficient network of airline alliances, joint ventures, partnerships and codesharing that maximizes access while minimizing cost. The result has been that more people can afford to fly to more places in the world than ever before. As borders reopen, that ability to easily transit through hubs must remain in place.
Some would argue that the world, governments, agencies and the air transport industry were naïve in 2019 as the first indications appeared of what would become a global pandemic. Lessons were often learned the hard way, but all are considerably wiser now. It’s time to use that wisdom to reopen the world.
Editor’s Note: I hope you enjoy the new, all-digital design that has been created exclusively for our annual World Airline Report. We believe this format will further enhance the usefulness of the report’s data. We welcome your feedback.
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The prospect of fines and jail time, or of being banned from future flights, isn’t going to dissuade those who snap into an emotional rage.
The US is once more experiencing busy airports and full flights as domestic leisure travel numbers surge close to 2019 levels. In their pandemic isolation, however, some Americans appear to have forgotten how to behave in public.
Flight attendants have been sworn at, spat on, threatened and punched. After arguing with flight attendants over FAA-mandated mask-wearing rules, one passenger then got angry with a female passenger sitting next to her because she closed the window blind. The angry passenger hit the other woman, who was holding an infant, on the head.
FAA tweeted on July 20 that since Jan. 1 there had been 3,509 reports of unruly behavior on US planes. Of those, 2,606 cases involved refusal to wear a mask and the agency has initiated 581 investigations, including 87 cases that are liable for civil penalties. FAA implemented a strict zero-tolerance policy at the beginning of this year against unruly behavior. The penalties for infringement can be severe and involve thousands of dollars as well as jail sentences. But that is not registering with those who suddenly break into a rage because they’ve been told to put on a mask, stay in their seat, not smoke or vape, or tone down loud and obscene language. For whatever reason, merely being told that they must comply with the onboard rules seems sufficient to spark an outburst that can be difficult to de-escalate. Passengers have become involved in helping cabin crew subdue and restrain those who have become violent. They risk being injured in the effort and, in many cases, the plans of all those onboard are disrupted as pilots are forced to divert, land at the nearest airport and let law enforcement officers remove the disruptor. Or, in some cases, disruptors. There have been multiple cases of entire groups of travelers joining in loud, aggressive or threatening behavior against passengers and cabin crew.
Looking for reasons for this spike in unruly behavior, many cite alcohol and some US carriers have suspended alcohol sales. An unintended consequence of that can be travelers stoking up on drink before their flight, so they board in a less rational and more disagreeable frame of mind.
But the biggest flashpoint, judging by FAA’s own numbers and description of incidents, is mask wearing. Across almost all the US, masks are no longer mandated in most settings, including shops, restaurants, grocery stores and gyms. The Centers for Disease Control and Prevention recommends that the non-vaccinated wear masks, but there’s no requirement to prove vaccination. US public transport systems, including buses, trains, airport terminals and planes, remain among the few exceptions where federal law requires masks. It’s a rule that makes sense, given the close proximity with which people must sit on a plane, and it continues to be strongly supported by airline labor groups. But for some Americans, mask wearing is political and an infringement of their personal freedom. They are told the rules—FAA and TSA run public awareness campaigns—and reluctantly wear a mask at the boarding gate to get on the flight. The trouble starts after the door closes, when it’s much harder to deal with, especially at 25,000 ft.
And that’s what makes this such a difficult problem to resolve. The prospect of fines and jail time, or of being banned from future flights in line with many US carrier policies, isn’t going to dissuade those who snap into an emotional rage. The no-alcohol policies are easily bypassed. Lifting the mask rule is a no-go with unions.
And it’s not the only problem escalation that airports, security agencies and airlines are seeing as US air travelers return in large numbers. The other issue is that more of them are bringing their guns and attempting to take them onboard—often loaded.
The Department of Homeland Security (DHS) rules are again clear. Weapons of any kind are not permitted in carry-ons; they must be checked and ammunition removed from guns.
Nationwide, TSA officers detected 3,257 firearms in the pockets or carry-on bags of passengers at checkpoints in 2020. As a ratio, this was double the number of cases year-over-year. In 2020, TSA caught approximately 10 firearms per million passengers compared to about five firearms per million passengers in pre-pandemic 2019. And of the guns caught by TSA last year, about 83% were loaded.
In June, a man was arrested by police after TSA officers discovered a loaded gun tucked into a pocket of his baby stroller at the airport security checkpoint.
The charitable interpretation of this spike in gun-toting passengers is that it’s been so long since they’ve flown, or they are so excited to be headed to the beach or to finally see grandma, that they’ve forgotten the rules of commercial flying. But the onboard weapons ban has been in place for many decades longer than the no-mask rule and was significantly stepped up after the 9/11 terrorist attacks that led to the creation of DHS and its TSA air security agency. A more specific explanation could be that more Americans are routinely carrying loaded guns in a tense pandemic world and it’s so routine that they don’t think twice about placing their gun in a baby stroller or on a TSA screening belt.
So far, TSA seems to be doing an excellent job of catching those weapons before the passengers go airside (though some may be concerned about how many people are wandering the unsecured terminal areas or are standing in long TSA queues with loaded guns at hand). But weapons have not been involved in any of this year’s onboard unruly incidents. Still, an angry, violent passenger is bad enough; one wielding a gun or machete is a whole different problem.
An American problem
US gun ownership and division over mask wearing may help explain another quirk about the uptick in unruly/uncompliant passenger behavior: It’s almost uniquely an American issue. Other countries that have seen air travel return—and which are under the same pandemic-related stresses—are not seeing anywhere near as many disruptive behavior incidents or a spike of cases versus pre-pandemic times.
Does this US problem require a US solution? And if that’s the case, what is it? Some argue that a sense of perspective and proportion is necessary. While the numbers are trending in the wrong direction, they point to them being very small relative to the number of flights that are completed every day with no incidents whatsoever—a classic case of a tiny minority of idiots getting outsize attention while the vast majority of passengers are law-abiding and well-behaved citizens.
Speaking on a panel at the Routes Americas 2021 event in Orlando in June, two ultra-LCC CEOs, Spirit Airlines’ Ted Christie and Frontier Airlines’ Barry Biffle, were asked about the issue and both urged perspective. “It’s a tense environment and there are definitely flare ups, but they are still a significant minority,” Christie said.
Biffle was more specific on what is happening and why: “The root cause is that you don’t wear a mask here [in a Florida event venue] or in a Walmart, but you have to wear them on an airplane, so people are agitated. It’s not about alcohol. The reality is a lot of people don’t want to wear masks. We fly 80,000 people a day and most days we don’t have to call the cops. Do you know a town with 80,000 people where they don’t call a cop each day?
“Let’s take a deep breath. … We have had an increase, but it’s still a relatively very small minority. We have to protect our employees and enforce the rules, but it’s not as bad as it sounds.”
That’s not much comfort to those who have been injured doing their job—and who are not security enforcement officers but are on the frontlines in this conflict—or to those who had a trip ruined because of another’s bad behavior. The inevitable headlines that the worst incidents generate also will not reassure those who remain reluctant to fly and the negative publicity may be particularly off-putting to the business traveler. The risk of getting punched on Microsoft Teams is zero; airlines do not want high-yield passengers drawing that conclusion as they consider a trip for an in-person business meeting.
If nothing else, this is a public image problem that the airlines do not need on top of all the other difficulties inflicted by the coronavirus. And flight attendants, who have faced furloughs, uncertainty and the stresses of working in a confined environment through a pandemic, most certainly do not need this additional and avoidable worry each time they welcome the next batch of passengers.
World Airline Report: Analysis
On the Way, But
Not There Yet
The recovery of the air transport and travel industry is either well underway—even surging—or a long way off, depending on where and when you look.
In the most simplistic terms, recoveries are doing best where there is a large domestic market coupled with few travel restrictions. Hence, China, Brazil, Russia and the US are leading the domestic recovery pace. Domestic China RPKs were up 6.3% in May versus May 2019 and Russian RPKs up 22.6%, according to IATA data. Demand for summer air travel in the US outpaced some airlines’ ability to get crews back in place. Conversely, Australia and Canada have large home markets, but continue to see travel lockdowns and are experiencing slower recoveries. Coronavirus variants are also delaying the recovery in some regions. India and Japan, for example, have seen domestic RPKs slump this year since the Delta virus variant took hold.
The story of international travel recovery is more uniform globally, but not in a positive way. While worldwide domestic RPKs were down 23.9% in May versus May 2019, global international RPKs were down by a bruising 85.1%. Asia-Pacific airlines, which many had anticipated being among the first to recover, saw their May international traffic fall 94.3% compared to May 2019, fractionally worse than the 94.2% drop registered in April 2021 versus April 2019.
Well into the northern hemisphere summer, the international picture has remained bleak, linked strongly to government restrictions, quarantine mandates, and complicated and expensive testing requirements. European carrier international decline was still at 84.7% in May versus pre-crisis levels; Middle Eastern airlines were at an 81.3% drop; Latin American carriers were down 75.1%; North American carriers down by 74.4%; and African airlines’ traffic fell 71.4%.
But none of the traffic improvements, weak or strong, would have been as good were it not for the unexpected rapid rollout of what appear to be highly effective vaccines. Growing vaccination uptakes have led even the most hesitant of governments to begin lifting borders, providing better prospects for international travel demand pickup in the 2021 third and fourth quarters. The US-Canadian market, brought almost to a standstill for more than a year, could see a dramatic return in August, when the Canadian government says it will reopen to fully vaccinated Americans and Canadian residents in the US, who will not be required to quarantine. In normal times, 22 million Canadians visit the US every year. In September, Canada will fully open its borders to all vaccinated travelers.
Where air travel is returning this year, it is highly slanted to leisure and personal purposes. In the US alone, spending on travel for large, in-person meetings and events declined by 76% in 2020—a $97 billion loss in spending according to the US Travel Association—and corporate travel has a long recovery road ahead. Even into mid-2021, only 35% of US corporations were engaged in any business-related travel, the association said. But trade exhibitions and events have started to return in China and the US. Virtual meeting programs may continue to replace company internal face-to-face meetings for some time, but they do not work as well for events or for creating or building on business relationships. The question is whether business travel, when it turns the corner, recovers as quickly as some domestic leisure markets or whether it will be a long, slow rebuild as companies regain confidence.
On the airport front, the pandemic has accelerated a trend that was being established before the crisis: China’s hubs are growing and becoming more numerous. While they did not escape the passenger declines that were universal in 2020, seven of the world’s 10 largest airports by passenger numbers are in mainland China, with Guangzhou Baiyun, which handled 43.8 million passengers last year, taking the top ranking. All three non-Chinese airports in the top 10 are in the US: Atlanta Hartsfield, Dallas Fort Worth and Denver. The loss of international traffic was especially devastating on Europe’s major hubs. Amsterdam Schiphol, Frankfurt, London Heathrow and Paris Charles de Gaulle all saw passenger numbers decline by more than 70%. New York JFK—a transatlantic gateway—was also down 73.4%, while Dubai was down 70%. These mega hubs could see a resurgence as borders reopen, but 2022 is looking more promising than 2021 and a steady recovery will depend on more consistent government travel policies that follow data and science.
Financially, airlines will likely have a better—or at least less awful—2021 than 2020. IATA expects net airline industry losses of $47.7 billion this year, representing a net profit margin of -10.4%, compared with a net industry loss of $126.4 billion last year, and that an estimated 2.4 billion people will travel by air. Nevertheless, airlines are forecast to burn through another $81 billion of cash this year and industry debt has massively increased to over $650 billion. Hopes for the industry as a collective to be cash positive in the fourth quarter have shifted to early 2022.
"Owing to government relief measures, cost-cutting, and success in accessing capital markets, some airlines appear able to ride out the storm. Others are less well-cushioned and may need to raise more cash from banks or capital markets,” IATA director general and CEO Willie Walsh said.
For more than 30 airlines, there will be no riding it out; they ceased operations. But the list was shorter than might have been expected—in large part because of government support—and the casualties mostly confined to subsidiaries of majors, such as Qatar Airways’ Air Italy or IAG’s Level—or small niche carriers. UK carrier Flybe was probably the most recognizable name. Other larger-brand carriers were forced into restructuring—most notably Avianca, Aeromexico, LATAM and Virgin Atlantic, which all continue operating and are expected to emerge strengthened by the administration processes.
For just about every airline survival, not profit, was the goal. All the more remarkable, then, that Korean Air posted an operating profit of $700 million and a net profit of $100 million. Among others in a highly exclusive club that posted a 2020 small operating profit were China Airlines, Spring Airlines and Turkish Airlines.
Fleetwise, the landscape has changed from a 2020 scenario where aircraft, new or old, single- or twin-aisle, were parked or stored en masse to a 2021 landscape where the short-term preference for new, efficient narrowbodies is being seen not just in which aircraft are being returned to service but also in which they are attracting new orders (at a favorable price).
Bernstein Research projects that Airbus will reach 2019 narrowbody delivery volumes by 2024 and exceed them by 2025. Boeing projections are based on 2018 comparisons because of the effect of the 737 MAX grounding in 2019, but they see those narrowbody output volumes being exceeded by 2022.
Both the Airbus A321neo and the Boeing MAX were significantly boosted in June when United Airlines announced an order for 70 of the first and 200 of the second. But United was not alone in snatching a deal for what it clearly anticipates as growth times ahead; other airlines, including Alaska Air Group and Southwest Airlines, have confirmed or increased options or, as in Alaska’s case with the Embraer 175, sealed new orders.
It’s a different story with widebodies. Airbus delivered 173 aircraft in 2019 and will be only at 116 in 2025, according to Bernstein Research’s forecast. Boeing was at 254 two years ago and will be at 178 in 2025. And there is a strong preference toward the A350 and 787 versus the A330neo or 777X, Bernstein believes.
Across the globe, aircraft in storage have decreased from peak for both narrowbodies and widebodies, Morgan Stanley Research notes, with fewer than 4,000 narrowbodies in storage in April—a 64% reduction on April 2020. Some 1,700 widebodies remained in storage in April, but that was still a 53% reduction year-on-year. “Recovery is largely driven by the countries’ improved COVID-19 cases and vaccinations as well as large domestic markets. … In order to see full recovery, we need to see global border restrictions ease on international travel,” Morgan Stanley says.
Whichever way you look at the global air transport industry—passenger demand, financials, business versus leisure, aircraft orders and fleets—the speed and extent of the recovery hinges on one key parameter: open borders and the lifting of international travel restrictions.
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Airports By Passenger Numbers