Aviation 2022 and beyond:
Survey Results Jan/Feb 2022

But with the diversity of individual countries' reactions to the health crisis in different parts of the world, and continuing restrictions on travel, it is apparent that potential recovery in airline fortunes varies by region.

So, for the second we asked the same question but focusing on 12 key regional markets: Intra-European (including domestic), Europe-Asia, North Atlantic, South Atlantic, Intra North America, USA-Latin America (inc Mexico), Trans Pacific, Intra-SE Asia (inc Indian sub continent), China Domestic, China International, Intra NE Asia (Japan, South Korea), and NE Asia International.

The results, shown in the charts, are mixed as expected but follow the general theme that short-haul will recover faster than long-haul; and that the more mature American and European markets will recover faster than those of Asia.

Over half (57%) of the respondents reckoned that the intra-North American markets would show full recovery in the current year with only a few die-hard pessimists delaying recovery to 2024 or beyond. 75% believe that short haul intra-European (which is a quasi domestic market) and Chinese domestic would show recovery in either 2022 or 2023. Intriguingly the majority also think the the transatlantic market will return to pre-pandemic levels by 2023, with another optimistic 11% hoping for 2022.

We invited comments, some of which were:

"All these answers depend on one’s assumptions about the emergence of new strains of COVID. I assume that we will still have to deal with the pandemic/epidemic, but there will be no new major shocks causing major economies to close down again. I appreciate that this might be optimistic."

"Whilst travel restrictions are slowly being reduced governments are not making it easy for passengers to have confidence on the clarity of what restrictions remain in place and therefore the ability to travel freely across borders, this will significantly impact the return of travel."

"UK to EU leisure travel bookings for 2023 for my company are showing higher than 2019 at the moment."

"China opening up timescale is the really big unknown. Look at what is happening in HK!", and "China is the biggest outlier in recovery, until it decides to live with COVID".

And, the depressingly logical:

"Internal flights are flying to and from the same COVID restrictions and therefore subject to less stringent rules and therefore should return first but some governments have sought to promote rail connectivity forcing nations to reduce these routes. Due to the ongoing pandemic until every nation is vaccinated and the virus under control the number of nations where restrictions are lifted on international flights will continue to be limited. The Pandemic has opened business eyes up to the savings and potential of virtual meetings so business flights will be slower to return. Consumer confidence will take time to recover through fear that the passenger will become stuck down route. Hence the delay till possibly 2030 or even later before we return to 2019 levels."

Post-pandemic

For the third question we considered the possibility that in the post-pandemic environment the airline industry may exhibit changed economic drivers, and asked people to rate three propositions: that When the pandemic is over, the airline industry will…:

• Rebound quickly to previous growth trends and grow at a multiple of GDP;
• Have a permanently reduced growth rate at roughly the same level as GDP;
• Behave like a mature industry with growth rates below that of GDP.

To be fair, there is a lot more behind this question than just whether there will be a return to the status quo. The imposition of tight security controls following 9/11 may have had a dampening effect on propensity to travel — but the industry continued to grow at around twice the level of GDP for the following 20 years. After the pandemic, health controls and border restrictions may stay. The question of climate change is rising up the agenda in (western) public consciences and ESG controls are being imposed on the corporate world. Airlines themselves may be constrained by excessive levels of debt. Responses would depend on underlying assumptions of these among other influences.

The results are shown in the graph. Just under half indicate that either the former GDP to traffic multipliers will return or the new relationship will be more like one-to-one. A third tend to suggest that air traffic growth will be curtailed.

Our fourth question looked at the outlook for the various airline business models — the ULCCs, LCCs, network carriers and niche airlines — asking which would gain or lose market share (see graph for the results).

Unsurprisingly, 80% of the respondents thought that the ULCC operators would gain and the network carriers would lose. There was slightly less enthusiasm — at 69% — for the traditional low cost carriers winning. The thoughts on the prospects of niche carriers appeared neutral — possibly showing that no-one really knows what a niche carrier is.

Segments

A recurring topic in the past two years has concerned business traffic: will it ever come back? (But then this has been posed after each cyclical downturn in the past forty years). For the fifth question in the survey we asked the respondents to rate various contentious statements on the subject:

• It will return to pre-pandemic levels after a couple of years;
• The market has changed fundamentally because of technical changes (Zoom etc);
• Corporations will significantly curtail business travel because of ESG considerations;
• If revenue from Business travel does significantly reduce, airlines will have to push up Economy class yields substantially.

On the first point views were fairly evenly matched (see graph for the results) with 31% mostly agreeing, 12% neutral, and 35% mostly disagreeing with the idea that the market would return to normal after a couple of years, although 17% strongly disagreed with the assertion.

However, a majority (71%) agreed that the market had fundamentally changed because of technical changes in the pandemic and 60% agreed that corporations would cut back business air travel for ESG reasons.

The fourth point possibly caused some head-scratching — after all airline finances are a fine balance between revenues and costs — but 71% strongly or mostly agreed that economy yields would have to rise.

Again we offered the opportunity to comment:

"Corporates have become used to the cost control they have with reduced Business Class travel and also gives them some ‘greenwashing’ credibility in their ESG statements."

"Technical innovations like Zoom have improved worker productivity allowing the individual to make two or more international meetings a day and hence reducing transport and accommodation costs. As a result it is only where there are conference style arrangements where the majority of business is done outside the meeting room where it may still pay to fly a representative to a meeting. With the additional pressure to be more sustainable too, companies will also fly people in economy or use trains where they can to reduce the carbon footprint. Therefore, the business and even 1st class passenger sector numbers will take longer than most sectors to recover."

"Can’t push yields without cutting supply and operating deleverage. Cost will need to take the slack."

"Business travel as a share of total travel has been declining since before covid. Covid has accelerated this trend. The legacy model will be under tremendous pressure over the next decade as legacy airlines struggle to adapt to a new demand landscape."

"All else being equal, leisure travellers will be likely to have to pay more. However, with single-aisle airplanes breaking into the lower-end of long-haul markets that are dominated by widebodies, the fare increase probably is not that much."

The sixth question was on the prospects for new entrants. Perhaps surprisingly, over a third of responses were optimistic about long-haul LCCs. Over half were optimistic about A220-type operators.

For our seventh topic we turned to the superconnector model — Emirates, Etihad, Qatar and Turkish — which had been a major innovative force in the last cycle. We asked for a rating on the following statements:

• The model is still valid: the geographical position of the respective hubs gives a strong advantage connecting diverse traffic flows;
• The model is tainted: passengers will not want to transit and will prefer direct point-to-point flights;
• Extensive rationalisation among the super- connectors is necessary.

For the first assertion the respondents overwhelmingly seemed to believe (64% agreeing and 26% undecided) that the model continues to be valid — and that Emirates will regain its position as “the world’s favourite airline” (defined by British Airways in the 1980s as the airline flying the most international RPKs).

However, the second point obviously caused some consternation — a third each sort-of agreeing, neutral, and sort-of disagreeing that passengers would shun transfers through mega-hubs. The jury is presumably still out.

A majority (57%) agreed that rationalisation is necessary. Etihad already scaled back ambitions before the onset of Covid, so that leads to thoughts of which of Qatar or Emirates will break first — a combination would be geo-politically unthinkable.

Governments and Legacy Carriers

The eighth question tried to garner views on the way forward for the traditional legacy network carriers. Again we asked for a ranking of a series of statements in the light of the assertion that legacy airlines had received huge cash injections in the form of equity and debt during the pandemic:

• The level of debt is manageable: will be able to raise equity from shareholders to restore balance sheets;
• Governments will play a more important role in directing airline strategies;
• Legacy carriers will have no choice but to prioritise debt repayments at the expense of capex;
• The level of indebtedness will leave them more vulnerable to cost-based competition.

All these statements are unashamedly pointing in the same direction. The answers (see graph for results) to the first statement was inconclusive but veering on the “agree” (with a highly sceptical 5% strongly disagreeing). It was interesting to find that a majority (55%) believed that governments would play an increased role in strategy with only 13% disagreeing. However 69% agreed that the legacies will be forced to concentrate on restoring balance sheet health at the expense of expansion and 83% that this makes them more vulnerable to (new-entrant, point-to-point) lower cost competition.

Winners and Losers

The next two items in the questionnaire asked respondents to mark any of 65 airlines who were deemed to be winners (likely to come strongly out of the pandemic) and losers (those most seriously impacted by the crisis).

The list of carriers was generated from the top airlines by numbers of seats operated pre-pandemic, bolstered cheekily by a few few post-pandemic entrants.

It was a multiple choice question so the percentages (in the winners chart and losers chart) reflect the proportion that voted for a particular airline out of the total responses.

Perhaps reflecting a European focus of the respondents, the top of the winners' ranking features ULCCs Ryanair and Wizz with LCC easyJet a close third. Interestingly Fedex, benefiting from the home shopping boom, and Turkish each are ranked above Southwest and JetBlue; and Delta and IAG are ranked at 9th and 11th position respectively, sandwiching Spirit.

In contrast the losers' board is spearheaded by Cathay Pacific, beleaguered by Hong Kong’s attempt to kowtow to China’s zero-covid policy, followed by Thai, Philippines, Alitalia, Air France-KLM and Etihad. Lufthansa appears in tenth position.

There were many interesting comments:

"There are a significant number of ‘marginal’ carriers out there and are very vulnerable to attack by the key Super Connectors and the well established LCCs. There is likely to be significant airline failures"

"Successful airlines need either great demographics (Latin America, Vietnam), low costs (Frontier, Spirit, Wizz) or unique situations (Turkish — much better demographics and better geography than EK etc)."

"The winners will be low cost and those with the backing to swallow or drive out competition (eg Wizz/Indigo partners)... the losers, legacies with big debt, and those whose business model was maybe going the wrong way (eg easyJet targeting business travel from hubs)."

"Basically Asian carriers worst hit because so many markets cut off by governments for so long."

Personal plans

The final question we posed was a light-hearted look at personal travel plans, with the respondents asked to choose as many statements proposed (out of six) that they thought applied to them, each preceded by the phrase “This year I will... ”.

• A healthy 62% said that this year they would fly short-haul on vacation;
• Just over a quarter (29%) stated that they would fly long haul in business or first class. (We are not quite sure how to interpret this response, but given the general background of our readers, this may be a bit lower than normal.)
• Nearly half (49%) are still nervous about travel restrictions: the idea of travelling for 12 hours wearing a face-mask to find when you reach your destination that the rules have changed and you have to go into quarantine is not exactly encouraging.
• However, 20% responded positively to the statement “I will resume my normal travel patterns. I’m an aviation geek!”. One commented: "Where good deals are available in the coming recovery phase post pandemic I am likely to take advantage of competitive pricing and travel more than I might have historically".
• In contrast 16% agreed they would seek out alternative transport modes to reduce their carbon footprint (and this from aviation-focused professionals!);
• and, 20% would be “forced by my company’s travel policies to stay at home”. (This may explain why the long haul response was low.)

Final comments from participants ranged from the positive (as above) to the pragmatic — "risk exposure to covid exists everywhere... need to manage the risk and live with it" — to the sad — "personal finances have been hit by the pandemic and government taxation plans reducing my vacation possibilities as well".

The most plaintive was "I would fly short haul on vacation if I didn’t have a young child".

A big “thank you” to all who participated.