British Airways shock shows the golden age of air travel is over

Last week, the boss of Europe’s busiest airport should have been addressing the great and the good of the aviation industry.

But, like get-togethers up and down the country, the monthly Aviation Club lunch had been cancelled because of the Covid-19 lockdown. Had the event gone ahead, the top brass from the likes of British Airways, Airbus and Rolls-Royce would have heard Heathrow chief executive John Holland-Kaye deliver a particularly gloomy assessment.

“Until there is a cure or a vaccination, it is likely that travel between countries will only happen if each considers the other to be low risk,” his speech read. “Leaving the middle seat empty on planes cannot be a long-term solution.”

The existential threat posed by coronavirus was brought sharply into focus shortly after 5pm on Tuesday when British Airways owner IAG issued a shock announcement. Posting its worst quarterly loss, up to 12,000 staff could face redundancy, the airline said.

Boss Alex Cruz did not mince his words in an email to employees in what unions called a “bolt from the blue”. Relying on a state-funded furlough scheme was not a viable option when combatting demand that will take years return, he told them.

Nicky Stewart of Edison Investment Research says the announcement “undoubtedly” marks the end of the golden age of air travel. “This is a catastrophe for the near-term outlook. Industry participants think the sector won’t recover post pandemic to previous levels, for three to four years.

“Global passenger numbers have doubled every 15 years since 1987 to more than four billion … the trend has proven pretty resilient to external shocks including 9/11, SARS and the financial crisis. However, with social distancing coming when flights resume, Covid-19 is presenting the biggest challenge in history for the industry.”

Alexandre de Juniac, the boss of airlines trade body IATA provided a similarly downbeat assessment alongside the publication of March passenger numbers on Wednesday: “The industry is in freefall and we have not hit bottom.”

Rob Byde, an aviation analyst at City broker Cantor Fitzgerald, agrees that “significant short term pain” is on the way for the industry, but some airlines will use it to their advantage.

“Many carriers such as BA and [German flag carrier] Lufthansa will use this crisis to accelerate restructuring plans,” he says, with BA focusing on key markets such as transatlantic routes.

Cause for optimism

There is little doubt in the holiday market that 2020 needs to be written off. For travel agents and airlines, it will be a case of getting through this year with their business intact.

But for the survivors, there could be cause for optimism. Byde says: “Leisure flying will be more resilient. If we have a vaccine by early 2021, I would expect a good recovery in holiday flying by the summer.”

John Strickland, an independent aviation consultant, expects to see numerous changes to the industry. “Initially many of these could be retrograde compared to the industry we've known until now,” he says.

Top of the list of backward steps is pressure on budget airlines, which have driven the sharp rise in air travel. Passengers enjoying low-cost, short-haul flights may be replaced by long car or train journeys.

Meanwhile, ticket prices could be on the up. “Fares are interesting, with capacity taken out of the system most carriers will likely lift fares where they can and retain the benefits of lower fuel costs to generate higher profits and pay down debt,” says Byde.

Carbon concerns

Just weeks ago the climate change concerns were the millstone hung around the neck of the aviation industry. With the average return trip to New York leaving a larger carbon footprint than what the average Briton generates in a year, airlines were focusing on addressing their green credentials with offsetting programmes and plans to be net neutral at some point in the future.

“The fundamental issue is that people’s desire to travel for holidays and it is difficult to see that trend reversing,” says Stewart.

The proposed short-term fix of flying with the middle seat empty – proposed by the likes of easyJet and Wizz Air but described by Ryanair boss Michael O’Leary as “idiotic” – will do little to help.

As Holland-Kaye was due to say: “It would take out a third of the world’s aviation capacity, drive up the cost of travel for marginal safety improvement and increase every passenger’s carbon footprint.”