Coronavirus (COVID-19) and Modern Airliners.
If there is one thing there is an abundance of at the moment, it is ever-changing information about COVID-19 and how it is affecting our lives. The situation merits all the superlatives being thrown at it at the moment and literally changes by the hour. So what has this got to do with Modern Airliners or any airliners for that matter?
You would have to have arrived from Mars to not know the extreme measures that are being taken by governments to try and reduce the effect of COVID-19. Obviously, the priority is to reduce the number of people that are infected and thereby reduce the death toll from this pandemic. The second concern, and perhaps nearly as important as the first, is the economy. I hate saying that as it sounds like life isn't worth very much. The economy, however, is what makes people's lives what they are today. It provides jobs, it keeps people fed, clothed, and under shelter. Ensuring this continues will prevent the loss of life through on flowing effects of the pandemic.
We have seen border closures in many countries around the world in the last few days. Even if the borders aren't closed, there are travel restrictions and simply the fear of, "if I travel will I be able to get home again?" In living memory for most people today, this is not a concept that they have ever experienced and it may take a few who ignore the warnings to get caught out before others see the seriousness of the issue.
Ok, what has this got to do with Modern Airliners?
I thought you'd never ask. All around the world airlines have felt the impact of the above border closures and travel restrictions. Most have severely trimmed back their services to try and stem back the money bleed. Flying empty aircraft is a very costly business and is to be avoided at all costs. Initially, Australian flag carrier QANTAS grounded 10 out of its 12 Airbus A380s as these aircraft require a high occupancy rate to break even, financially. This grounding has been quickly followed by many other of its aircraft for the same reason, as further route capacity reductions or cancellations take place. This is just one example of what is happening to carriers all over the world. The immediate result has been that many travellers who have been urged to and have chosen to, repatriate themselves are finding that they are part of a very large group that is being affected by the reduction of airline capacity.
QANTAS grounded 10 out of its 12 Airbus A380s.
So what of the airlines themselves? Airlines are a very important part of the world economy. They are the catalyst that enables world economies to work at all. For this reason, it is of paramount importance for a country to ensure its national or other carriers remain in business. I know here in Australia, the government has given an economic stimulus to the airlines to enable them to survive this major upheaval. Oil prices falling off a cliff earlier this month has not been enough to make up for the drop in customers for the airlines. Even though it is estimated this could save airlines in the order of B$28 (US) over 2020. We have to face the fact that we are going to see a mass extinction event of smaller airlines.
Depending on how quickly the COVID-19 pandemic can be contained, IATA estimates that revenue losses for passenger transport would run at B$63 - B$113 (US). Impact by market according to IATA looks something like this.
| Region | Percent Change | US Dollar Change |
|---|---|---|
| Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand, and Vietnam. | -23% | -49.7 Billion |
| Rest of Asia Pacific. | -09% | -7.6 Billion |
| Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden, United Kingdom. | -24% | -37.3 Billion |
| Rest of Europe. | -09% | -6.6 Billion |
| Bahrain, Iraq, Iran, Kuwait, Lebanon, United Arab Emirates. | -23% | -4.9 Billion |
| Rest of the Middle East. | -09% | -2.3 Billion |
| Canada and US | -10% | -21.1 Billion |
It doesn't make for good reading, does it?
So what will happen to the grounded aircraft? It is hard to know what to plan for. How long will the pandemic last, what will the world look like when it is all over? Will we need the same capacity as before? One thing we can be sure of is that things will eventually bounce back. They may be different in some ways, but the economy will pick up again as people come back from isolation.
We may find, however, that the need for people to work from their homes during the pandemic, will lead to more technology being thrown into the online world to make things possible that currently are not. People's perceptions of travel may change. If you go back to 9/11, people became fearful of flying. Not to mention the added hassles of extra security whenever you did so.
Cruising became a much more attractive alternative for holidaymakers, as there was a much lower likelihood of terrorist attacks, or at least so it was sold. I fear that many people are losing their appetite for being on a cruise ship after what has happened to several ships since COVID-19. So maybe air travel will regain its popularity again.
So, about those aircraft. Airlines like British Airways(BA) and Lufthansa(LH) have the biggest remaining fleets of Boeing 747s. If you discount the age of Lufthansa's Boeing 747-8s which are around 6 years old now, the average age of the BA and LH 747s is around 21 years. Will they consider retiring them early? An older aircraft becomes a lot more expensive to maintain and if there is no income being generated from this aircraft, its financial burden becomes too heavy.
Airlines like British Airways(BA) and Lufthansa(LH) have the biggest remaining fleets of Boeing 747s.
So with all these aircraft grounded, what about new aircraft orders? That is the on-flow effect that will hurt plane makers like Boeing and Airbus. There will be the airlines that disappear and their orders cancelled. Then there are airlines like Cathay Pacific, for example, that have approached Boeing and Airbus about delaying their orders.
Boeing for its part has approached the US government for a B$60 stimulus package. The aviation industry must survive and it is worth noting that Boeing estimates that 70% of its revenue flows onto its 17,000 suppliers. The aviation industry is a huge employer and its demise can not be allowed to happen. Similarly, Airbus and its many suppliers are in the same boat.
Apparently, the story is not all doom and gloom. Dr. Steve Wright of the University of the West of England, Bristol(UWE Bristol) believes that the aviation industry will survive. Jobs will be lost, mainly at the customer-facing level, and of course those smaller airlines. Aviation seems to go through an 11 to 12-year cycle. Events such as 9-11 and the global recession of 2008 knocked the industry about, but it recovered. It will again. Meanwhile, Dr. Wright says, the development of new aircraft still goes on. In 5 years' time, we will still see the fruits of technology research that is going on right now.
