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Breaking Travel News investigates: Is Covid-19 the black swan of the airline industry?

The global outbreak of the novel coronavirus creates enormous challenges for almost every business and industry. Still, as so often, the air travel sector takes the full blow. So, what now? Here industry analyst Peter Baumgartner offers a few personal words.

I wanted to write on the status quo of the airline industry in relation to the coronavirus already last week, but I have to say, I was overwhelmed by the rapid development of the events – and, I am free to admit, the sheer heft and complexity of the matter. The news come in on an hourly basis, and the situation is very fluid. I’m certain that once you’ve finished reading these few lines, many important things will have changed, again.

One airline after the other stops its flights and grounds its planes. The airports themselves, the ground handling companies, the caterers and every other service connected to or involved with aviation is obviously heavily affected, too. Almost everyone in aviation has approached their respective governments for support, all three big global airline alliances have spoken up and urged governments to “evaluate all possible means” to assist the industry. Finally, unions at least both in Europe and the US are asking the government to step in as well.

Air transport is essential – in good and in bad times

Let me remind everybody how essential air transport is for the global ecosystem to function. In good times to allow the world for people and goods to be connected – and from local, regional to global ecosystems to function. In challenged times – even during the corona crisis – air travel remains critical to keep the world’s population supplied with those essentials that would not reach their destination by other means of transport. Especially in crisis situations, the timely delivery of critical goods will save lives. So, we do indeed absolutely need air transport – maybe in these times even more than ever. Let’s put aside all discussions around “bail-outs” and how airlines have supposedly not managed to save money for a rainy day and distributed their profits to the shareholders. All of this does no longer matter, we are way beyond the moment when cash reserves would have made a decisive difference.

Why? Simple: without help from their governments, many if not most airlines may go bankrupt in only one or two months. Particularly the smaller ones.

And the same is true for any company with a business that is involved in or dependent on aviation. It’s impossible to predict today who will pull through and who will ultimately fail. Yet it has become clear over the last few days that the “impossible” scenario, a widely spread complete halt of airline (passenger) movement, is indeed a possibility we must consider, as it has already become the reality for many global hubs. This is, I cannot use another word, nothing less than a disaster.

It cannot be in anyone’s interest if large parts of the airline industry go under, particularly at the same time.

Let’s hope that, at the least, this is a time when we are all reminded of how important and vital air transport is to all of us. Medicine and medical equipment need to be moved around, and quickly. Food supplies need to be moved around. Doctors, people helping other people – they need to be moved around, too. And for almost every other sector, supply chains cannot hold without air transport – it’s a lifeline for them as well! 

The airline industry’s claim to be of critical systemic importance is, of course, correct. We need this critical infrastructure. And, yes, maybe we even need a “Lex Airline” that ensures the sector’s right for state intervention and support.

The (faint) light at the horizon

Is there any kind of upside to all of this? Today, I am aware, it all sounds a bit cynical. Nevertheless, let me remind you once again: aviation is at the forefront of mobility, interconnectivity, global networks and the flow of goods that need to continue to flow even in crises. Air transport will not go away. Also, as you know, it is typically an early indicator for the entire economy. This also means that, when things start to look less bleak – and they will – the sector will be one of the first to “come back”. Will everyone pull through? I’m pressed to say no. But the demand will certainly come back as industries are powering back up and the traveling public gets back to enjoy, or rather celebrate, life.

And maybe, just maybe, this is the moment to make the big changes. Do things you could not do before. Our industry has been slow to adapt and change in a few areas, so why not look at it as a clean slate situation. Think the unthinkable. For example:

  • Consider once again what it means to really put the customer at the centre (information management; “seamless travel” commitment; booking flexibility)
  • Reform the fragmented air traffic controls
  • Strengthen cross-industry contingency and crisis management systems
  • Take a long, hard look at minimum slot use requirements
  • Take bold steps in digitising processes and innovating the business from the ground up
  • Work in close collaboration with other companies along the entire value chain
  • Rehaul risk management and become more pro-active

While I am confident that at least the bigger players will find the cash necessary to make it through these tough times, in some cases, this may mean accelerated consolidation. Or long-term sustainable capacity adjustments. Or attached provisions to financial help – there are talks of equity stakes for governments, conditions to keep workers employed, a restriction on dividend pay-outs, a focus on decarbonization. And maybe that’s a good thing, in the long run. 
It’s obvious that I do not have the easy solution to any of this, not at all.

My instinct, however, tells me that innovation, agility, smart adaptation and big, bold decisions are needed today, more than ever. Our industry needs to show and tell that we really are critical to a functioning society, and that we find innovative ways forward. Let’s try this. Now. Not as competitors, but as an industry unified in finding solutions for difficult challenges.

Stay healthy and watch out for each other!

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Peter Baumgartner is a former chief executive of Etihad Airways and recently joined PA Consulting’s specialist aviation team.

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