Fundamentally and irrevocably changed?
Chris Tarry looks at identifying the “new norm”, its consequences and the time it will take to get there

We have considered both the current and likely future outlook and consequences for not only airlines and airports but also Air Navigation Service providers, support companies, manufacturers and equipment suppliers, and lessors and other providers of finance to the industry.
We are still several months from reaching the trough; beyond this the perhaps inevitable conclusion is that the future shape and size of the aviation industry, over at least the near and medium term, will be markedly different from that in 2019 and where future growth, even when more normal times return, will be slower than previously expected.

• Previous events, which were shorter and narrower, provide a perspective on how managements respond, but are of limited use at the present time. There are good grounds for doubting that the industry will return any time soon to its position at the end of 2019 as we believe that there will be marked changes both in terms of the traffic structure and volume. For example, after the 2008 financial crisis it took until 2016 for the number of intra-European flights to recover to previous levels.

• Applying the time horizon of the Covid-19 outbreak in Wuhan to individual countries provides at least an indication of, amongst other things, possible turning points. On this basis even assuming broadly similar actions to combat the disease, it is probable that the restrictions and immediate impacts for some countries will last well into if not to the end of the summer. As a result, most, if not all, of the traffic and the cash traditionally generated in the northern hemisphere summer will be lost with the inevitable consequences for the winter season and further into 2021. Current schedules for Wuhan, and more widely for China, for the last week in June 2020, show that capacity will be some 40% lower than in the corresponding week in 2019.

• The immediate impacts flowing from traffic to the financial position of individual airlines are now clearly evident. Managements should by now have been able to take an informed view on the weekly and monthly “run rate” of the amount of cash they will need to sustain the current irreducible minimum of activity that they have moved to, whilst retaining the ability to restore operations at some time in the future. Furthermore, with attention focused on accessing and realising cash, from whatever sources that might be available, there is also a realisation, not only of how far they might fall short of what they need, but what the next steps are and where for some failure may be inescapable.

• There is also a range of traditional economic, behavioural and policy factors that will impact not only in the near-term re-start phase but also over the medium and longer term; these will have a material and determining influence both on future demand and also supply.