“The old clichés are still true ‘You ain’t seen nothing yet’.  The COVID-19 crisis comes on top of the MAX debacle, where the fall in the oil price, whilst significant for a number of economies is of limited importance for the airline industry where the issue is one of precipitous falls in revenue and cash.

It is clear that the nature and pervasiveness of COVID-19 and the responses by governments, companies and individuals, have been quite different from any recent “pandemic events”.

In terms of reactions by companies, a much more evident “duty of care” in respect of their employees has resulted in almost immediate travel bans with the consequential impact on high value travel and forward bookings with the inevitable impact on cash.

Whilst Italy has become in effect the first closed market in Europe others are following. In terms of the potential impact, taken together the number of passengers flying to and from UK airports to Italy, Portugal and Spain combined is some 70million.

We had also seen airlines announce significant capacity reductions even before President Trump’s announcement regarding European flights.

For many airlines these latest developments have become an almost existential threat – the effective suspension of routes to the US are catastrophic for both British Airways and Virgin Atlantic.  Beyond this the closure of other markets,  to date Czech Republic, India, Italy, Poland and Spain, will inevitably increase.

Elsewhere for Finnair with the US, India and the majority of its Asian destinations effectively now closed life has become very difficult. The challenges facing Norwegian are well-documented.  Managements at both a number of airports and airlines in Europe and elsewhere including the US are clear in their view that state aid is essential at the present moment – indeed to sustain the economic and societal benefits from aviation such support may indeed be necessary but it shouldn’t be open ended.

We have also seen employers react, as they have in similar situations by cutting, or more appropriately slashing, capacity to reduce costs and also lay-offs and employees taking “voluntary” unpaid leave.

Despite the fall in the fuel price this is in operating terms “de minimis” given the fundamental deterioration in the revenue environment, although it has resulted in some potentially significant hedging losses.

Whilst it would not be appropriate to suggest “who’s next” in terms of likely to fail, we are not only looking at the challenges but also at the opportunities and for whom and when.

My view for some time has been that the industry has had too much capacity. It is reasonable to expect a glut of pre-owned aircraft.  This adjustment will provide opportunities for airlines and lessors to acquire aircraft at very attractive prices.

Whilst the market for air travel and indeed the stock markets, where “excessive valuations” had been evident for some time and a correction was overdue, they will recover.  The questions are when and how quickly?

In the UK the government has implemented what is described as the delay strategy where the objective is to delay and reduce the peak of the outbreak of the virus. However, the reality is that just as many are likely to succumb to the virus as under the alternative strategy where the peak is higher and earlier.  Flybe seems a minor issue.

There remains the issue of the environment restrictions, which despite managements setting out their strategies to reach net zero by 2050 has the very real potential to act as a very real constraint to growth over the longer term.

At the simplest level the impact of electric or hybrid aircraft is exceptionally limited and only applicable to small regional aircraft over any reasonable time horizon. Synthetic fuel is clearly an alternative but given the demands to find additional arable land to feed the growing population, plant-based feedstocks are a non-starter.

Even allowing for some technological breakthroughs synthetic fuel will cost perhaps 5-8 times that of fossil fuel (before the fall due to the actions taken by Saudi Arabia over the last week or so), something which will have an inevitable effect on demand.

At the present moment the total amount of synthetic fuel available in a year would provide enough for 36 hours flying by Lufthansa.

There is a real risk that not only might offsets become less acceptable, indeed to offset the emissions in 2019 some 180m trees would need to have been planted some 20 years ago.

Whilst the airline industry currently accounts for some 2% of global emissions, given what is happening elsewhere, and taking into account current technical developments in the airline industry, the continuing use of fossil fuel, and prevailing growth forecasts, this share could rise to 15% by 2050. Given this and the cost of substitutes it is almost inevitable that beyond the medium term there will be a need to revisit growth forecasts.

In summary the only conclusion is that as we have yet to reach the bottom let alone approach a turning point it will get worse before it gets better and where the short term in particular will be extremely painful and for some overwhelming.  The emphasis must be on survival and how to compete and prosper are issues for another day when the shape and size of the remaining industry will be clearer.