There’s no reason to worry about overseas travel
In a previous article, I discussed and the future of the aviation industry. As many experts predicted, international air travel would be well below its pre-pandemic level by this time.
We are nowhere near.
The International Air Transport Association’s most recent forecast, published in February, predicts that this year, total passenger traffic will not be back up to the pre-pandemic level. The full recovery of air travel is not expected until 2023.
Some countries may even be longer.
Deloitte Access Economics in Australia published a report Monday that predicted international air travel might not fully recover until the year 2024. This prediction was made before the Australian Government announced on Sunday they were abandoning their target of having all Australians vaccinated by the end of October, a timeline on which international borders had been predicted.
This is particularly bad news for Qantas. Australia’s largest airline had hoped last year to resume international flights by July. Its plan (announced in February) to continue 22 of its 25 international routes in November is also looking unlikely.
Qantas had not expected to fly any international routes except Australia-New Zealand by November. It’s unlikely that this will happen before next year. Dave Hunt/AAP
No large-scale bankruptcies
It could be worse.
In the past year, I and others expected that many airlines would fail due to their prolonged revenue losses. I was wrong.
Cirium, a company that provides travel and aviation analytics, reports that 43 airlines failed in 2020. This was less than in 2019 (when 46 airlines went bankrupt) or 2018 (when 56 airlines went out of business).
The majority of bankruptcies involved small regional carriers such as Britain’s AirAsia Japan or AirAsia Japan’s Japanese subsidiary AirAsia Japan.
Although some have been close, no mid-sized or larger carriers have gone out of business. Thai Airways, Columbia’s Avianca , and Latin America’s second largest airline Avianca have all requested bankruptcy protection. Virgin Australia, Australia’s second largest airline, was also placed under voluntary management, but it was saved from bankruptcy – at least temporary – when it sold to US-based private equity firm Bain Capital. This is the kind of airline I predicted would collapse a year earlier.
Read more: Cutbacks may keep Virgin Australia alive for now, but its long-term prospects are bleak.
But at what cost?
Government assistance has been the main reason why there haven’t been large-scale airline bankruptcy cases. According to the latest IATA tally, state aid globally is US$225 Billion. This is equal to more than a quarter of the revenue of the airline industry in 2019.
IATA’s (published May 2020) analysis of the first US$123 billion shows that about 60% of aid was in the form of loans or loan guarantees (with the remainder being wage subsidies (with equity financing), tax relief, operational subsidies, and direct cash injections). These loans will eventually have to be paid back.
As I predicted, governments have not given much attention to directing aid towards the airlines that stand the best chance at surviving over the long term. IATA’s study shows that there is no correlation between the viability of the airline and the amount received.
Many carriers may struggle to pay off their debts after the crisis. This also means that lending governments will have more incentives to keep the airlines afloat. Another possible outcome is that governments will offer further support to struggling airlines by shielding them from competition after COVID. For example, a government could limit flights to increase the profitability of routes. This would result in higher airfares.
Passengers at Roissy airport, near Paris, on April 11, 2021. Christophe Petit Tesson/EPA
is unlikely to happen.
The world isn’t as big as we thought.
The inability of governments to work together effectively to ease international travel restrictions has been the biggest disappointment in the last year. Even countries like Australia and New Zealand have handled COVID-19 very well. The ” Travel Bubble” should and could have begun much earlier.
IATA’s attempts to convince governments to adopt a system of COVID testing for travelers before departure instead of quarantine upon arrival, fell on deaf ears.
It has been not easy to maintain and agree upon travel bubbles. Taiwan’s travel bubble with Palau allows only a small number of travelers. Singapore and Hong Kong’s arrangement was suspended a few days before its scheduled start date due to a minor outbreak of the disease in Hong Kong.
Read more: A quarantine-free trans-Tasman bubble opens on April 19, but ‘flyer beware’ remains the reality of pandemic travel
All such discussions have been bilateral. These are a start, but what is really needed are multilateral agreements for regional safe-travel areas. Australia and New Zealand could team up with countries with similar epidemiological situations such as Singapore, Taiwan, China and Vietnam.
If governments had taken a more cooperative stance, they could have saved money by not paying local airlines to fly. If this lack of cooperation continues, international travel will be slower than possible.
Japan Airlines has introduced self-service check in machines at Tokyo Haneda Airport that allow passengers to complete the process without touching the screen. Kyodo/AP
Vaccines have become the new key.
IATA’s forecast for global travel volumes to be back at 80% of their 2019 levels by the end of the year is now largely dependent on how quickly vaccination programs are implemented around the world and the outcome of new COVID-19 versions.
As long as a significant number of people have not been vaccinated against the disease, protective measures will be necessary (masks and distancing at events, reduced capacity, and track-and trace) both on and off the ground.