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I need not tell you what happened in March, 2020.
Whether you’re watching this now or farin the future, that date will forever remain in people’s minds as when the century’sfirst pandemic emerged.
It will remain in people’s mind’s as whenthe era of social distancing and isolation began.
It will remain in people’s minds as whenthey got sick, or when a loved one got sick, or worse.
In addition, though, for the millions of peopleworldwide working in the aviation industry, March 2020 will mark the date when they losttheir jobs, when their company started turning south.
It will mark the beginning of the end.
There is perhaps no industry more severelyimpacted by COVID-19 than aviation.
As it is a brand new virus, in these earlydays, when there is no immunity or vaccines, the only way to stop or slow its spread isthrough physically isolating people.
That is intrinsically in opposition to whataviation is—aviation works to bring people together.
That meant that one of the first measuresgovernments implemented to slow the spread was to ban travel.
When the virus first emerged, its transmissionprimary occurred in China, with only isolated cases elsewhere from those who had travelledfrom the epicenter.
For this issue, the solution was simple—bantravel from China.
A number of countries, notably including theUS, barred foreigners who had recently been in China from entering their borders and, in response to the sharp decline in demand, a number of airlines cancelled their flightsto greater China.
The financial implications of this were limitedas few foreign airlines are significantly exposed to China—partly due to the strengthof the Chinese airlines.
Most of those mainland Chinese airlines, meanwhile, are government-owned so they could take the hit.
Of course nearby Asian airlines like Scoot, Cathay Pacific, and ANA would struggle, but the lockdown of China was more or less a weatherablehit.
But then the virus spread: first to SouthKorea, so airlines cancelled flights to South Korea, then to Iran, so airlines cancelledflights to Iran, then to Italy, so airlines cancelled flights to Italy, but then it seepedthrough Italy porous borders to take hold of the entirety of Europe.
That was the moment when, to airlines, thesituation became severe.
Europe is home to, by revenue, three of theworld’s six largest airlines—the Lufthansa Group, Air France/KLM, and IAG.
To have a virus devastating their home territorywas an untenable situation—nobody wants to travel to the center of a Pandemic.
But soon, the untenable situation became worse.
On Wednesday March 11th, televisions switchedon to the American president sitting behind his desk in the Oval Office.
A speech in this setting is reserved for onlythe most solemn occasions.
Only four such addresses occurred in the entire2010s decade.
The president laid out some steps in his administration’sresponse to the virus, the most stunning of which being a complete ban on all foreigntravelers from Europe.
That was unprecedented.
Europe and the US are two of the most culturallyand economically linked regions in the world and never before would anyone even imagineanything even close to a complete travel ban between the two.
The amount of individuals this would impactwas astronomical.
The North Atlantic is home to one of the busiestflows of long-haul flights in the world.
More than 1, 700 aircraft per day cross theAtlantic—many of those enormous wide-body jets.
These are some of the most profitable flightsfor airlines out there.
To imagine that this would all just come toa stop was unthinkable.
Now, Delta, American, and United would jointhe big European three to have their demand slashed by the virus.
All six of the world’s largest airlines, by revenue, went into crisis mode.
Beyond just the transatlantic flying, intra-Europeand US domestic traffic figures dropped off a cliff.
As one example, United Airlines, the fourthlargest airline in the world, issued a press release announcing a 60% reduction in theirflight capacity in April, 2020.
Even with those drastic cuts, they predictedan average load-factor—how full their planes are—of 20-30%.
Since then, they’ve cut flights even further.
Most every airline in Europe started experiencingnet-negative bookings.
That means that they were refunding more bookingsthan they had coming in.
Some airlines, including Qantas, Virgin Australia, WestJet, and more decided to cancel all but their domestic flights.
Other airlines, including LOT, Brussels Airlines, and Austrian Airlines decided to just completely close down for a few weeks or months.
They would fly no flights at all.
Since its occurrence, 9/11 has been the definingcrisis for the aviation industry.
Since civil aviation began, traffic numbersjust grew and grew and grew until suddenly, on a sunny September morning, that all stopped.
It was bad, and airlines did go bankrupt, but overall, the industry eventually made it out the other end.
Less than a week after Coronavirus becamea Pandemic, though, one thing became abundantly clear to airlines—Coronavirus, to them, financially, was worse than 9/11.
This was the most severe drop-off in passengerdemand in the history of aviation.
Airlines are no strangers to doing thingsthat lose money.
There is perhaps no industry out there thatso robustly embraces the idea of a loss-leader than aviation.
Airlines will go to great lengths to retainloyalty—both of individual travelers and of their corporate contracts.
For example, airlines can and often do keeproutes flying in the depths of winter, when traffic is the lowest, in order to reliablypresent themselves as the go-to airline for their customers.
If, say, there’s a US-based company withsignificant amounts of travel to Barcelona, they’re only going to set up a corporatecontract with an airline that can fly their employees there year-round.
Therefore, American Airlines, for example, might fly there for twelve months a year even if only eight of those turn a profit.
That’s because, with the loss of corporatecontracts, they might only turn a profit flying to Barcelona five months a year, so overallyearly profit will be higher by taking a loss four months a year.
The equation changes when nobody, includingthose corporate customers, wants to travel, though.
Therefore, with the Coronavirus reaching pandemiclevel in one of the lowest-traffic periods of the year, airlines quickly were able tomake the decision to cut loss-leading long-haul flights.
These cuts are deep.
The Lufthansa group, for example, the seventhlargest airline in the world by passengers, is reducing its long-haul schedule to a soleflight from Zurich to Newark, then flights from Frankfurt to Sao Paulo, Newark, Chicago, Montreal, Tokyo, Bangkok, and Johannesburg.
To think that this is what the seventh largestairline in the world in 2020 looks like is unimaginable, but the situation at the world’slargest airline, American Airlines, is even more severe.
This is their long-haul network during theCoronavirus.
They’ll fly just Miami to London, Dallasto London, and Dallas to Tokyo.
This is a situation without a lot of goodnews.
Jobs will be lost and airlines will go bankrupt, but there is plenty of hope that the industry can survive.
While this fall will be far, airlines do havefurther to fall than after 9/11.
In 1999, United, American, and Delta achievedoperating margins—the ratio of their earnings to revenues—of 6.
5, and 12.
7 percent, respectively.
In 2019, those margins were 9.
These are small differences, but a few percentagepoints can mean the difference between life and death for an airline.
Another saving grace for airlines is the recentplummet in oil prices.
This is the byproduct of a price war goingon between two of the world’s largest oil producers—Saudi Arabia and Russia.
The two countries had long worked togetherto limit output based on demand and therefore more or less control oil prices, but, afterRussia refused to reduce their output, Saudi Arabia responded by slashing prices and increasingproduction in order to price Russia out of the market.
Therefore, the same barrel of jet fuel thatwould have cost airlines $60 in February costs only $40 in March, 2020.
That’s a significant discount on airlines’biggest cost and, if it were not for the biggest drop in demand in the history of aviation, they would be celebrating a huge increase in profits.
In the midst of the crisis, though, they’retaking the small win of smaller losses.
The aviation industry, as a whole, never trulyrecovered from the effects of 9/11.
That’s because “recovery” implies gettingback to normal, and that’s something that never happened after 9/11, and certainly willnever happen after Coronavirus.
It’s nearly impossible to predict what willhappen in the aftermath of a situation never seen before.
As we’ve seen already and will certainlycontinue to see, the response to extraordinary circumstances is extraordinary measures.
Therefore, the industry will emerge from theother end something completely new and novel.
How deep the dip sinks will be determinedby how high the curve soars and that will be determined by world governments, organizations, and more than all, how every individual out there responds to COVID-19.
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