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23 AUGUST 2021
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Chris Tarry of CTAIRA, The Specialist Aviation Consultancy, has been a regular contributor to Business Travel News over many years. Here he reflects on the current international airline position as we move towards winter 2021, and the coming of JetBlue.
Almost 20 years ago we coined the phrase “event related disturbance” to frame our evaluation of the responses of airlines to a significant so-called “exogenous shock” and also when taking a view on how the industry and the airlines that constituted it might recover and develop.
Whilst in terms of its impact on the aviation industry the Covid-19 pandemic has been and continues to represent the longest event since the start of the jet age and whilst for many managements attention is still very much focused on the ongoing challenges, where it is reasonable to expect that these may be further exacerbated by another weak winter season, for others the opportunities are not only increasingly clear but beginning to be capitalised on.
We have always been clear that the recovery in aviation will not be like a rising tide that “lifts all boats”; generalisations are perhaps even more dangerous than ever and the pace and nature of the recovery of an individual airline is dependent not only on the shape that it is in but also the extent to which its key markets are open during the peak season and the nature of the “follow through” in the traffic recovery in the low season.
Although on its own the reopening of a market may represent a necessary condition for a recovery in traffic, it is by no means sufficient as for example in the case of the UK – US market. US citizens are able to visit the UK on a quarantine free basis, UK travellers are not able to visit the US. Given that in terms of traffic it is more a UK outbound market to the US than vice versa there are significant implications for the UK-based airlines in particular, notwithstanding the various market agreements and arrangements.
Despite a view that the UK – US market may have a travel corridor in place by November, assuming that the virus is contained at broadly similar or acceptable levels which, given that it is winter, this is by no means certain, it might begin to function as a two-way market again. However, notwithstanding Thanksgiving and the Christmas and New Year holiday period, this is very much the low season.
Whilst we are more optimistic than many in respect of the likely recovery in the all-important business traffic, this latter segment of the market is likely to be somewhat conspicuous by its absence on long-haul international routes until 2022. However, it is quite possible that what we have seen in Asia will also manifest itself in other geographies too where an increasing number of leisure passengers are either paying, or using miles, to upgrade to the premium cabins and away from economy/coach as they perceive/believe that the greater space that they get in the premium cabin provides an additional defence against Covid.
As ever however volume alone is not necessarily a measure of financial success.
To a greater rather than lesser extent the evidence from markets that are open, and from the travel patterns in these markets, is that the demand for travel is unchanged. At a fundamental level even in the case of much of business travel there have been no changes in the reasons for that travel.
If anything, and quite logically, in the case of the “visiting friends and relatives” (VFR) segment, traffic is stronger than before and where there is a greater propensity to pay a higher fare at least in the short run – something that will be evident as other markets open too and particularly those where countries at one end of the route have a large diaspora.
We have also seen a bounce back in leisure markets although in the case of UK outbound this has been held back by uncertainty over short notice changes in the colour of the so-called ‘traffic lights’ let alone the cost associated with the necessary testing regime.
As we have suggested in the past the main changes, as they have been after any previous event related disturbance, will be on the supply side where this will show through both in route and market exits compared to previous networks and in route and market entry but where the traditional incumbent is exiting. JetBlue announced in 2019 it was going to operate to London from 2021. The dislocation in the market is likely to enhance the opportunity if they are able to build out their network and frequency.
In our view the economics of the A321 and the nature of the yield curve should certainly mean less (capacity and cost) equals more. This is only one change of a number that are evident on the supply side where we have seen new entrants come onto routes either in competition with the incumbent or where the previous operator has exited and where they are unlikely to re-enter.
Beyond this there are a number of new airlines that have targeted specific now unserved segments of the market.
Getting the new network in terms of routes and capacity right for the so-called previous incumbents has always been a challenge after previous dislocations.
The longer the total or partial closure the more difficult this will be.Like many others we continue to “move the pieces around the chess board” to determine what the industry might look like from a route and market perspective.
Although we are moving closer to the likely outcomes in many areas we are still some way from finalising our view against a background we recognise that if anything the experience of winter 2021 may be even more important in determining the size and shape of the industry than winter 2020.
All comments are filtered to exclude any excesses but the Editor does not have to agree with what is being said. 100 words maximum
Jim James, Westminster
Whilst I follow Mr Tarry’s logic I am not sure of his conclusion. Perhaps he, like most of us, really don’t know what happens next, or are we not brave enough to face up to the facts.