Air transport can say thank you to covid

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Let’s assume that we are out of the nightmare of the pandemic since China has just dropped its barriers. It is the last country after being the first to close its borders. Vaccines are effective and the vast majority of populations are now protected. And finally, air transport is not doing so badly, and we can even imagine that Covid has been beneficial to it, for several reasons.

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Photo by Maria Tyutina

First, it showed its usefulness to such an extent that the states supported it even beyond what could be hoped. Thus the US has injected more than 60 billion dollars to keep the companies alive, France has massively supported its national carrier, but also, even in a lesser way, the other companies, and the German government has gone so far as to take shares in the Lufthansa group when it was against its principles and those of the company. Italy tried desperately to save Alitalia, but that patient was terminally ill and had to resign himself to the loss of his national jewel to replace it with ITA.

All this clearly shows how air transport is considered by States to be of exceptional importance. Governments have understood that it is both an essential factor in the economy and the best ambassador of countries. At the height of the pandemic, it proved its usefulness in transporting masks and vaccines. No one doubts its usefulness anymore, here is the first result.

And then during this troubled period, officials took the opportunity to launch major reorganization maneuvers. A large number of employees have left the sector, which has made it possible to reduce the size of the workforce without having to face major social movements. Thus companies now find themselves with a reduced payroll and a better organization. The recovery has certainly forced hiring to resume, but it is necessary to get traffic through. As a result, ratios are improving and the results that are beginning to be published for 2022 reflect a better performance in the management of companies.

Meanwhile, many carriers took the opportunity to ground the oldest aircraft and replace them with the latest generation of aircraft that are more suitable and more efficient. This has several advantages. First, a serious step towards carbon neutrality, which remains the essential condition for the acceptance of air transport by new generations. The new aircraft are more comfortable, better

equipped, and the air transport product is seriously improved. Finally, the new aircraft consume less fuel, so they cost less and they are ready for the use of SAF (Sustainable Aviation Fuel). Still, many ground devices are quite suitable for use. It would be a shame to let them rot when they would be very useful in some countries that still do not have access to new aircraft.

Finally, prices have risen significantly. The mad race for volumes from ever lower tariffs has come to an abrupt end. Increases of around 30% have become commonplace. So this irritates a part of consumers who had become accustomed to traveling for ridiculous prices but which they finally thought were the norm. We are gradually returning to common sense, on the express condition that the tariff war does not resume. The danger is not removed because we are going towards a period where the supply will be plethoric between the new devices ordered and those that will leave the car parks. For the moment, demand is still dynamic and it accepts the new fee schedules. For their part, carriers have seen the value of not selling off their seats recklessly. The financial results were well affected.

What would have happened without the abrupt halt of air transport, for more than 2 years as a result of the pernicious Covid? No doubt the infernal race in which it was launched: more passengers, more aircraft, less revenue, would have continued until the moment when the populations would have demonstrated a rejection of this mode of transport under increased ecologist pressure. The equilibrium load factors would be raised above 90% leading to a deterioration in the quality of service. And the companies’ financial results would have remained just as precarious.

Covid has forced air travel to return to its fundamentals: a quality product, sold at a simply reasonable price.

And that’s fine.

How to reconcile the growth of air transport and ecological constraints

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First of all, let us welcome the agreement between Qatar Airways and Airbus in the dispute between them following the deterioration of the paint of the A350s delivered to the Gulf carrier. Without this “happy ending,” it was more than likely that the war between the two behemoths would have enriched only law firms for years. It is done and Qatar Airways will be able to complete its fleet of A350 of the 21 aircraft that the Qatari civil aviation had grounded, probably at the request of the charismatic president of the company, the 23 A350/1000 that Airbus still has to deliver, and the 50 A321 Neo that the manufacturer retained pending the solution to the conflict. In total, Qatar will be equipped with 44 wide-body and 50 medium-sized aircraft that can also provide long-haul aircraft. In other words, the equivalent of an entire fleet for an already large company.

This comes at the right time because air traffic already well-started in 2022 will still receive an additional boost with the arrival of Asian markets whose impatience of their consumers is still difficult to measure. Despite considerable pressure from environmentalists widely supported by the media, one wonders why the demand for air transport will only increase in the coming years, even with significantly higher fares than in the past.

So how to solve the “squaring of the circle”? The search by airlines for the right solution to reduce costs so as not to ask for too much internal savings finally found its solution in Covid. The dramatic period that air transport has gone through has made it possible to reshuffle the cards. Very naturally, many employees in the sector have left to move towards jobs considered more interesting and probably less restrictive. This has made it possible to reduce the volume of staff and rethink more efficient management. In addition, the need to gradually protect air transport from the permanent threats carried by the ecological wave has made it possible to reverse the price curve hitherto pulled down in a mad race for volume.

Two fundamental factors have thus changed the economic situation: fewer charges on the one hand and better unit revenue on the other, all with a number of passengers certainly still down compared to 2019, but large enough to guarantee serious profitability, as can be seen with American mega carriers. Therefore, it does not take a great cleric to predict that once the levels of 2019 are restored, traffic will start to rise again. It remains to be seen how this growth can be compatible with the objective of reducing CO² emissions.

It is likely to see an increase in long-haul flights with the new single-aisle twin-engine aircraft with 200 to 250 seats. The two major manufacturers have indeed chosen smaller and yet very efficient aircraft by abandoning the very large aircraft that have made the prosperity of the large companies, I am talking about the Boeing 747 and the Airbus 380 whose end of production was announced with a curious simultaneity, but this is probably only a coincidence.

Just to absorb the additional demand that will inevitably unfold, there will probably be a lack of a large aircraft, capable of making a jump equivalent to that experienced when long-haul aircraft went from 100 to 400 seats. Growth, even if it does not reach the 5% rates that we have experienced in the past, will apply to already considerable volumes. Based on 4 billion passengers in 2019, the application of growth 2 times lower, or 2.5%, still leads to 750 million additional passengers from the year 2030. How will we ensure that people who wish to move without sufficient capacity are satisfied?

In the absence of a real revolution in propulsion modes that cannot reasonably be envisaged before the mid-2040s, it seems logical that Boeing as well as Airbus would make a modernized and ecological version of the two giants they have just scrapped. That’s what Tim Clark, the remarkable CEO of Emirates, asks and he’s never been wrong.

Belly dance around the Italian market

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Italian air transport is still coveted, but all attempts to control it have so far failed. In fact, this mainly concerns international traffic because domestic transport has passed into the hands of “low cost” companies, first and foremost Ryanair followed by EasyJet. All this because the national company has not been able to defend its positions, eaten away by successive. plagued by successive flip-flops linked to the numerous government changes.

It is striking, however, that most Italian government officials have sought to get rid of a burden they could no longer bear without deciding to go through with their efforts. This is how, from the not-so-distant time of the late Alitalia, mergers were attempted with KLM and Air France in 2001, Aeroflot in 2007, then Air France again in 2007, then in 2011 a trial merger with Air France/KLM before letting Etihad Airways take up to 49% of the company in 2014. And I pass on other failed attempts from the beginning of the discussions, such as with Lufthansa.

All the equity investments did not save a company that was very successful during the 1970s. At the time, it was one of the major European players in international transport, operating up to 186 aircraft. So it was necessary to face the evidence under the pressure of the European authorities tired of seeing the Italian state replenish the coffers still empty by loans never repaid. And this is how ITA (Italia Trasporto Aereo Spa) was created in 2020 and took over the assets and operations of Alitalia in October 2021 by operating a fleet of sixty aircraft.

And since then, belly dancing has started again. The Italian government, which owns ITA, has made no secret of its intention to sell the company. And the candidates were not long in coming. As early as 14 January 2022, Lufthansa and the Swiss cruise line MSC made a first full takeover offer, which was refused by the Italian state, which wanted to keep an eye on its national carrier. Less than two months later, on March 10, 2022, a  consortium composed of  Air France, Delta Air Lines, and the Certares fund proposed to take a strong minority stake, only Air France was blocked by European rules that first oblige the company to repay loans granted by the state during the Covid crossing. Lufthansa then returned on August 31 with a minority proposal that was rejected by the new government. And finally, on January 19, 2023, the German carrier came back with a new, more minority proposal but with the possibility of buying the entire ITA. It would seem that the transalpine authorities are inclined to accept such an offer, especially since Lufthansa has indicated that if it is not accepted, it will focus its interest on TAP, the Portuguese carrier, or even on SAS, the Nordic company in great difficulty.

That is where we are. And I wonder why it would be so relentless to take control of ITA because it is certainly not in the interest of ITA, but only with the idea of capturing the Italian international market to transit it through foreign airports. This is also why the government is so reluctant to complete an operation from which the country will certainly not come out as a winner. Two previous attempts at reconciling with foreign carriers have failed. Air France which had taken every precaution to preserve Italian self-esteem was never able to organise Alitalia’s operations in coordination with its own. It has never been possible, for example, to unify reservation and check-in systems. Etihad Airways, for its part, has ruined itself by injecting money to make ends meet without getting anything, except at the margin, from the Italian market to Asia or Africa.

It must be recognized that the very strong Italian culture has great difficulty marrying another, even if it is close to it like the French. Let us acknowledge that Lufthansa has succeeded perfectly in taking over Swiss after the disaster of Swissair and Austrian Airlines. But these two carriers are of Germanic culture, which greatly simplifies exchanges. Relations are much more difficult with the Belgians of SN Brussels.

Basically, we still wonder why with a fleet of 60 aircraft that will quickly grow to a hundred and a very dynamic international market, ITA could not cope on its own. After all, many carriers make a profit without having the same strengths.

The Situation of Airports

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I found Willie Walsh’s latest outing about airports shocking, accusing them of indecently increasing their fares to compensate for the damage caused by COVID-19. I understand that it is not pleasant for airlines to have to pay more for the same services as before the pandemic, but the situation at airports must also be taken into account.

I note that carriers, especially the larger ones, have received massive aid from their respective governments, and this is very justified. When I talk about massive aid, a total of more than $100 billion has fallen into their coffers, which has allowed them to keep their heads above water. Not all companies have benefited from this assistance and some, the smallest, but not necessarily the most fragile, have had to fend for themselves. And to keep up, they were led to lay off massively while the big Europeans have roughly managed to get through this delicate period by keeping most of their staff.

But airports as a whole have not been treated with as much solicitude on the part of the authorities. Most did not receive any assistance. They are probably paying for the image of prosperity that was attached to them. Certainly the very large platforms have made comfortable profits over the last 10 prosperous years. And the shareholders, often the states themselves, have received serious dividends. So the recent period passed, roughly for the moment a year and a half of a farm reduced to more than 70%, has left them exhausted. They must rebuild their health. The prosperity of air transport as a whole is at stake.

I also note that they are essentially dependent on the strategies of the carriers, which can be very changeable. The example of Clermont-Ferrand airport is very illustrative in this respect. At the request of HOP, in other words air France, the airport was transformed to house an operation into a “hub”. This has led to very large investments that can only be amortized in twenty years. Except that the carrier has changed its priorities and decided to abandon the Auvergne connecting platform. And who will take into account the inevitable deficits that this measure has caused?

Environmental pressure is also a factor of uncertainty for airports. Arbitrary decisions, taken without any consultation by some governments to stop the air services that can be carried out, more or less wellmoreover,  by train in less than 2h30, but we are now talking about 4h00, or even more in some countries, lead to the ruin of these facilities often created at the request of carriers, or even governments themselves. The Union of French Airports has also launched an action with the European authorities to ensure that the sacrosanct right to move freely in Europe is respected, without imposing on customers the means of transport. One wonders, moreover, on what basis a State can free itself from European treaties such as the Open Sky established in 1988 and applied since 1992 with the so beneficial results attached to it.

I am not here to defend airports or carriers, I just want to see air transport not killed. But this is what is emerging insidiously and little by little. It therefore seems more than urgent that the actors of this formidable sector of activity stop tripping each other and that, on the contrary, they join forces to simply remind the public how essential it is not only to economic prosperity but that it is also an essential factor of peace. So, great gods, let the companies stop making war on airports, and let them consult with their users.

One thing is certain, air transport will have to cost more in the future. It will be necessary to pay for the necessary research to achieve a certain form of carbon neutrality. We are talking about several hundred billion dollars. It will not be enough to say that air transport produces only 2.5% or 3% of CO² emissions, it will be necessary to reduce them while maintaining the growth of traffic, because the populations need it.

Everyone has to get on with it. Travel agents must stop looking for the lowest prices that are far from covering cost prices, airports will be forced to improve their services and equipment, and carriers will have to stop promoting insane fares that only have the effect of attracting gogos in order to actually sell them much more expensive services than those advertised.

Internal wars must stop. The stakes are high