December 29, 2020 4:13:47 pm
There are some unexpected success stories in a year that IATA Director General Alexandre de Juniac branded an “annus horribilis” for aviation. And even this characterization might be an understatement. But one has to look for these small hints of hope amid widespread desperation.
For example, Dubai-based Emirates Airlines, one of the grand industry players, was no stranger to success and always in expansion mode. Not so in 2020: For months on end, there were no flights or just a fraction of normal operations. That’s something that would have been impossible to imagine only months before. It’s been a year like no other.
“In the passenger business, we are now just at 18% of revenues we had last year,” Emirates President Sir Tim Clark told DW.
But even that isn’t a cause for desperation. Emirates has found other business opportunities, like air cargo. Traditionally, selling cargo space in the bellies of passenger airlines was a kind of add-on. This year, with far fewer flights operating, cargo capacity dried up too.
Looking on the bright side
Many other established supply chains were also disrupted due to the pandemic, prompting Emirates — and many others — to start removing economy class seats from their aircraft to transport cargo. “Our cargo revenues have gone through the roof,” said Clark. “We exceeded revenues from last year, when the entire fleet was flying.”
“At some point, about 80% of our revenue was cargo, although passenger numbers are starting to come back again. But cargo is really what is keeping us going,” the long-serving head of Emirates explained. In addition, cargo makes up about 60% of total revenues compared to just 10% last year.
One example Clark gave was of a US car manufacturer whose tires were normally manufactured in Thailand. As production was shut due to the pandemic, the company chartered an Airbus A380 from Emirates to fly 40 tons of unprocessed rubber from Bangkok to Atlanta.
“We are getting some very bizarre requests for bespoke cargo operations,” he told DW. “It is highly lucrative because they are paying top dollar for it, and it was worth it for us to fly an A380 all that distance.”
Back to the billions
When the pandemic first struck, the raison d’être for aviation disappeared almost overnight and came right after a record year in 2019. This year, airlines have carried barely a third of last year’s 4.5 billion passengers. The industry is still reeling from €100 billion ($122 billion) in losses, according to International Air Transport Association (IATA), an airline lobby group.
Ask any airline CEO for their predictions for 2021 and you will receive answers of cautious optimism. “2021 will be a better year,” said IATA boss Alexandre de Juniac. The industry association predicts losses of just 40% of 2020 figures.
“I am sure we will see a significant upturn in the course of next year,” Lufthansa CEO Carsten Spohr told Germany’s Wirtschaftswoche magazine. He believes his airline will achieve half of 2019’s passenger levels next year and maybe up to 70% in the summer.
Tourists in the driver’s seat
Martin Gauss, German CEO of Latvia’s flag carrier Air Baltic, is also anticipating a better year. “I believe our industry will bounce back in March, depending on restrictions that may still remain,” he told DW. “It [recovery] will begin in short-haul, because there is a big pent-up demand.”
Leisure travelers are expected to be the main driver of demand, while the number of business travelers will be significantly lower.
The consultancy Idea Works predicts that in the best case, 19% of former business travel demand will permanently disappear. In the worst case, it could reach 36%. This would pose a fundamental problem for the airline sector, which has made a comfortable living off coveted full-fare passengers, enabling it to subsidize other, cheaper fares.
Flying with a new confidence
Spohr has a less dramatic prediction. He estimates the permanent loss of business travelers will come out at between 10% and 20%, predicting a 75% to 80% market share for leisure travelers.
As the COVID-19 pandemic is expected to endure, even with successful vaccine programs, industry insiders say it will be crucial to establish common rules for air travel. IATA has proposed a standardized app called Travel Pass, which would store individual test results and vaccination certifications.
Clark, an industry legend after over 35 years with Emirates, is adamant about a recovery. “The global economy is enormously resilient, it has taken enormous knocks in the past and it has always bounced back. This means the hub-and-spoke system where we funnel passengers through Dubai will strengthen.”
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