'Welcome aboard': What's in store for the future of the Airline Industry
The Airline industry has long been in turmoil. Even before Covid-19 grounded most flights to a halt, dozens of airlines were closing down annually in what has been a long-term trend in this industry. When the pandemic struck, huge financial support packages were given to airlines around the world, yet this did not prevent the loss of thousands of jobs, with many airlines ceasing to operate. Those airlines that survive will not only have to adapt to a post-pandemic world but will also have to answer the call to go green.
The level of competition in the airline industry over the past decade has been brutal. Low interest rates and reduced fuel prices facilitated the founding of new airlines, whilst, at the same time, the established airlines entered a period of continuous expansion. Airlines, both new and old, could afford to increase their investments and buy more planes. These were used to offer more routes to more destinations than had ever been offered before, contributing to the steady increase in the number of air travellers. In the 10 years between 2009 and 2019, this number doubled, evidencing the growth of the airline industry, and incentivising more new entrants into the market.
Increased competition is generally good for consumers, as they can benefit from increased choices, higher quality of service, and lower prices. Anyone who tried to book a flight prior to the pandemic can attest to the abundance of choices available to them. Prospective passengers could filter flights by their price, duration, timing, luxury, or even by how environmentally friendly the flight would be, as airlines catered to the different needs of their customers.
Yet, that same competition is threatening to leave this sector dominated by a few big airlines. Over the second part of the decade, smaller competitors have discovered that they cannot compete with the likes of Ryanair, EasyJet, Lufthansa, and British Airways. The ridiculously low flight prices offered by Ryanair squeezed other low-cost airlines out of the market; Monarch and Air Berlin both filed for insolvency in 2017. The downfall of more airlines followed in 2018, amongst them being Cobalt and Primera. Notably, 2019 saw even more airlines go out of business, including XL Airways, Jet Airways, Wow Air and Thomas Cook, whilst even before the pandemic hit Europe, Flybe and Air Italy declared insolvency as well.
All these companies suffered from the same issues. They were all experiencing an increase in their passenger numbers, yet their turnover would struggle to keep up as flight prices were reduced to match their competitors. Meanwhile, costs kept rising, as their expansion meant more planes and staff were needed.
With airlines rapidly closing down due to their inability to compete, the level of competition in the industry has been declining over the past few years. Ryanair’s boss has predicted that the European airline industry is going to enter into a period of growing consolidation. This would follow the path of the North American aviation industry, which has come to be dominated by 4 major airlines.
Impact of Covid-19
The pandemic’s impact on flights has been massive. Flying became a high-risk activity; the prospect of being in a closed space for several hours with more than a hundred other strangers, whilst a highly infectious virus was making its way around the world, discouraged most travellers from boarding their flights. Most countries closed their borders to international travellers at one point or another, and passengers were advised to fly for only highly essential reasons.
It is for these reasons that, during March and April of 2020, the global number of flights suffered a 95% year-on-year reduction. With just one-in-twenty flights actually going ahead over that period, airlines essentially saw their business wiped out. Throughout the whole of 2020, the total number of flights amounted to less than 40% of the pre-pandemic estimate for the year. Government schemes were drawn up to keep this industry alive and these were essential in ensuring that very few airlines declared bankruptcy. Yet, thousands of airline employees were made redundant and even more were put on furlough schemes. Most airlines are now dependant on the continuation of such schemes until the pandemic subsides and the appetite for travelling recovers.
More crucial is the long-term effect that Covid-19 will have on the airline sector. The pandemic has exposed the unessential nature of business travel, which has long formed the basis for the profitability of airlines. The prevalent pricing model of airlines has been to essentially part-finance the price of economy tickets through the high prices set on first class and business travellers. Business meetings, exhibitions, and trade fairs all moved online and most quickly realised that going virtual could be an efficient and low-cost alternative to their traditional way of doing business. This realisation, coupled with the pressure to be more environmentally friendly, caused many companies to announce stringent policies regarding business travel.
When the pandemic eventually subsides, the airline industry will still have to face its biggest challenge yet; the need to become environmentally friendly. The call for airlines to go green was prevalent even before the pandemic, and this call has only grown louder over the past year. The world has witnessed the difference that putting a stop to air travel has had a positive impact on the environment, with CO2 emissions being at their lowest point in decades during April 2020, where air travel was almost non-existent.
Some major environmental groups have campaigned for a complete stop to flying, with flight-shaming gaining traction as a social movement with the purpose of discouraging people from flying. Greta Thunberg, for example, announced publicly that she would stop flying, in a move that was followed by many environmentalists. Short-haul flight bans have been suggested, with the EU openly discussing this option as a way to reduce the aviation industry’s carbon emissions, which currently account for around 2.5% of all global emissions. Airlines will have to answer the call to go green or be boycotted and shunned.
The big problem for the aviation industry is that going green is costly, and most airlines had a shortage of cash even before the pandemic. Yet, airlines and aircraft manufacturers must divert some of their funds into researching a way to make aviation sustainable. There are already various aeroplane prototypes using new fuel sources, such as hydrogen and biofuel, both of which would give the industry an environmentally-friendly overhaul.
Hydrogen-powered aircraft appear to be the industry’s biggest hope, as they generate no CO2 emissions. Airbus hopes to shift its entire manufacturing line to produce exclusively hydrogen-powered planes by 2035, yet airlines must be willing to shoulder the additional costs that come with researching and developing these new planes for this to be achieved. Higher taxes on carbon-based fuel sources and friendlier regulation for greener airlines will be decisive in incentivising airlines to switch to alternative fuel sources. Crucially, investment in infrastructure to facilitate the production and distribution of hydrogen and other fuel sources is also mandated, and governments should consider subsidising such projects.
Covid-19 may have put a stop to the aviation industry’s growth, but many of the problems faced by airlines will remain even after the pandemic subsides. The most established airlines have been using their power to push their competitors into insolvency and out of the market. There is nothing to suggest that this will not continue post-pandemic, especially when considering that most airlines would already be unable to sustain themselves without government funding. However, such funding would be best used to fund a green revolution in the aviation industry, and new laws should be enacted to promote the R&D of more environmentally-friendly aeroplanes, and fuel sources.
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