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Aviation after COVID – A Brave New World?

The outgoing IATA Director General Alexandre de Juniac has in an interview with the UAE based newspaper “The National” provided some perspective on the ongoing crisis in the aviation industry. The content of the interview presented in the article (link below) reinforced previous views he has expressed but also emphasised some aspects which have not been highlighted in previous ones. Although displaying some optimism, the views provided were cautionary and emphasised the continued problems that the industry can expect even as the way from “rock bottom” up towards an uncertain future has begun. As Mr. Juniac soon steps down in favour of Willie Walsh, previously leading BA and IAG, these views can be seen as part of the list of priority issues that he will hand over to his successor.

Among the views presented in the conversation were many related to continued urgency for the industry as a result of the pandemic. There were calls for increased coordination among countries and their governments in regards to vaccines, “health passports”, continued support to the aviation industry and plans for management of any future disruptive global events. A recognition of the environmental challenges laying ahead for the industry. Some frustration was revealed as Mr. Juniac commented on a lack of government involvement in developing alternatives to the fuels available today: “It is really surprising to see that governments have invested billions and billions on renewable energy everywhere and they are not putting a penny into sustainable aviation fuels”. However, there were not only calls for governments to do more but also an admission that airlines “need to strengthen their balance sheets” as the industry is “too fragile” and that they need to be better prepared for large scale crisis situations. This point is important as the spending in recent years by airlines in favour of shareholders, especially in the U.S, has left many with little sympathy for the dire situation they have experienced during the pandemic.

In regards to the size and competition in the industry, Mr. Juniac’s view is that the current limitations of foreign ownership in many countries, as well as a lack of available funds, will mean that there will only be limited consolidation in the industry the nearest years. This view is reasonable but runs contrary to a fair amount of speculations in the recent year about mergers and acquisitions as many airlines have been pushed towards bankruptcy but saved by government support. It certainly seems reasonable that some stronger players in the industry will see opportunity in this situation and take the chance to buy up some of their competition.

Mr. Juniac did however add that governments who already had, or have taken, ownership of airlines during the crisis will be reluctant to give up their ownership as they already have provided support through the crisis. However, as some airlines were not profitable even before the crisis some governments may leave it to the market to decide their fate or even welcome the opportunity to have new owners take over. He further commented that he does not believe that the airlines will have funds to buy competitors, but this disregards that investors may see benefits in consolidation and provide such funds.

The view presented in this interview was positive but careful and it can be contrasted with others, which have predicted a roaring return for the aviation industry as the pandemic subsides. The complexities of the way out of the pandemic remains difficult to predict but it is difficult to find convincing arguments for why an industry that has been growing – with its ups and downs – for a century would not recover and return to growth. In fact, some of the recover is already on display in the U.S. A friend of mine who is a captain at a regional airline there sent a short text message last week which said: “Just back home after six days on the line. Cabin factor 93%”. Maybe the aviation industry will not return to the same brave world industry it was in 2019, but it is likely to return to a new and rather brave world.

Link to article:
Bailouts to limit airline consolidations over next five years, Iata chief says

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