The Economist - USA (2021-02-13)

4 Special reportThe future of travel The EconomistFebruary 13th 2021

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330mjobs,oneintenoftheworld’stotal,claimstheWorldTravel

andTourismCouncil(wttc).

Covid-19hasdevastatedanindustrythatreliesonthefreedom

ofpeopletomove.Internationaltravelstoppedalmostcompletely

betweenMarchandMay2020,asfour-fifthsofcountriesclosed

theirborders.Forbiddenorunabletogetaround,travellershave

stayedput.Internationalarrivalsfellby70-75%in2020,estimates

theunwto, with1bnfewertravellersand$1.1bnlessspending(see

chart).Thatistentimestheshortfallintravelspendingin 2009

afterthefinancialcrisis.Andrecoverylooksfaroff,evenwithef-

fectivevaccines.Theoecdpredictsthattourismwillbeamongthe

“lastsectorsoftheeconomyto...recoverlostdemand”.

It isnotalldarkclouds,however.Greenhouse-gasemissionsby

commercialjetsplungedin2020,intensifyingdebateabouthow

tocurtailthispollutionpermanently.Destinationsblightedby

overtourismhavehada break.Andoptimistsreckonthatinthe

longrunthelinkbetweengrowingwealthandtheurgetotravel

willremainunbroken.Thisreportwillarguethat,forallitshigh

short-termcosts,thepandemicmayacceleratetrendsthatwill

eventuallymaketravelbotheasierandlessdamaging.Today’stra-

velindustrymayhavetakena battering—butthenewonethat

emergescouldbebetterthanever. 7

Rising–beforethefall

Internationaltouristarrivalsandreceipts

Source:UNWTO *Estimate

1.5

1.2

0.9

0.6

0.3

0

Receipts,$trn

Arrivals,bn

1990 95 2000 05 10 15 20*

E

conomy passengers taking one of the few international

flights still running have had an unusually pleasant experience

of late. Exasperated cabin crew battling to close overhead lockers

full to bursting with wheelie-bags, duty-free booze and laptop

cases have been replaced by masked attendants presiding over

planes two-thirds full at best and often with only a handful of pas-

sengers. Some report sleeping across empty rows of seats. The col-

lapse of passenger numbers and revenues will damage the indus-

try. Yet previous disruptions have shaken up the airlines to the

benefit of the flying public. It could happen again.

The advantages of the previous big interruption to air travel,

the second world war, are debatable. The experience of servicemen

crammed into uncomfortably spartan transport aircraft, argues

Eric Zuelow in his book, “A History of Modern Tourism”, created a

generation without pre-war expectations of air travel as glamor-

ous and luxurious. When those same aircraft were converted for

civilian use, travellers accepted being packed in like sardines. The

cattle-truck economics worked in passengers’ favour when dereg-

ulation brought competition to a previously highly regulated and

often state-controlled industry. Air fares tumbled everywhere. Be-

tween 1995 and 2014 they fell by half in real terms, according to

iata,a club of the world’s airlines.

World wars aside, past crises have passed speedily. The terrorist

attacks of 9/11 and the financial crisis of 2009 were “nasty shocks”,

says Brian Pearce, chief economist of iata, but “small bumps in the

road” compared with covid-19. At its height in April 2020 flying

was down by 94% over a year earlier, measured by total revenue

passenger kilometres (rpks). Current estimates are that rpks in

2020 will be down by 66% on 2019, when (including domestic

flights) 4.5bn passengers took to the skies. Only 1.8bn people buck-

led up last year. By the end of it, some 30% of the global fleet was

still grounded, according to Cirium, an aviation-data firm. And the

sense of optimism that had slowly grown took a fresh hit early in

2021 as more transmissible and dangerous variants of the virus

emerged, leading to renewed border closures and capacity cuts.

The plunge comes after years of bumper growth. In each 15-year

period since 1988 rpks doubled. They were expected to do so again

between 2018 and 2033, according to Airbus, the European half of

the duopoly that builds the world’s biggest passenger jets. Boeing,

its American rival, notes an acceleration over the past decade,

when growth averaged 6.5% per year, above the long-term average

of 5%. Darren Hulst of Boeing is confident of an eventual return to

a growth trend of 5% a year, even if over the decade from 2019 the

number may be closer to 3.7%. In the meantime it will be a rough

ride for airlines. Only 2.8bn passengers are expected to take to the

air this year.

Signs of recovery are scant. Domestic flying in China and Rus-

sia has largely recovered, but in Australia it is still down by 86%

and in America, the world’s biggest domestic market, it has fallen

by 60%. International routes are suffering the most. Despite huge

capacity cuts (only a quarter of the international flights scheduled

a year earlier were still running in January), load factors are still

low. Planes are often taking off a third full at most.

The opportunity for travellers to stretch out comes at a heavy

cost. Full service will not resume for a long while. Mr Pearce says

the gradual deployment of vaccines merely makes him more con-

fident about his baseline forecast of a return to 2019 levels by 2024.

Not all air travel will recover at the same pace. Domestic flying will

continue its rebound, followed by regional international traffic.

The last part of the industry to refill its seats will be long-haul fly-

ing. This has a disproportionate impact on legacy airlines that still

rely most on long-haul international routes.

All airlines face a bleak period. Rather than increase by 4% on

2019 levels to $872bn, air-transport revenues in 2020 have plum-

meted to $340bn, reckons iata. In a good year the industry makes

an operating profit of $50bn. Losses for 2020 are forecast at $118bn

and, even if the second half of this year sees a recovery, they will

still be around $38bn in 2021.

Airlines have responded by slashing costs, getting rid of staff

and cutting fleets, yet carriers continue to burn cash at a rate of

$5bn-6bn a month. Looking at the cash and liquid assets of carriers

in mid-2020, the median airline had enough funding to last just

eight-and-a-half months (or half way through this month), ac-

cording to iata. Some big names have succumbed. Norwegian Air

Shuttle, one of Europe’s largest low-cost carriers, sought bank-

ruptcy protection in November 2020. Dozens of smaller airlines

including FlyBe, a British low-cost carrier, Virgin Australia and

Noheadsin the clouds

Governments’ re-entry into airlines may spur more competition

The airline industry