The Economist - USA (2021-07-10)

62 Business TheEconomistJuly10th 2021

Theairlinebusiness

Dark skies and silverlinings

T

he pandemic, with its lockdowns and

travel  bans,  has  clobbered  the  world’s

airlines.  Revenues  per  passenger­kilo­

metre, the industry’s common measure of

performance, plummeted by 66% in 2020,

compared with 2019. The International Air

Transport Association (iata), a trade body,

expectsthem  to  remain  57%  below  pre­

pandemic  levels  this  year.  Although  the

world’s listed airlines have collectively just

about  recovered  from  the  $200bn  covid­

induced  stockmarket  rout  (see  chart  1),

forecasters  reckon  that  air  travel  will  take

until  2024  to  return  to  2019  levels.  The

companies’  total  annual  losses  may  hit

$48bn  in  2021,  on  top  of  $126bn  in  2020.

Many  have  been  torching  cash  as  fast  as

their  aeroplanes  burn  jet  fuel.  Plenty  sur­

vived only thanks to government bail­outs. 

The industry­wide picture conceals dis­

parities, however. Some airlines are strug­

gling  despite  having  cut  costs,  slashed

fleets  and  shored  up  balance­sheets  with

commercial  loans.  Others  are  brimming

with  confidence.  Big  American  and  Chi­

nese  ones  with  large,  increasingly  virus­

free domestic markets will return to profit­

ability  first.  Frugal  low­cost  carriers  that

went  into  the  pandemic  in  the  black  are

close behind. By contrast, airlines that de­

pend  on  lucrative  long­haul  routes  may

struggle  if,  as  seems  almost  inevitable,

business  travellers  substitute  Zoom  for  at

least  some  flights.  Regional  operators  in

places still ravaged by covid­19, such as In­

diaorLatinAmerica,lookprecarious.And

theairspacebetweenthoselosersandthe

industry’swinnersiswidening.

Divergingfortunesarenothingnewin

theairlinebusiness.Mostcarriersmake

fora lousyinvestment(seechart2 onnext

page).iatareckonsthatonlyaround 30 of

the 70 orsoairlines forwhichdata are

availableearnedmorethantheircostof

capitalbetween 2008 and2018.Tokeepfly­

ing,airlinesneed“strongbalance­sheets

ora parentwithdeeppockets,”saysRob

MorrisofCirium,anaviation­datafirm.

Despitea degreeofderegulationinthe

past 50 years,attheendof 2019 govern­

mentsstillcontrolledorhadbigminority

stakesin 29 oftheworld’s100­oddlisted

airlines,accordingtotheoecd, a clubof

industrialised countries. States prop up

loss­making nationalcarriers, including

privatisedones,whichtheyviewasvital

infrastructure anda source of patriotic

pride.In announcingJapan’slatestbail­

out,theauthoritiestalkedof240,000jobs

atstakeandemphasisedtheroleairlines

playinconnectingfar­flungpartsofthear­

chipelagiccountry.

Paternalistic governments have dug

deepinto theirpocketsduringthepan­

demic.BetweenitsonsetandMarchthis

yearpublichandoutstoaviationexceeded

$225bnglobally,iatacalculates.Thislar­

gessehelpsexplainwhyfewercarriersen­

teredbankruptcyworldwideincalamitous

2020 (43ofthem)thanin 2018 (56)or 2019

(46),accordingtoCirium.

Evenifcashinfusionstidesomeair­

linesover,though,theyarenocure­all.On

thecontrary,theymayprovepoisonous.As

MrMorrisofCiriumpolitelyputsit,state

supportleadsto“inappropriatecostbas­

es”.Onecarewornobserverremarksthat

AirFrance­klm, a Franco­Dutchentity,has

been“paidbythegovernmentnottore­

structure”.Francewantstosaveasmany

jobsaspossibleandtheNetherlandstoen­

surethatSchipholinAmsterdamremains

a bigconnectingairport.Neitherobjective

hasmuchtodowithreturns.

Moreover, bail­outs donotguarantee

long­term success even in combination

with a healthy pre­pandemic balance­

sheet.Dubai’sEmiratesenjoyedyearsof

profits,aswellasgenerousbackingfrom

itsowner(asheikhdom).SodidSingapore

Airlines(whichislistedbutcontrolledby

the city­state’s government) and Cathay

Pacific(HongKong’spubliclytradedflag­

carrier).Likemanyoftheirlesslucrative

counterpartswithlargeinternationalnet­

works,includingAirFrance­klm,British

AirwaysorGermany’sLufthansa,theyall

“relyonthewholeworldreopening”,ob­

servesJohnGrantofoag, anotheraviation­

datafirm.Thatwillnothappenuntilmuch

moreoftheglobeisvaccinated(seechart

3).Andasmuchasexecutivesdislikeend­

lessvideocalls,mostdespiseconstantfly­

ingevenmore.

Amidtheuncertainty,twocategoriesof

carriercanexpecttoprosper.Thefirstis

thefull­servicenetworkairlinewhich,like

beaten­uprivals,offerslong­andshort­

haulroutesbutwhichalso,crucially,ca­

terstoa hugedomesticmarket.Thesecond

groupcomprisesnimbleandcash­genera­

tivelow­costcarriersthatflyona multi­

tudeofregionalroutes.

Thereboundindomesticflyingfavours

AmericanandChineseairlines.Lastyear

China, wherecovid­19 emergedbut was

suppressedmoresuccessfullythaninthe

West,overtookAmericaastheworld’sbig­

gestdomesticmarketbycapacity.Flights

withinChinaarebacktolevelsfrom2019,

The pandemic has been a calamity for manyairlines.Italsooffersthe

airworthiest survivors a chance to soar

Hard landing, soft take-off

Airline industry, market capitalisation, $bn

Source: Bloomberg



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