Industry experts believe the era of low-cost flights is over. At least in the same form as before the virus crisis.
More expensive tickets and fewer departures are likely to be the result.
In recent years, it had become something of a lifestyle for many Europeans, to be able to fly to one of the continent's metropolises, or indeed remote corners, for a pittance. Competing budget airlines pushed prices down.
Then the coronavirus came into the picture.
Travel restrictions have caused the European aviation market to decline by 90 percent, according to the international aviation industry organization IATA.
Several low-cost carriers have already gone bankrupt or gone into liquidation.
There are many uncertainties about what awaits when the crisis is over. How many companies will survive? How eager are travelers to pack themselves into airplane cabins again? How will prices develop? Will everything return to normal? When, if so?
The industry is likely to shrink and demand will decrease, according to independent aviation analyst Andrew Charlton.
”"I think what's going to happen is that we're going to have significantly fewer airlines (in Europe), and those airlines are going to start behaving more like the airlines in the US. In other words, with fewer airlines, prices go up," he tells American Business Insider.
In the US, the four largest airlines control 80 percent of the market. In Europe, the corresponding figure was 40 percent before the virus outbreak.
On the other hand, higher ticket prices risk further dampening demand, which is why John Strickland, an independent air transport analyst, believes that some vulnerable airlines – without sustainable cash reserves – will be forced to offer ultra-cheap fares to lure passengers back, even if it is not financially sustainable.
”"Some companies, who frankly have bad business models or bad localization or something else, will do stupid things," he tells Business Insider.
After the September 11 attacks in 2001 and the financial crisis in 2008, the air travel industry also took a hit. The low-cost airline Ryanair responded to these crises by dumping prices, and succeeded well.
Today, Ryanair has parked 99 percent of its aircraft fleet. Unlike most of its competitors, the Irish company has a large cash flow and is not particularly indebted.
Ryanair CEO Michael O'Leary hopes to resume 80 percent of traffic by September, assuming that flights in Europe resume in early July and that governments do not decide to keep the middle seats free.
”"If the middle seats have to be empty, we won't start flying again at all," Ryanair CEO Michael O'Leary told the Financial Times.
The company does not make any money if only two-thirds of the seats can be sold, according to him:
”Not sitting in the middle seat does not constitute social distancing, so it is an idiotic idea that accomplishes nothing.”
According to IATA, the corona outbreak represents the deepest crisis yet for the aviation industry. IATA CEO Alexandre de Juniac believes that social distancing on board could lead to two things: Price increases of up to 50 percent and the end of low-cost carriers.
IATA, which organizes almost 300 airlines, warns that half will go bankrupt within two to three months unless governments act with emergency support.
Now the world's airlines are trying to create a picture of the industry once the crisis has subsided.
”"We must be prepared for a choppy and slow recovery even when the virus is contained. I estimate the recovery period could take two to three years," Delta Air Lines CEO Ed Bastian wrote to employees recently, the news agency reports. Bloomberg. Delta Air Lines is one of the companies that keeps the middle seats empty.
Lufthansa is even more pessimistic and speaks of "several years" before the industry recovers globally.
Dirk-Maarten Molenaar at the consulting firm BCG in Amsterdam sketches a future where passengers will have to get used to a lot of new things. He believes in unexpected alliances as smaller budget airlines fall away.
”The industry could be completely different. Almost like traveling back in time,” he tells Bloomberg.
Source: TT
