What is the future of air travel after the coronavirus?


The coronavirus brought the travel industry to a standstill. At the beginning of the pandemic in February 2020, uncertainty reigned and countries began closing their borders, leading to airlines cancelling thousands of flights. People were also wary of boarding airplanes and being confined to a closed space for lengthy periods during the outbreak of a virus known to be transmitted through the air. With no one to transport, many airlines cancelled regularly-scheduled routes, and regular flights were reduced to a minimum. Major airline stocks began plummeting in February 2020 and remained at record lows throughout May 2020: United Airlines (75%), Delta Airlines (66%), British Airways [IAG] (75%). The low-cost airlines also nosedived: Southwest (60%), Ryan Airlines (50%), Easyjet (66%).

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More than a year has passed since the beginning of the pandemic, and airline stocks have rebounded somewhat, though their price shares have not reached pre-pandemic levels. Some countries’ borders are closed, some have restrictions and others are relatively free-flowing. Nonetheless, restrictions on travel still exist. The question remains: Will air travel return to what it was pre-COVID-19?

Challenges facing airlines

An OECD report points to two categorical uncertainties facing airlines: cost of health-related measures and the shape of recovery for commercial flights. The pandemic has forced airlines to implement extra health and safety requirements, which will raise operating costs, at least in the short run. If social distancing becomes a permanent fixture in air travel, the number of seats per aircraft may decrease by up to 50%. 

Ticket sales, though revenue-generating, are a gateway for other revenues. Another chunk of revenue comes from ancillary services that airlines provide to passengers, such as seat selection, luggage, meals, class and more. In this case, even if the price of the tickets was doubled, it wouldn’t cover the revenue being lost as a result of fewer people per aircraft.

The second uncertainty is the shape of recovery for airlines. The pandemic has made more people wary of confining themselves to an enclosed area for hours with the potential of catching the coronavirus. Businesses are realising that a large part of operations can be done remotely and via teleconferencing, which means less travel is necessary. Differing restrictions on air travel per country creates a challenge for airlines returning to a full schedule. While there are at least six approved coronavirus vaccines to date, the effects of new strands of the virus remain unclear. Those strands could be neutralised by the vaccine, but other strands may develop, causing added hesitancy for air travel.

Less corporate travel, more leisure travel

Having spent the past year in lockdowns and tolerating other movement-based restrictions, there is an expectation that people will look to go on holiday once restrictions are lifted. Some analysts believe that in the near future there will be more leisure travel and less corporate travel. The desire for a holiday  on a sunny beach, a retreat in the mountains, or someplace off the beaten track, tends to favour low-cost airlines. 

European low-cost airlines like Ryanair and EasyJet are known for their many holiday destinations. For example, Ryanair has 30 destinations in Italy compared to Lufthansa’s 18. The difference in number of destinations is specifically salient for holiday destinations on Italy’s coast, where Ryanair has flights and Lufthansa doesn’t. In Spanish coastal areas, Ryanair beats the German giant 16-10. 

But the number of destinations is not the only barometer. Lufthansa and Ryanair have a similar amount of destinations in coastal/island-laced Greece. Corfu island on the west coast of Greece is a major holiday spot. Lufthansa has only two airports with service to the island, whereas Ryanair has about 20. 

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Corporate travellers fly major airlines

Though holidaymakers may prefer low-cost carriers, the major airlines cater to the corporate traveller. Low-cost carriers usually provide regional service, but lack the transatlantic, transpacific, or other long-haul flights connecting major business centres. Ryanair and Easyjet can shuttle you around Europe, but only the major carriers have flights to the US, the far east, or other corporate destinations like Dubai and other areas in the Emirates. 

The many different classes such as economy premium, business, and first are all hallmarks of the major carriers, not to mention big money makers. However, corporate travel may be slower in returning to previous volumes. The lower appetite for business travel, combined with solutions circumventing the need for face-to-face interactions, signals to the major carriers that, at least in the short term, they might consider how to readjust to the current demand for air travel. 

Less person to person interaction

Before the pandemic, passengers would interact with several airport and airline staff, from the time of entering the departure airport, until they exit their destination airport. However, in post-pandemic travel, the many interactions may be reduced. This would happen not only to take precautions against virus transmission but also to lower operating costs. US-based Spirit Airlines unveiled new technology solutions designed to streamline check-in and move the passenger from curbside to the gate quicker and with the least amount of face-to-face interaction. Spirit began developing various technologies before the pandemic to lower costs, but the pandemic accelerated the need for these types of solutions. 

While major and low-cost carriers may use new technological solutions in the post-pandemic travel era, this shift could favour low-cost airlines that look to operate on the leanest manpower possible. While major carriers may look to cut costs through technology, they still have a large apparatus that doesn’t necessarily allow them to make the manpower cuts that low-cost carriers can make. 

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The future of air travel is unknown

No one could envision the pandemic and the destruction that it wrought on the world in 2020, and if they envisioned a pandemic, they didn’t know when, where and how it might come about. Therefore, how airlines will fare coming out of the pandemic is still unknown and who will be the winners remains to be seen. 

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This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without taking any particular recipient’s investment objectives or financial situation into account, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilising publicly available information.



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