COVID-19
ANALYSIS
all stating that they might not
be able to continue operating
for more than a few weeks.
Without the necessary help,
this would put 25,000 jobs
at risk – and thus they were
jointly seeking assistance from
the government.
The grounding of many
passenger aircraft has driven a
higher than usual demand for
freighters. Flight Global reports
that 40-50% of global freight
capacity is usually carried in
the holds of passenger aircraft;
however, the industry recorded
a 30% increase in demand for
freighters at the end of March.
While some airlines have
reacted quickly and started
filling their passenger aircraft
with freight, not all have.
This type of service is only
utilising a small proportion
of available capacity, and
whilst fully understandable
in the short term, this market
appears to be ultimately
unsustainable in the longer
term. In reality, few have,
overall, actually contributed
anything significant to the
national effort during this
crisis and, disappointingly,
the national consciousness
doesn’t seem to consider the
industry as key, as it does with
other transport sectors. It feels
like the industry could have
done more; we largely hear
more negative than positive
coverage.
As we emerge, it’s clear that
fewer aircraft are likely to be
in our skies. Less demand for
ground handlers means that
those who survive will need to
be lean, agile, innovative and
ultra-cost conscious, perhaps
more than they were before.
But this also creates a paradox
for, in particular, the ground
handling sector.
Airlines will inevitably
embark on some sort of fares war, which may bring more
casualties but inevitably, fares will have to increase to enable
repayment of their massive debts. Simultaneously, they must
have a laser-like focus on cost reduction at a time when GSPs are
themselves fighting for survival.
Ground handling has never been a very high margin business.
The days of airlines pushing down hard on GSPs to reduce their
charges to the lowest possible point must now be a thing of the
past. More recently, there were positive signs of change; however,
without change, we will only be competing in a race to the
bottom.
At least, for now, airlines will not be able to offer the volumes
of the past, meaning that the pre-COVID economics will no
longer stack up as they previously did. The industry must
recognise and accept that the reality for GSPs is that they must
hold their nerve when negotiating and charge a fair, competitive
but sustainable rate for their services.
In the past, rates appear to have been artificially low. Changes
to this are likely to cause an upward push on costs and fares.
In reality, and as an example, how long was a £20 one-way fare
between Athens and London (that I bought last year) ever going
to be sustainable? The travelling public also has to accept the
reality of this.
be made redundant. Many
airlines across Europe, too
numerous to mention, appear
to be following a similar path.
In the US, the government had
proposed propping up their
industry in return for partial
state ownership.
We’ve now clearly crossed
the Rubicon - so preparing
for what happens from
here is vital. One of the
significant selling assets
for an airline is that they
receive money upfront for
a service delivered at a later
time. So for the remaining
pre-COVID bookings, do the
economics still stack up in
this new world? We may see
that they don’t; as the restart
commences, there may be
more casualties.
At the beginning of
March, Ryanair’s O’Leary
observed: “You are going to
see more failures and more
consolidation. I think in
Europe... five major airlines
will control over 80% of
the traffic.” He continued:
“Everybody else in the next
five years is either going to
be taken over by, become a
partner of, or be subsumed
into one of those groups.”
I have written on several
occasions about the lack of
a cohesive approach across
the industry. There are
some examples of coming
together, but nothing visible
that appears to act for the
industry’s greater good. It is an
opportunity lost. What seems
clear is that many of the more
substantial businesses are
adopting a natural selection
approach, just waiting for
their weaker competitors to
disappear naturally.
Looking back
In my 35 plus years in the
The most significant opportunity
is that of the re-set
Simon Miles
In recent years, some of the larger GSPs have achieved growth
partly through acquisition. This trend may continue going
forward, particularly as some of the small and medium-size GSPs
struggle. What happens is entirely dependent on the financial
state of those companies involved. What is clear is that the
industry (and airlines in particular) do need that choice. Overall,
monopolistic situations are generally not a healthy way to
operate.
Going forward - industry threats and opportunities
There are, without doubt, more questions than answers.
Many governments have had no choice but to prop up their
respective economies (in the case of the UK, to the tune of
£350bn). Their rationale is that for businesses to be ready and
effectively try to pick up where things left off, they have to be
supported. However, for the aviation industry, as with many
others, the situation we currently find ourselves in is, in effect,
artificial. We won’t know the full impact on business until later.
British Airways, for example, furloughed 36,000 staff. The
UK government is paying 80% of their salaries. We already
know that when the furloughing scheme ends, 12,000 staff will
30 June 2020 www.airlogisticsinternational.com
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