(PART 3) COVID-19 EXPOSES THE BRITTLE BACKBONE OF THE NIGERIAN AVIATION INDUSTRY – ROLAND IYAYI

 

• The New-Normal & Evolving Reality Post-Covid-19

The window of opportunity of the operational pause availed by the onset of this COVID-19 pandemic following the closure of international borders, airspaces and airports has presented the industry with the unique and rare opportunity to reset itself, its priorities and operational strategies.

A position re-echoed by the French President Emmanuel Macron in a nationwide televised address to the French people on 12th April 2020 thus, “this is a moment of reconstruction – we need to reinvent ourselves, myself included”.

The aviation industry worldwide indeed needs to reinvent itself in order to survive, and aside the seemingly adverse impacts of this pandemic considered its downside, maybe the only upside is presenting the industry with this unique and wonderful opportunity for inflection and self-appraisal.

Already several airlines worldwide have initiated a variety of strategic responses both in the short and long terms to manage the inevitable adverse impacts of the pandemic.

These strategic initiatives have included amongst others, the laying off and or furloughing of staff, reduction of salaries for retained staffers, parking of surplus aircraft and the early retirement of certain types of aircraft in their fleets considered cost inefficient vis-à-vis the under review operational networks in the short term.

In the medium to long term, some airlines have considered and indeed cancelled previous commitments for the acquisition of new aircraft orders placed with manufacturers, offered all employees voluntary buyouts, early retirements and explored the availability and possible adoption of new technologies to further reduce operating fixed costs.

No doubt airlines and airports in the aftermath of this pandemic will have to embrace the new reality and re-strategize, having to forcibly shift their focus from the routine daily operations in the short term to that of business continuity and survival in the wake of the pandemic on the long term.

The pivotal considerations of securing additional funding, protecting jobs, maintaining and scaling operations accordingly and exploring their new-normal survival strategies will now become their new pre-occupation.

Meanwhile, passenger traffic recoveries shall no doubt take a much longer time than previous industry experiences of the past with exogenous shocks and crises, taking into cognizance the peculiarity of this pandemic, thereby dealing a further major financial toll on airlines and airports.

This is not helped by the newly proposed protocols and mandatory requirements of certain States to have visitors isolated for two weeks on arrival, as a continued effort at containment, incorporating social and physical distancing, contactless experience and increased sanitization.

These additional costs to be borne by airlines, airports and passengers alike will most certainly be a disincentive to travel, until such a time these requirements are completely lifted worldwide or when an effective vaccine is produced and administered to the populace. Another major factor in the path to industry recovery is the rebuilding of the confidence of the travelling public.

With the fear of contagion, people are reluctant to mix with others not knowing their statuses due to the higher chances of infection.

This invariably would result in a highly leveraged and otherwise capital-intensive industry being critically squeezed on a financial level and could trigger unintended outcomes, such as airline and airport failures and bankruptcies, some of which is already evident.

The airlines have a major role to play in regaining the confidence of the travelling public, by helping to educate them and allaying their fears concerning the possibility of infection on commercial flights.

Notably most modern-day aircraft are equipped with High Efficiency Particulate Arrestors (HEPA) air recirculation filters. These are designed to capture and remove about 99.8% of all airborne particles and viruses with high efficiency.

This HEPA installation along with the updated hygiene regulations, new operating protocols and rules of social distancing during travel will become top priority for airlines upon resumption of operations.

This position is corroborated by the World Health Organization (WHO), which has stated that “there is very little risk of any communicable disease being transmitted on board an aircraft”, due in large part to the sophisticated HEPA air circulation systems on airliners.

However, there is a caveat. The WHO further states that, “passengers seated within 2-3 rows of an infected passenger are at higher risk of contracting the disease, especially on longer flights.

These passengers could contract the disease from the infected passenger’s coughs or sneezes, by touching the infected passenger, or by touching something the infected passenger has recently touched”.

This development then brings into sharp focus the issues of cabin configuration and seating density. Would we have new regulations post-COVID-19 requiring new seating arrangements in the aircraft or would airlines be required to retrofit aircraft cabins with fewer seats?

Where new regulations are imposed regulating the seating densities of aircraft to accommodate the social distancing guidelines, airlines may be exposed to additional expenditure for interior reconfiguration, which goes beyond just removing or moving seats around in the cabin.

However, substantially reducing the number of seats on an aircraft would necessitate fare increases to compensate for the reduced passenger numbers carried, but invariably bring about some welcome savings on fuel consumption as a result of the lower aircraft weight.

The major unintended outcome of any such regulation imposing a restriction of the current seating densities on commercial aircraft would be an issue of demand and supply. With reduced capacity and increased fares, the rate of recovery of passenger traffic will be much more prolonged, considering the issue of elasticity of demand. Except of course, the substitutes to air travel are limited or unavailable, in which case the passengers are left with no choice. Otherwise, industry concentration envisaged as a result of possible bankruptcies would result in fewer airlines.

Ultimately, fewer airlines with correspondingly fewer flights would result in airfares increases, while the looming lower demand and lower fuel prices after what is looking out to be a global recession would drive airfares down. Under normal market conditions, low airfares would naturally stimulate demand and trigger an early recovery, absent the protracted pandemic.

But with the extended period of the COVID-19 pandemic, anything is possible. Numbers they say do not lie. Figures posted by the Airports Council International (ACI), trending from pre-COVID-19 actuals, buttress this gloomy outlook.

According to the ACI, passenger traffic posted positive annual growth rates of +3.4% in total passenger traffic year-over-year in 2019 and exceeded 9.1 billion passengers. This then informed the earlier forecasted figure of 9.5 billion passengers for 2020.

However, in the wake of the COVID-19 pandemic whose impact was instantaneous, the ACI revised its forecast considering that the global passenger traffic grew by only just +1.9% in January 2020 as against +4.9% in December 2019.

In absolute terms, the reduction in global passenger traffic volumes due to the COVID-19 evolved from -6.9% in January to -22.9% and -53.1% in February and March respectively, when the international air travel bans were imposed, overall totalling to a -28.3% decline for the first quarter of 2020 or 620 million passengers worldwide.

The arrival of the pandemic has since necessitated the adoption and introduction of remote-working policies by some corporate organizations as a strategy for business continuity.

This, has effectively kept staff working remotely from home on company supplied interactive electronic devices and installed applications, with in-built capability for monitoring the efficiency and hence productivity of personnel.

The speed of recovery of airlines and airports especially from this market segment – corporate travellers, will depend principally on whether or not these remote-working policies will be pseudo-obligatory for the long term, aided in large part by the introduction and retention of new technologies for remote meetings and conference calls such as ZOOM, post-COVID-19.

Notwithstanding, the domestic passenger traffic, if and when the airport closures are lifted, will recover much faster than international or intercontinental passenger traffic, as international flights will require reciprocal approvals, which will be dependent on how and when each State re-emerges from the pandemic.

The fundamental problem therefore facing the airlines and FAAN now is that their recoveries are more or less dependent on two main factors, both of which are closely linked and entirely out of their control, namely the restoration of passenger confidence and the continued retention or otherwise of adopted new technologies by corporations post-COVID-19.

Airport checking-in procedures for passengers are being changed in order to accommodate the new social and physical distancing protocols as part of additional containment measures to deal with the pandemic.

Aside from the wearing of face masks and gloves in public places by prospective passengers, the checking in counters at airports are now to be installed with transparent screens separating the passengers from the check-in staff, for additional protection.

Also the passenger queues within the terminal buildings will have spacers marked on the floor to indicate the appropriate position a passenger can take in the queue, in order to maintain the requisite social and physical distance from the other passengers.

These requirements will impact the airport design capacity throughput by increasing the facilitation period and the real estate necessary to comply with the new operating protocols. This may invariably necessitate the introduction of long queues outside of airport terminal buildings to avoiding overcrowding inside, whilst still complying with the new social and physical distancing protocols.

In the event of inclement weather, maintaining order may become elusive or impossible in the extreme. These new requirements will also necessitate the deployment of additional trained aviation security personnel at airport terminal buildings and surroundings, whose responsibilities aside from crowd and vehicular control may include emergency health evacuations.

 

All of this development will certainly induce additional pressures on other associated airport infrastructure, which may ultimately translate to operational delays for the airlines, not to mention the accompanying under-utilization of their prized aircraft assets and the concomitant effect of passenger dissatisfaction.

This may not be dissimilar to an expanded combination of the additional security screening measures introduced to air travel post-9/11 and the health risk from SARS in 2003 and the financial implications. But the financial implications directly or indirectly will be borne mostly by the airlines in the final analysis.

The best possible scenario of an industry recovery will follow the same trajectory as in the wake of previous exogenous shocks, such as the terrorist attacks of September 11th 2001 or the global financial crisis of 2007-09.

In both these instances, travel patterns normalized and growth returned only after a few months of major disruptions, as already exemplified by China this year, albeit aided by an abundance of government bailouts.

According to OAG, at the onset and peak of the pandemic in mid-February, Chinese carriers had mothballed 70% of their capacities, which has since reduced to 40% compared with a year ago, having seemingly achieved some level of stability and the restoration of passenger confidence in the market. A point of note however, the Chinese domestic market is the second largest after the US, and in 2019 grew at a phenomenal 7.8%, the fastest of all global domestic markets, this despite the trade war with the US.

Importantly, China remains the engine room of the global economy, and a critical link in the world just-in-time (JIT) manufacturing process, churning out goods from its factory floors, which are consumed worldwide and are highly dependent on air transport.

In a worst-case scenario, the recovery will be a long drawn, protracted experience occasioned by a devastating pandemic accompanied by a deep recession, prolonged stagnation and the attendant social damage and political dysfunction extending well into months and possibly years, determined by how soon an effective treatment is discovered.

To be continued….

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