The Allplane Podcast #10 - Post-pandemic aviation, with Pere Suau-Sánchez

“An early assessment of the impact of COVID-19 on air transport: Just another crisis or the end of aviation as we know it?”

This is the suggestive title of a paper that has just been published in the Journal of Transport Geography.

pere suau aviation researcher.jpg

Since everyone is making guesses about the future of the air travel industry these days, I thought it would be a good idea to call one of its co-authors, Pere Suau-Sánchez, to learn what those that have put on the research have to say about it.

Pere Suau-Sánchez has a long track record of academic and operational research in the commercial aviation industry, he’s a Senior Lecturer in Air Transport Management, Cranfield University (UK) and an Associate Professor in Business and Economics, Open University of Catalonia (Spain), he also acts as an independent advisor to aviation industry companies and stakeholders and is a regular media host talking about aviation and transportation.

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Things we talk about in this episode:

  • Dislocation of airline networks as a result of Covid-19

  • Effect on routes and airports

  • Are airline prices expected to go up or down?

  • Government intervention and its potential effects

  • Ticket refund: reputation management and lobbying

Interview Transcript

(please note that, although we strive to make it as close as possible to the original recording, the transcript may not be 100% accurate)

Hello and welcome to one more episode of the Allplane podcast

I have already lost count of how many articles have been written about the “new normality”, about how things will be when we are able to travel again…

The reality is that most of this is based on pure and simple speculation, because no one really knows. But, well, at least some researchers have tried to dig a bit deeper into this matter. 

One of them is Pere Suau-Sánchez, an aviation researcher, senior lecturer at Cranfield University in the UK and the Open University of Catalonia, in Barcelona

Pere is the co-author, together with two other academics, of a research paper that outlines a number of potential scenarios for post-pandemic air travel, based on data they have analyzed as well as a survey of senior industry leaders.

I reached out to Pere to learn more about his research in this field and his views about the future of the air travel industry.

So, without further ado, let me introduce our guest today…

-Hello, Pere! How are you?

-Hi, very good. Thanks for having me.

-It's a pleasure! Today our guest a bit as well, who is an academic working in the field of aviation and transportation. The reason I thought it was a good idea to have him here today on the podcast is that he just co-authored a very interesting short paper on the impact of COVID-19 on the aviation industry. And we're gonna comment on this now. This paper is called an early assessment of the impact of COVID-19 on air transport, just another crisis or the end of aviation as we know it. This is the result of a collaboration between Cranfield University, the University of Edinburgh and the Open University of Catalonia in Barcelona. 

-Correct!

-So basically what you've done here with this paper is you have looked at data from the industry from the first half of the year. And you have also been talking with a number of people in the industry at a high level, a cross section of different functional areas within the industry, airline executives, analysts, people that are in, in the aviation industry in different types of responsibilities. Can you tell us a bit more about how you work, how you started working on this paper? And what's the approach, what were you trying to assess? And then we can see what were the findings that you came across 

-Yeah, sure. So, yes, as you said, a couple of weeks ago, we published an academic paper in the Journal of transport geography, we use, as you mentioned, different sources of data. So basically We looked at the two most reliable sources we had at the moment in terms of aviation data on the one hand, OAG schedules and for air cargo, we used Clive Analytics. But the value of the analysis is on the, in the semi structured interviews, as you said, We interviewed 16 senior managers from different companies of the aviation industry. So, different types of airlines, low cost and full service carriers, but also regional airlines, airports of different size and also some consultancies and data companies. So in total 16 experts. The interviews were anonymous. That's an important aspect because you always get a more open view when interviews are anonymous, and we started relatively early to do the interviews, we started the 19th of March and we finished the interviews on the 17th of April. So was the early days of the lockdown, at least in Europe. And this is an important point. So basically the results that we are reporting are reflecting on are  the first impressions of the industry. So we also think that these interviews have some value from that point of view. So maybe in a year if we do again, we will be able to compare it and within the data has some value as well. So basically, we started reaching the industry to try to understand a bit better what was going on and very quickly, I realized that after the second conversation that that there was potential here to structure a bit better interviews and try to come up with an academic paper that could contribute to the analysis of the current climate crisis. 

-Now we're gonna review the different points and from findings you came across, and basically you looked at how the industry might change in terms of capacity, and how the impact might be different depending on the type of airline, whether it's a full service network carrier, a regional airline, a low cost airline, then you also look at the opportunities and challenges as well for airlines in terms of customer rights, how this affects our reputation how airlines behave during this very unusual period. Then you look also at, well...it's just speculation at this moment...but possible impacts on pricing going forward, and how different groups of travelers might be affected, but it's business and leisure, and also the effect of state aid, how this government involvement might have its own set of impacts as well on the industry. So I suggest we look at what you found when conducting this analysis, your area of research in normal times, I'd say, it's very focused on networks, right? And how airlines deploy capacity and how networks develop. So what did you find in this area? Are we going to see a rebuilding of the networks as they were before the crisis, or airlines are going to rethink the whole structure of the networks, the capacity, how they use this capacity, etc? 

-Well, it's difficult to give a clear explanation on what will happen but we're starting to see what could potentially happen. In the short term what we see is that the airlines are basically trying to reveal the network with another perspective than the past. So basically, they are looking at data From aggregators, and other platforms that sell data on short term bookings and on how many times potential customers are looking for travel between two cities. So they are trying to build the network based on that, where's the demand at this moment, not necessarily on where was the demand previously. Obviously, each market has its own characteristics, and these will probably remain and the markets that are interesting for Germans will still be interesting for them in the future...and the same applies to other countries...But but in the short time, what we are seeing is that the rebuilding of the network is highly based on what are the needs of customers now, because the demand is not really coming back all together in a homogeneous way, is coming back highly fragmented, highly uneven and airlines are trying to respond to that in the short term. In the medium and longer term or controlling the having a longer perspective on the recovery, which was more the focus of our paper. What we saw is that all experts had the similar view that there would be increasing concentration in larger markets, larger markets from a perspective of size and the perspective of yield. There was an agreement that is smaller, but we would have a very slow recovery, and also secondary airports in airport systems and regional airports will have all sorts of low recoveries, basically, because…

-...I just wanted to mention here that one of the things that you mentioned in your report is that, actually, first that yes, you mentioned the secondary airports that basically have benefited from the low cost airlines mainly opening all these new routes in recent years they might be suffering. But also this might have an interesting effect is that it might turn the main airports more competitive. So the full service carriers might be facing stronger pressure there. As low cost airlines move into the major hubs to take advantage of the extra capacity, - airport capacity, not airline capacity - that becomes available.

-Yeah, so it's interesting because it seems that there are forces pulling the market in different directions. So it's true that on the one hand, what we will see is further consolidation of the market. So in other words, less competition, and that in some routes, and some change routes, we might see less competition as well, because the market is smaller and lesser when we'll be operating in English. But on the other hand, as you mentioned, clearly All experts seem to point towards higher levels of competition in large airports, especially in hub airports, which traditionally have been dominated by a single airline. And this could potentially be the result of the available capacity that will be at these hub airports, allowing the entry of new carriers. No. So I think that the landscape, the competition landscape will potentially change. And it's still early to see whether local carriers will enter aggressively in these hot markets, but it's a possibility and the industry is concerned about it. 

-And another point you mentioned in your report is that some of the airlines might be hard to hit by this situation. Are the full service carriers that are heavily reliant on network, meaning on the transfer traffic that goes through the main hub. Thinking here about airlines like Emirates KLM, Singapore Airlines...Those are airlines that don't have a large home market, per se, but they rely on moving all these people through their hubs. So those are, according to your report, the ones that are likely to be hard to fit. 

-Yeah, what we saw is that generally the view, and data confirms that, is that low cost carriers were more resilient. Basically, they could fly for longer and they are also resuming their operation sooner as they have. Their network has smaller scope. They basically fly shortcode was full service network areas, obviously, they focus on long haul business and this means that, obviously, they are more affected by by the different external dynamics or the closure of markets that might might be around the world, in different countries

-And also the economic situation, I guess, it's gonna affect them more heavily. Because if lots of people have been personally financially hit by the economic disruption of the last few months, possibly the low cost carriers are in a better situation to get most of those more budget conscious... 

-Generally, what we've seen in crisis not only in this one is that those airlines that have a leaner cost structure have more chances to survive than those that have a heavier cost structure. Generally full service network carriers will have these costs to structure that it's that is less leaner than the low cost carriers. So, that indeed difficults their survival. 

-And when it comes to prices, you also pointed out there might be two contradictory effects going on at the same time. And it's not clear which one is going to prevail. On one side, you have airlines facing costs and having to recover losses. So that might, in theory, push prices up. On the other hand, you might have demand that it's not recovering as fast supply. So that might lead to some oversupply in the market. And that may depress prices.

-Yeah, the experts couldn't agree on the pricing aspect, which means that you know, all the debates that we've seen during the last month around the possibility of having higher prices or lower prices are not only outside the industry are not only in the newspapers and the headlines. But also within the industry. So if we leave aside the fact that, you know, whether we leave seats empty for social distancing and all that, that clearly, what we're seeing, at least in Europe is this is not going to happen and that the recommendations of the European Commission on the Air Safety Agency is there's no need for social distancing in Africa means this, this means that airlines have the possibility of filling the cabin. And this allows them to basically try to provide those lower prices. Now, it's difficult to know. I think that the airlines, what they've been doing, you know, during crises and it's happening again in this one is that they try to stimulate the market with lower prices. And the last, if we look at data from the last couple, a couple of weeks, what we will see is that the ticket prices are between 5% and 15% lower than then same week, last year. And that was also true for the first weeks of March, just before the lockdown, we saw many airlines that were reducing their ticket prices by around 15%. So clearly airlines are doing an effort to stimulate demand with lower prices. Yeah, this does not mean that we will see maybe in some routes, higher prices. You know, it's a big unknown, at least in the interviews was an unknown what will happen with business travelers and we don't call that maybe, you know, there was a feeling that maybe in these particular segments, we might see higher prices. And the other thing is that we will probably see, as well, some additional airport charges related to more security and health screenings now in airports, which may add to the airline price. So overall, the feeling is that we won’t see significant changes in ticket prices. But we might see in two markets lower prices and in other markets slightly higher prices. And there's something interesting to mention here related to what you said about overcapacity, something that we're seeing the summer I think that this has been reported for both the US and for Europe is that airlines are trying to schedule more capacity or slightly more capacity than the demand that they are expecting, as a way of trying to stimulate the market, so basically showing passengers, you know, certain level of frequent frequencies. But this doesn't mean that these frequencies will end up being flown by some airlines. What they are doing is, they might cancel some of these scheduled flights to consolidate demand in a single flight. In other words, you are showing the passenger that the customer that you have an extensive number of frequencies. But you end up consolidating passengers in one single flight, which means that you can basically stimulate demand. But on the other hand, you can still fill the aircraft, instead of flying three half empty aircraft, you're flying one full aircraft, which allows you to keep prices down. Of course, this is, you know, a technique that might be positive in terms of pricing, but also has some, some negatives from the perspective of what it means for the passenger, a change in their schedule or change of day in their flight. And what it means also, for the industry in terms of reputation,

-Yeah, you mentioned reputation as well in your report because there's a kind of practical issue here that has been going on for quite a few weeks and it is how airlines are handling the passenger request for refunding and rescheduling. And you mentioned that this crisis is also an opportunity for airlines to put the record straight to differentiate themselves based on the approach to customer rights, with a view to long term reputation. Also that there's a number of airlines...airlines and governments... that have been lobbying the European Union to loosen these up a bit, these regulations. What can you tell us about this? 

-So yeah, I mean, the discussion around refunds is not new. It's been there for a long time, and airlines have clearly expressed their opinion about the refund regulation, the 261, they don't like it and they've been very vocal about it in the last few years, so it's nothing new. The difference now is that obviously, there's a tension now between the short term need for keeping a positive cash flow and the long term need of keeping passengers happy and reputation levels high, which is not easy to solve. On the 15th of May, the European Commission published a recommendation report saying that they expect their airlines to basically follow the regulation. So there won't be flexibility from that point of view, from the regulator point of view. But what they do is that they suggest airlines to be a bit more creative with the vouchers, so trying to do basically gift vouchers to passengers that for instance, can be changed from one person to another so they are not linked to your name and so on. Not so bad. basically making them more attractive in order to, to make the passenger choose the departure instead of the refund. So there's this tension. And the European Commission has decided not to step back on this, probably because this is part of a long term discussion and they might think that if they were to step back now, it would be very difficult for the commission to go back to the, to the original regulation. But what I think it is interesting of this is that in the interviews, the interviewees were recognizing private that there was that tension, and that, you know, in an ideal world, they would like to be fun passengers. But usually they have problems now in the short term that prevent them from doing it as quick as they would like so I think that what this brings us is to the to the idea to the fact that maybe if we are thinking in the recovery and if we think about the future in the future of the industry, maybe this industry needs to be rebuilt thinking as well not only in profitability, not only in improving margins, but also improving their reputation and having a better relationship with their customers. We also during the last 2,3,4 years, we've been discussing a lot now about the impact on the environment on the reputation of your business. 

-That's another topic I wanted to bring up next, because here there's an interesting dimension now is that we've got all these government funding going to their lines. Now, some have seen here your portunity to enforce or to accelerate this environmental transition in the airline industry. So making this conditional this state aid to The fulfilment of certain environmental conditions, or environmental initiatives, do you think that's gonna happen? That's gonna we're gonna see an acceleration of these already existing moves towards more environmentally friendly airlines. But now with all these public pressure on top of that, it's going to be faster.

-Yeah, I think that this type of crisis, usually what they do is that they accelerate existing tendencies and this is valid not only for the airline industry, but also for other industries. Clearly there was there was increasing pressure from from different governments and different political parties across Europe to basically achieve some, for instance...a good example is the the substitution of shortcode flights by high speed train that has been an important debate in the indifferently EU countries during the last couple of years

-Actually, France has been one of the countries that has taken a tougher stance on this, right? The I don't know if that was conditional to the reception of state aid by the reference group, but there's been a push to discontinue many of their domestic services

-Correct, so the state aid in France is conditioned to the stop, or the substitution of flights by high speed train in domestic routes that are shorter than two and a half hours by train. And so yes, so yeah, in the case of France, what we have seen is that the estate a tour France is linked to certain conditions, and one of them is the end of flights, where there's the possibility of taking the high speed train so that you can If you do the domestic flight with a high speed train link that it's shorter than two and a half hours and and he's not harming connectivity to long haul flights. So, we've seen this as well in Austria…

-Yes! but that's what the pricing right there, they said they would put a floor on ticket prices, but to be honest, this has been dressed as a sort of environmental measure, but there are also many that are saying that that's because of protectionism. And actually Austria is one of the places where the local airline work had been complaining for a long time about its survival being threatened by the very intense low cost presence there at their hub airport. 

-Yeah, indeed. I mean, Austria has released a package of measures. One of them is the one that you're mentioning the minimum price for short haul flights, but also there's an additional tax related to co2 emissions if I'm correct. So, we will see more of these, so it will basically accelerate the existing dynamics and I think that from the industry, you know, airlines need to understand that this will happen, this will happen sooner or later. And I think that they will eventually try to adapt their business model to the new environment, which basically, in certain city pairs it will be more difficult to fly because there will be alternatives and regulation will try to force passengers to move to the high speed train. This is important from the perspective of many of these city pairs represent a significant share of the passengers. 

-Actually. And just to wrap it up, one of the things you hint at in the report is that we might be seeing a smaller aviation industry in years to come, which is kind of a break from the trend we had been seeing in the last few years of ever growing, growing, growing...And this is something that came out of the interviews that were admittedly that were conducted at the very peak of the pandemic, possibly the very worst of this period. But do you personally see this happening? So you think we are going to see an extra stagnation or even a decrease in that and the size of the industry? or that's going to be more like what happened with the SARS crisis in 2003, that saw a very sharp drop and then a recovery and then growth again?

-Well, it seems that the recovery will be slow. And the industry is pointing towards 2023 2024. So it will be slow. It will be smaller from the perspective of having less players and maybe smaller companies and we've seen several companies, several airlines, have been going bankrupt in the last few months. The last one, actually yesterday level Europe, which was operating out of Vienna, which was a market that had become very competitive and, and had lower yields. Because of that, what we will probably see is that airlines focus on those markets that provide better yields. And I think that, you know if you look at what the CEOs of airlines are saying they, most of them are going towards a smaller industry and smaller companies. The CEO of Iberia, the next CEO of IAG, actually in September, he said that Iberia would be a smaller company for many, many years, and that they would be smaller. And I think that companies will try to be leaner and be ready for the next crisis. So I have the feeling that observation will always be important, and we will see strong numbers and we will see how the airline industry recovers. But for that…

-We'll have to wait a bit... 

-You will need to wait a bit...The virus needs to be behind us. And also we need to remember for the international markets, for intercontinental travel, there's no alternative. So there's alternative industry for some markets for some short haul markets, like high speed train, but there's no substitution for flying between continents. That's why aviation will always be important as the backbone of the global economy. I think that we need to be confident

-Of course! So yeah, it's been a pleasure being able to discuss these findings. If people want to find out more about your work and your research, your writings, where can they find you?

-They can just Google my name, or they can just go to peresuau.com. And they will find all my activities and obviously they can contact me anytime, and I'm happy to share our articles and our research and we are open and always happy to interact with industry. 

-Great, thank you very much and hopefully have you here in the podcast sometime in the future to continue monitoring what's going on in the aviation industry! Thank you very much, Pere!

-Thanks Miquel!

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