What's In Store for Airlines?

With travel restrictions and quarantine measures keeping many of us at home for months now, it's no surprise the airline industry has been one of the hardest hit by COVID. Despite some improvements since passenger demand plunged in April, airlines are still facing turbulence. The International Air Transport Association (IATA) recently downgraded its 2020 traffic projections after a "dismal" summer travel season, now predicting a 66 per cent decline in traffic from 2019 levels.

So, what's in store for the airline industry and what does it need to recover from the COVID crisis? In a recent 10-Minute Take podcast episode by RBC Thought Leadership, host John Stackhouse posed those questions to Walter Spracklin, Transportation and Industrials Analyst at RBC Capital Markets. Here's some of what they discussed.

"For airlines, the worst may be over, but industry conditions are still very poor and expectations are worsening," Spracklin says. "Traffic in North America was down 97 per cent in April. It has come back, but it was still down 80 per cent in August," he adds.

Spracklin notes that the restrictions are causing airlines to lose millions each day, contributing to significant debt loads that can make it difficult for organizations to thrive the longer the current conditions last. Overall, he says it's expected to take five years until the industry returns to 2019 levels. "Even when they do get back to normal, things will be very, very different," he adds.

By "different," Spracklin means he expects a shift in the types of travel that are most popular to begin with. He sees short-haul trips coming back quicker than long-haul, as people connect with friends and family and may feel safer starting with shorter-duration flights. As for leisure versus business flights, he predicts leisure will make an earlier comeback as businesses continue to explore and find new ways to achieve results without the same amount of travel as in the past.

What will it take to really help shuttle airlines through this crisis? Spracklin believes the answer lies in rapid airport COVID testing kits. "If you know everyone on the plane you're boarding with has tested negative, you'll feel much more comfortable," he says. He calls rapid airport test kits a "game changer."

Coming out of the crisis, Spracklin has one word to describe what he expects the industry to look like: smaller. However, he believes the airlines that weather the disruption will be well positioned to thrive amid less competition, potentially better margins and new touchless technologies.

To hear the full conversation, find the 10-Minute Take podcast on Apple Podcasts, Google Podcasts or Spotify.