25 Mar 2020

The future of flying looks grim

From The Detail, 5:00 am on 25 March 2020
(FILES) In this file photo taken on March 28, 2019 Southwest Airlines Boeing 737 MAX aircraft are parked on the tarmac after being grounded, at the Southern California Logistics Airport in Victorville, California.

Photo: AFP

Tourism and travel are in free-fall. The industry is on its knees.

A coronavirus has burnt up a $4.6 trillion international industry – one that was worth $9.7 billion in New Zealand alone.

The clues started emerging in mid-January from Wuhan, when the lucrative Chinese travel industry suddenly disappeared. Around 150 million Chinese people travel the world annually, and 407,100 of them came to New Zealand last year.

That sent ripples throughout the travel eco-system.

Before Covid-19 hit, airlines carried 12 million passengers on 120,000 flights every day. The sector supported 65.5 million jobs around the world and was worth 3.6 percent of global gross domestic product. Those figures may never recover.

And the Herald’s business aviation writer Grant Bradley says the airlines collapsing now will be the tip of the iceberg. “You’re going to see the sector decimated – there will be many, many airline collapses here. We’re all going to be surprised with the big names that we may never see again,” he says.

Massive airlines, including Air New Zealand, which were doing very well over the last few years, are grounding hundreds of planes.

“It’s hard to know where it’s all going to end. This event is unprecedented.

“It’s a matter of how long they can hibernate, and stop burning cash.”  

Bradley says Air New Zealand already had a modest cost cutting plan under way early this year because of a downturn in the travel sector.

But it wasn’t predicated around a cataclysmic event like this. “This was one of these ‘black swan’ events that airlines always, in the fine print, say ‘well, it could all change because of a pandemic’, but they never really expect something like this,” he says.

Experts predicted the airline’s $6b annual revenue would plummet to $1b – and last week the government announced a $900m loan. Bradley describes it as a “useful backstop” to be drawn down when its cash reserves get to a certain (undisclosed) point.

Air NZ does have about a billion dollars in cash and short term deposits, so “in that respect they’re in a much better position than a lot of their competitors, and having a government as a majority shareholder is a great advantage too,” he says. The finance minister is of a mind that the airline is too important to fail.

But “as this all passes it will be a much smaller airline that starts up again.”

However as we get into the hang of using technology to work from home, some of our behaviour and travel patterns may change permanently. We may like the idea of having reduced our carbon footprint; the valuable elderly, big-spending market may collapse through lingering fears; and who really wants to go on a cruise any more?

On today’s podcast Sharon Brettkelly also talks to AUT Professor of Tourism Simon Milne.

“We’re in uncharted territory here.  I think what we can say for sure is that the industry will bounce back on the back of domestic travel … and as confidence builds we will start to see international travel pick up again.”