North American air transport recovery to take years, sources say

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TORONTO –
Air travel has dropped by 90%, the vast majority of passenger planes are parked on tarmacs and runways around the world, and the few that fly are roughly three-quarters empty.

But not all of the news is terrible, according to industry insiders.

Industry was on a good financial basis before the COVID-19 disaster, demand for freight is increasing which is driving results, and there is general consensus that the Canadian government will join the United States and to other jurisdictions to provide short-term bailouts. .

And at least one Air Canada executive thinks that demand for air travel could be on the road to recovery by the end of the year.

“I think that by Christmas you will see a significant amount of theft again,” said Tim Strauss, vice president of cargo at Air Canada. “I think in the fourth quarter we will fly to most places in the world and certainly nationally. “

Strauss was among the airline insiders exploring the future of the industry in a livestream hosted by the Canadian Club Toronto on Thursday.

He said Air Canada expected “it wouldn’t be close” to 70 to 100 percent of its previous capacity by the end of the year. Passengers will see fewer flight options and will have to deal with more connections to get to where they are going, he said.

Seasoned industry analyst Helane Becker said that the airline industry in North America has been experiencing an airline boom for more than a decade. This bodes well for a long-term recovery, but the short term will be painful.

It predicts that the airline industry in North America will be about 30% smaller by the end of the year, which means the loss of about 200,000 jobs.

The recovery is going to be a long and slow climb, says Becker, who works for the investment bank Cowen. It took almost four years after September 11 for air traffic to return and this disruption should be even more lasting.

Cowen forecasts that it will take three to five years for air travel to North America to return to its pre-pandemic level and that it will take five to seven years for the number of international passengers to rebound.

Visits to family and friends should be the basis of the initial request, says Becker. The demand for recreation will depend on the speed with which jobs are recovered and the reopening of borders, tourist destinations and attractions. Business travel is expected to be even slower to rebound.

Getting passengers back into the seats will depend on the airlines’ ability to convince their customers that it is safe to fly, Strauss said.

“The whole industry will work in tandem with each other to make sure everything works well, no matter which aircraft you are on, anywhere in the world. This is the central question for us right now. “

There are many unknowns that make forecasting really difficult, says Toronto-based president Sunwing, Mark Williams.

“We don’t know how quickly this virus will go away. We don’t know how quickly people will get back on the plane, “he said.

Sunwing, which propelled 4 million passengers in hot climates last year, is now fully anchored. Although bookings for next winter are actually ahead of last year, Williams doesn’t think it will last. He says the government needs to inject cash into the industry, which faces many months of dramatically reduced revenues.

“It will not return to normal quickly. We are not going to snap our fingers in November and run at 100% of the capacity we were running at before. “

Williams says firing 3,000 workers was “a really difficult thing to do, but you have to protect the future. We have to think about where we are going when we get out of it and model scenario after scenario in a really uncertain time. “

American Airlines cut capacity by 80% in April and May and plans to cut about 70% in June, said Jim Butler, executive vice president of airport and cargo operations for American Airlines. But it’s really a guessing game.

“I can’t remember a time when we had no idea what should really be the right capacity in eight weeks, let alone when we return to the size we had before.”

The airline’s challenge is offset by the support of the United States government and the fact that 39,000 employees have taken voluntary leave ranging from one month to one year.

He echoed that it was essential that the industry work together to convey the message to passengers that air travel is safe. He says COVID-19 has imposed a completely new cleaning program on planes and at airports.

Many airlines, including Air Canada and WestJet, require passengers to wear masks and block seats to allow for physical distance. These are likely measures in place for the foreseeable future, as a semblance of normalcy returns while the new coronavirus still poses a threat.

” No. 1, you need to make sure a customer is safe and # 2, you need to make sure they feel safe. And those two things are just as important, “said Butler.

While waiting for passengers to take off, Becker does not anticipate that a North American airline will go bankrupt, despite the unprecedented blow it suffers.

Part of the reason is that the highly volatile sector has entered the crisis with years of profitability, capitalization and investment behind it. The years of restructuring and consolidation that resulted from the 2008 and 2009 recession, combined with historically low interest rates and the costly loss of labor to come, are all huge factors in favor of big companies aerial, she said.

Between Delta, United and American alone, 23,000 pilots are expected to retire over the next decade. These airlines will replace pilots earning US $ 335 an hour with mid-career pilots earning US $ 260 an hour.

Combined with voluntary leave programs and early retirement packages, major airlines don’t have to cut labor costs, says Becker.

Many airlines, including Air Canada, have invested in a new fuel-efficient fleet, which will also pay for the recovery. Overall, the industry has been the best capitalized in the 30 years since it studied balance sheets.

“You don’t have much capacity to cut costs at this point, so bankruptcy is not an option. We have to overcome that, ”she said.

“We think the industry will be okay. It is very resistant. It must have been. We went into a much better place. “

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