Covid-19 has upended the world. The New Normal is a 10-part series looking at the stunning ramifications for the world of economics and business. Part nine looks at the decimated travel and aviation industry. The sector has suffered enormous losses from Covid and firms have been begging for more Goverment aid for months, but so far their pleas have fallen on deaf ears.
Heathrow’s chief executive John Holland-Kaye is such a proponent of testing for coronavirus at airports that he has gone to the trouble of getting involved in rapid test trials himself.
Holland-Kaye, who is leading the charge to get blanket quarantine restrictions replaced with mass testing, has taken experimental Covid tests that deliver results within 20 seconds, and says the new technology could be a game changer for the beleaguered industry.
“This is about the survival of the country,” he says. “Unless we have testing in place to open up some of those long-haul markets, the UK economy is going to be stuck in a low gear – that’s just not sustainable.”
While other sectors emerge from the worst of the crisis, the aviation industry remains a shell of its former self as the reimpositon of travel restrictions and stringent quarantine measures across Europe continue to hammer demand.
Industry leaders are at a loss as to why the Government appears to be leaving the sector out in the cold, and warn that the recovery from the pandemic will be slow and painful.
But, according to Holland-Kaye, testing at airports is one way to bypass the sweeping quarantines and, in turn, boost demand for air travel from current levels.
The UK's trade competitors such as Germany and France have been testing passengers at travel hubs for months, and Heathrow’s boss says switching to a mass testing regime at airports would be a “very easy change” for the Government to make and would get people flying again.
Heathrow has invested millions of pounds to establish its own test centre at Terminal 2, but even its chief executive admits that a system using standard swab tests is “quite a manual process” and can involve high costs and long waiting times.
That is why Holland-Kaye is hoping rapid tests being trialled at Oxford and Manchester universities can win regulatory approval and be rolled out before a vaccine is found.
Although airline bosses are less convinced that testing at airports is the best way forward, they are equally scathing about the ineffectiveness of the current quarantine restrictions and the inconsistencies in application from country to country.
Dara Brady, Ryanair’s marketing chief, points out that he can cross the border into Northern Ireland and be told that it’s safe to travel to Portugal, but when he re-enters the Republic, authorities say it is unsafe to do so. “There is no science to that decision at all,” he says.
Bosses at easyJet, Wizz Air and Ryanair say there are pockets of pent-up demand in the market, but it is the thought of having to self-isolate for two weeks on return that is holding customers back.
Johan Lundgren, easyJet’s chief executive, cites Portugal as the perfect example. When it was removed from the UK’s “red list” last month, ticket sales “went through the roof”, he says. “When there is relief from the restrictions, demand is definitely there.”
However, to demonstrate just how changeable the situation is, Portugal’s travel corridor with the UK now looks set to be scrapped after less than two weeks, leaving airline bosses scratching their heads about where to allocate resources.
Ryanair has already cut capacity for the autumn by a fifth – a move that shows they “basically read the situation wrong” earlier in the summer, according to Lundgren – and with the loss-making winter season just around the corner, industry leaders now believe they need more help to weather the Covid storm.
EasyJet has taken several measures to shore up its balance sheet, including tapping shareholders for cash, leasing back planes and utilising the Bank of England’s Covid Corporate Financing Facility. Lundgren now wants the Government to step in and temporarily remove air passenger duty (APD) to bolster carriers’ finances while revenues remain depressed.
“APD is one of the highest taxes in the world of aviation. It costs us hundreds of millions of pounds every year. If you want to support the industry and incentivise connectivity, a temporary removal of APD would be a strong message,” he says.
He adds that the carrier cannot continue to take on “more debt and debt and debt” because it means it won’t be able to invest for the future.
Holland-Kaye, on the other hand, says an extension of the furlough scheme for aviation workers is something the Treasury should look into, while criticising the state support given to other sectors.
“The UK government has done nothing for the UK aviation sector,” he says. “At the same time it has helped other sectors that are in far less of a crisis. Supermarkets have been given relief from business rates, which for a big supermarket like Sainsbury’s or Tesco is worth over £500m a year.”
“Tesco has just announced that they’re hiring 16,000 people, which is fantastic news, but at the same time the aviation sector is cutting jobs and we’ve had no relief at all, even on business rates. How does it make sense to give money back to a sector that is booming like supermarkets, when other sectors such as aviation are dying?”
The deep jobs pain already felt in the industry could also get much worse without any relief when the jobs retention scheme ends in October. Stephen Furlong, an analyst at Davy, says you only have to look at carriers in the US that have recently prolonged the furlough period for tens of thousands of staff to get a sense of how bad things could get. “It’s pretty bleak,” he says.
Holland-Kaye has already slashed nearly a fifth of Heathrow’s staff and wants to avoid more cuts, but says he cannot rule out swinging the axe again until there is greater clarity about the airport’s outlook.
However, Ryanair’s Brady says Europe’s biggest airline will most likely cut fewer than the 3,000 roles it initially flagged in May. Furlong says that’s “probably because they have one eye on a growth agenda”.
Every crisis produces winners and losers, and Wizz is looking to buck the trend and use its low-cost base to strike when many of its competitors are on their knees. Over the last three months, the Hungarian airline has announced plans to open 10 new bases across the continent, including at London’s Gatwick.
Its efforts are being frustrated, however, by the suspension of a rule that forces incumbents to relinquish landing slots if they fail to use them 80pc of the time.
Chief executive József Váradi says: “The slot waiver is a hugely distortive measure on the market and it undermines a level playing field and protects the inefficient from the efficient.
“Looking at it from a Gatwick perspective, we are one of the few airlines that could expand and bring more capacity, bring more service, bring more employment to Gatwick and the British economy, but we are unable to do that because of airlines sitting on the slots.” Wizz announced plans on Tuesday to park parts of its fleet throughout the winter to conserve cash.
Further consolidation in the sector is inevitable, says Furlong, and prices are likely to remain low for some time as carriers with better liquidity use discounting to attract passengers.
But with the industry still in the eye of the virus-induced storm, Lundgren says the Government needs to act now to provide sector specific support.
“Time is literally running out,” he says. “After all, it is due to government restrictions that we cannot fly to the extent that we see that there is demand for. That’s the reason why we are making these calls.”