Airlines prepare for a new world order; IPO’s, new airlines, new business models

Britain is quite rightly patting itself on the back for what amounts to an extraordinary vaccination programme thats crushing numbers at levels nobody believed possible (especially the perennially skeptical British). This week the UK as already reached its “Level 8” Group of 55-59 year olds. It’s widely expected everyone who wants a vaccine over 18 years of age will have at least a first shot by June-July, and everyone will be done with their second by the end of September.

Why does this matter? Brits have the worlds highest percentage of passports per head of population than any other country (around 81%). The US for example, is around 11%. A Brit is more likely to have a passport than a driving licence. And they like to fly and being an island nation, with a reputation for often dreary weather (not entirely deserved to be fair), they like to escape to Europe, well anywhere really! Airlines like easyJet are running TV ads urging summer holiday bookings and everything from Expedia to Bookings.com and AirBnB is pushing to get ahead of the post June 21st planned elimination of Covid restrictions.

In the US the vaccination programme is slower per capita but it’s speeding up and it looks like it will easily pass the 100 million+ mark in 54 days time (as of todays date) – possibly by as much as 50%, hitting two million jabs a day.

Europe is going slower, largely because a degree of ineptitude crept in with buying vaccines, and thats going to be a problem for vaccinated Brits wanting to go on holidays to unvaccinated parts of Europe. And here lies the problem. Around the world few places trust the travellers from elsewhere to be virus free. Australia isn’t planning on letting anyone in anytime soon, and they along with New Zealand are pretty much Covid-free. Most of Europe is desperate to get holidaymakers and tourism back up and running, its a crucial part of the economy, but there’s reluctance to do so until sizeable numbers of the population are vaccinated. Airlines like Condor need more bailout money because Europe is so far behind with vaccinations this summer is looking unlikely to see it return to operations as it had hoped.

Places like Hong Kong and Singapore are considering arrangements for travel. The cruise industry, which one has to remember is a vast consumer of aviation arrival and departures is desperate to resume – their losses make airline losses look mild and they’re not getting state funded bailouts.

And yet behind this there is a growing confidence in the airline industry that the end of the year will start to see a return to normal. The US is looking at the possibility of a record Thanksgiving and Christmas-New year period. Airlines like Spirit and Sun Country are planning an IPO on the stock market that’s likely to be over subscribed. American Airlines is planning a bond sale worth $2.5 billion and is mortgaging its frequent flyer programme to boost its operations into next year and pay off the $7.5 billion it owes the US Government.

Airlines like JetBlue are looking to expand into markets they’ve never touched before – such as London, using Airbus A321LR’s. Airlines equipped with the Airbus A220 with its extraordinary range capabilities and overall economy stand to be able to make money on so called ‘long thin’ routes – low passengers but long distance. These have often proven to be profitable if you can find the right aircraft. On top of that the new E2 series from Embraer offers some of the lowest operating costs over routes that are not yet booming again. These and aircraft like it have been the preferred operational types for many European carriers during the pandemic, and are likely to be in heavy use during the return to normality. Conversely, some airlines like Turkish have accepted fewer flights and been using 787’s on routes like IST-BHX rather than 737-900’s.

Yet more and more there is a growing acceptance that a new low cost model, ironically not dissimilar to how Flybe used to be (and allegedly we haven’t seen the end of that name yet), pioneered in some ways by AirBaltic, using single types of aircraft but smaller in size with greater economy, not getting up to the A320/737 level, are the way forward. Especially for regional flying in the US and Europe.

Some of that is being driven by a genuine realisation by many that the scale of past aviation was almost unquestionably unsustainable, and with business travel cut back by an estimated 20% over the longer term, new methods and new profit centres need to be found.

Elsewhere, there are signs that the end of the road is getting closer. AerLingus has been given permission to fly direct from the UK to the US. Singapore Airlines is planning to pilot the IATA Travel Pass App – a sort of post vaccine covid passport and test approval system.

European component manufacturers are looking to hire new workers to supply parts to Airbus as it ramps up production next year. Eurowings is planning a huge expansion at Berlin Brandenberg Airport (BER) and will make it a hub. Ryan Air and Wizz are fighting over slots at Catania and Palermo in Sicily, as they look to take on each other in a growing and underserved market. Eurowings is planning to operate out of Birmingham UK to the Spanish islands directly.

AlItalia is about to come back from the dead, and the EU is negotiating what that will look like and the amount of state aid it will get to recommence under its old name.

FedEx and UPS are both committing to Carbon Neutral operations by 2040, and many other airlines are coming under pressure to accelerate their plans from 2050 to 2040 rather than continually dithering.

And to add to all of that, a British backed Croatian start up PRAGUSAONE, plans to start flying from Dubrovnik, Zagreb and Prague, with all Premium Economy seating on A359’s. It thinks there isn’t anything like the coverage in the premium sector the region deserves and will fly long haul world wide. Good luck with that! But the livery is pretty cool.

In short there’s plenty of optimism, despite the low operating threshold we’re at right now. yesterday is gone, there’s nothing we can do about it but we can look forward to things getting better, and perhaps a new reality will dawn for airlines, especially those who take their environmental and social concerns more seriously.

And if all this wasn’t enough, two of the biggest leasing companies, GE and AerCap are about to merge into a game changing super-owner, and the EU, UK and US have canceled all of the tariffs related to the years-long conflict between Boeing and Airbus.

Feeling better now? You should be, the world is moving in the right direction!

Mask up, stay safe!