Covid-19 has wreaked havoc on the airline industry supply chain, but survivors will emerge into a leaner, more agile sector. Colette Doyle reports from The Outlook for Aircraft Interiors, a Reed Passenger Experience Conference (PEC) webinar
The last growth cycle in the commercial aviation sector ended in 2019, just as demand dipped below the long-term average and then, as Rob Morris, global head of consultancy at Ascend by Cirium, put it during the latest session of PEC’s series of virtual seminars, “the walls came tumbling down.” Air traffic was already declining so a slowdown was expected, but not of this magnitude, said Morris, pointing to IATA figures that show a decline of 55 per cent. Any way you look at it, he said, the industry “will be [in for] a slow recovery”.
Cirium data shows that by the end of July air traffic will be down 42 per cent globally. The domestic Chinese market was first to decline following the Covid-19 outbreak, with traffic down 90 per cent in mid-February. Since the Chinese government managed to get a handle on the situation fairly quickly, the Cirium figures suggest that by the end of July traffic will be “in positive year-on-year territory”, although a second lockdown in Beijing may impact this. Turning to domestic markets within the US, Morris said Cirium again predicts a more positive schedule in July for these and intra-European routes too.
Fewer flying hours
Morris flagged up that lower utilisation will have a major impact. The current fleet in service is flying 35 per cent fewer hours per day than at the start of the year, with global capacity projected to be down 42 per cent against 2019 cumulatively by the end of July. More than 6,000 passenger jets have returned to service in the same period, including 1,000 single-aisle aircraft from 1 June.
Talking about the possibility of aircraft at risk of being withdrawn, Morris noted it all comes down in the end to a matter of efficiency: in single-aisle terms, 737s built before 2003 and early model A320s are unlikely to fare well. On the twin-aisle side, the fates of four-engine jets such as the A340 and 747, plus early model 777s and early A330s, hang in the balance, but demand for the A350 and Boeing 787 Dreamliner “remains robust”, he affirmed.
Global recovery scenarios
Morris concluded with a look at potential global recovery scenarios: in the first theory, spanning two years, the airlines experience a steady return in demand, led by the domestic market, with a number of bankruptcies. Original equipment manufacturers (OEM) maintain production at minimum viable rates, before witnessing a slow recovery in deliveries from 2022 onwards.
The second, v-shaped scenario sees a sharp recovery in international traffic, while OEMs experience a recovery in deliveries from the second half of 2021.
Finally, in a four-year scenario, there is a slower return in demand, again led by domestic markets, with many airlines exiting the sector altogether. OEM production rates may see further cuts in 2021, with no significant ramp-up in production until as late as 2024.
Airlines enter survival mode
Next up was Gary Weissel, from Tronos Aviation Consulting. He told participants “cabin retrofits fell off a cliff” in the wake of the economic shutdown, so the vast majority of suppliers have had their programmes put on hold. Airlines are “in survival mode” said Weissel, focusing on cash conservation and
Cabin retrofits “represent discretionary spending”, he acknowledged, noting that after 2008 it took around five years for the market to come back. The main focus now is on a clean cabin and hygiene initiatives to achieve that.
Fleets will be smaller and spending limited for the next three to four years, he predicted, adding that either pricing has to rise or load factors have to return to normal before airlines can start making money again.
Weissel also touched on IATA data that shows there will be a big reduction in profit margins, with net losses of up to 30 per cent of revenue. “There will be no return to the glory days until airlines are back in the black,” warned the Tronos executive.
The new normal
Looking at likely post-Covid cabin enhancements, Weissel highlighted several factors, including how inflight technology amenities are going touchless, with wireless IFE for instance, while the use of light-coloured interiors for a clean appearance and enhanced passenger confidence will become popular. In addition, surface materials will incorporate anti-microbial properties.
The interiors market is driven by the size of the fleet, noted Weissel. This is less than good news for suppliers as his forecast showed that by the end of 2020 the global fleet will equate to just 60 per cent of pre-Covid numbers, and will not return to the heights of 2019 until 2023.
The Tronos executive did, however, assure the audience that by 2025 the number of aircraft operating globally will be back in line with pre-pandemic estimates.
In terms of retrofit spend, the market is experiencing a 60 per cent drop this year, with a 50 per cent fall in value estimated for 2021: “There will be no major recovery until 2023… [the market will suffer] a 35 per cent reduction, equivalent to $14.5 billion less than forecast,” he cautioned.
An interesting space to work in
Matthew Nicholls, sales director at Tapis Corporation, responded to the trend highlighted by Gary Weissel that airlines will be looking for cleaning products with antimicrobial properties. His company “has made an antimicrobial product for a number of years… it is a very interesting space”.
He highlighted the need for end users to increase their knowledge of such products, so they understand, for instance, the difference between antimicrobials, antibacterials and antivirals.
“We are in regular contact with the EPA and CDC to ensure everyone is working off the same information,” he noted. “We need to encourage passengers to return to flight, but [these products] also need to be validated to ensure efficacy and to protect against skin irritations.”
Nicholls pointed to the appearance of a “slight differential spike” in three to four years, caused by the number of aircraft dropping out of service, but passenger demand returning sooner. In his opinion, this will lead to “a mini-surge in demand and airlines will need to play catch-up in terms of line fit
as a result”.
Looking at the trend for a touchless environment, the VP of commercial aviation at Viasat, Don Buchman, highlighted that the main benefit of having high bandwidth on board is passengers can use their own devices, which provides notable hygiene benefits.
“The touchless environment means people don’t have to interact. This is not just in terms of entertainment, but also when they want to connect with the crew; they can do that virtually too, via their mobile device.”