You’re loving us now, aren’t you?
Remember aviation? That wonderful industry that teleported us to nearly any other part of the planet within hours? That delivered stuff to our doorstep within a day or so? That generated tens of thousands of jobs and poured millions of dollars of new money into your local economy? Yea, that aviation industry. Those were the days, weren’t they?
Unfortunately, teleportation comes at a price. Passenger traffic is down 96%, with less than 100,000 people per day, boarding commercial aircraft. Business jet and turboprop aircraft activity is down 67%. Yes, these are real numbers – I’m not missing a decimal point somewhere.
Ironically, the same industry that can move you around the world can transport a virus just as fast. In this case, aviation is one of the hardest-hit industries. All areas of aviation are feeling the impact of the quarantine, including airlines, airport operators, charter operators, flight schools, maintenance shops, fixed-base operators, and so on. We can stop this industry on a dime as we did on 9/11, but the longer it is stopped, the longer it takes to recover.
When airline travel dropped off, the air charter industry experienced an initial boost, as stranded business travelers looked for ways back to the US. But that traffic seems to be leveling off, as international private and charter operations are hamstrung due to worldwide travel restrictions. Still, sales of jet cards are reportedly up.
The flight training industry has been thrashed, as many states determined that flight schools were not essential businesses and forced them to shut down. The FAA put themselves on the sidelines for now on this issue. The agency released guidance on April 4th, that was characteristically cryptic in its position. For right now, it seems the FAA is letting states determine whether flight schools are essential businesses (shhh, hint, THEY ARE! Watch my video on the topic.)
It is not just airline and charter industries taking a huge hit, so are the industries that rely on airports for their revenue. Rental car operators, hotels, and restaurant operators are all feeling the sting. The US aviation industry generates over 10 million jobs and comprises over 5% of the US Gross Domestic Product.
Will the industry will bounce back? Of course. We’re resilient. We always do. But the question is, what will the industry look like after the quarantine?
Honestly, it’s too early to tell. In any other situation, we would take a look at what occurred in similar circumstances and presume that future performance will resemble past performance, at least a little bit.
However, this is an unprecedented event. It’s the first worldwide pandemic in the age of modern aviation. It’s also an evolving crisis with too many dynamics to make accurate predictions. The closest comparisons we have are the terrorist attacks on 9/11, the 2008 recession, and possibly the deregulation of the airline industry in 1978. Comparing these three events to the worldwide pandemic is a stretch at best, but I suppose it’s better than throwing darts at a board.
Plus, who would ever let a lack of knowledge get in the way of them spouting off an unsolicited rant on the Internet? Certainly not me. Oh, a disclaimer. I’m not a prophet, nor do I conjure up dead relatives to tell me the future, so read with caution. It may turn out that none of this is true – in other words, don’t make business decisions based on what you read here. Do your own research and homework.
After 9/11, even though air service restarted just a few days after the attacks, it wasn’t until 2003 that passenger numbers were back at pre 9/11 numbers. The terrorist attacks also scared people away from flying for several years. Some estimates show that over 2,000 more people were killed on US highways, due to increased vehicle traffic, from people who were too afraid to fly.
While the pandemic is not a terrorist attack, it’s going to take people a while before they are ready to cram themselves back into an airline seat. New regulations and a new executive branch of government forced most segments of the aviation sector to spend more money on security improvements. After the quarantine, watch for legislation requiring airlines and airports to develop comprehensive plans for the next pandemic, which will also come with a price tag.
As the country emerged from the effects of the 2008 recession, consumer spending dropped as consumers canceled, downsized, or rescheduled vacation plans. The business community cut spending, particularly in the areas of airline and air charter travel. Many high-profile personal jet owners put their planes on the market to show consumers and their board-of-directors that they were trying to cut costs.
The biggest threat to aviation after the quarantine is likely the same thing your kids are using for “school” for the rest of the term, video conferencing. Zoom and other apps will make it easy for executives to deny travel requests and, instead, encourage the use of video conferencing. This was a concern after 9/11 as well, but the technology was too primitive at the time. Video conferencing may cut into some air travel revenue, but we will soon realize that meeting a person in real life and getting to know them is still the preferred method of doing business. It will be time once again to open your favorite airline or charter app and book a flight.
Airline deregulation changed the entire face of our industry, most notably creating the hub-and-spoke system. Between 1978 and 2001, many airlines were forced to liquidate, merge, or change their business model to survive. Some airports watched their air carrier traffic vanish entirely. Other airports, lucky enough to be part of the new airline route structure, witnessed massive increases in passenger traffic.
The pandemic has also hit the airport industry hard. Commercial service airports, naturally, rely on passenger traffic for a substantial amount of their revenue. However, many airport employees are sitting at home. Some that are at work are passing the time by posting pictures on social media of empty terminal buildings. Another problem airports will face when the quarantine lifts is that some of their air carriers may not be coming back. At one airport I know of, shortly after the quarantine was announced, the airlines were literally ripping out their ticket counters and loading everything they owned onto a plane.
There will be some businesses in aviation and, in general, that will see this as an opportunity to overhaul their financial structure. Expect some aircraft operators and the aviation support industries, to liquidate, merge, or downsize. Many small businesses may not be able to recover and will not return after the quarantine ends. Corporations will look for opportunities to perform some budgetary liposuction on their most costly and weaker performing operations.
Once the quarantine is lifted, air travel will start back up quickly, but we may hit a second falloff this winter. When the flu season returns, public health messaging about the coronavirus still being around will deter many from flying. Along with this second drop off, expect to see airlines, and possibly other aviation sectors, go through a round or two of layoffs.
It’s probably no coincidence that the federal money requires the airlines to hold onto their employees until October. Some airline pilot friends of mine have already been told to expect the furloughs to begin at that time (yes, I really do have friends – I have to pay them to be my friends, but that’s not important right now).
Just as it did after the recession, watch for airline passenger traffic and air charter operations to increase, but slowly. The business community will look to cut more costs to recover from the pandemic. There will also be those in the business community that demand their personnel to get back in the air. It will soon be time to reconnect with partner companies, contractors, vendors, and re-establish languishing relationships.
The air charter companies may see a rapid increase when air travel resumes. Many business travelers will assess the health risks on a commercial aircraft compared to the highly private and controlled environment on a business aircraft. High-end charter companies ensure their aircraft are thoroughly cleaned and disinfected in between customers. Business aircraft sales, particularly for pre-owned aircraft, may increase as companies that weathered the pandemic better than others, look to protect their personnel while on company travel.
The flight training industry is probably taking the hardest hit, as many flight schools are shut down by order of their state’s governor. A lot of flight schools are small businesses. Many won’t survive the quarantine as owners of the “mom and pop” flight schools find they don’t have enough cash on hand to restart operations.
Flight students will return, but the cost of flight training is already astronomical. There will be some students we’ll never see again as they determine they don’t have the financial means to continue on. Some flight schools may have to restructure, possibly partnering or merging with other schools, the airline-focused flight training academies, or local Fixed-Base Operators. Flight schools and airline-focused training academies are the #1 and #2 sources of today’s airline pilots. It used to be the military, but that number has dwindled consistently down for two decades, so we need the flight training industry to continue to provide pilots for the airline and charter industries.
Eventually, we’ll realize that, yes, people need to fly. If you don’t realize that now, you will after this crisis passes, and you see how much you’ve been missing out on. Regardless of how it looks now, aviation and our economy have always recovered. But just like we saw after deregulation, the 2008 recession, and 9/11, it is a matter of how we will adapt to the newer, new normal.
For additional commentary on the importance of flight schools, watch my latest video on how they are being impacted.
Jeffrey Price
