Monday Insight – November 30, 2020

Preliminary 2021 Projection #1

The U.S. Air Transportation Structure: Not Geared For The Present –

But Plan On Big Changes In 2021

Regardless of the industry, adjustments need to be made when the market changes.

The faster the changes are identified and adjusted to is the difference between survival and Chapter 7.

This is exactly what the U.S. airline industry faces at this moment. Time is running out waiting for a rebound in demand. The new economic environment – domestically and internationally – is one that will support a very different and smaller air transportation system.

Actually, it is already out of time.

Every sector of the industry needs to tumble to the fact that the industry has changed – and that includes airport strategic planning.

Reality: The Core Airline Business Foundation Has Been Fundamentally Changed. After nine months of post-CCP-China pandemic, airlines are now facing the future: What has taken place since January 2020, is not just another passing virus.

Many of the economic underpinnings of the globe – i.e., the ability to freely do business – have been destroyed for the foreseeable future and revised fundamentally for the long-term.

Point: the need, the role and the future of air transportation as a communication modality that existed in 2019 have all changed. It is time that all aviation planning – from facilities to financial needs to air service access – be completely re-thought.

Covid – Economic Poison Gas. Let’s stop being politically correct, particularly since the China CCP/Covid pandemic has been the equivalent of a gigantic World War One poison gas attack on the life and economy of the entire globe. The  deadly vapors have penetrated literally every corner of the world. Devastating. And for all intents and purposes, this is essentially the same as if it were entirely intentional.

(And for those that might question the observation that this event is not much different than being intentionally inflicted,  feel free to give us a call. We are the leader in monitoring aviation trends in China, and the events that unfolded last January resulted in a substantial amount of research on our part. The unelected criminals at the CCP – which runs China – have been caught red-handed; no pun intended.)

It’s The Entire Economic Base, Not Just The Airline Industry. There’s way too much misleading media purporting to put most of the cause of airline traffic declines on consumer fear of getting on airplanes. That’s just flat-out sloppy veneer reporting.

The fact is that the consumer base in many cases simply can’t take a trip – it’s fact that there’s complete uncertainty whether there will actually be an open destination, what with ad hoc quarantines, shut-downs, business restrictions, etc. being implemented here and there around the nation. The economic constriction of free travel is the reason airline traffic will be down 30% or more this year. The airline industry is all dressed up in it’s 2019 finery, and is now saddled with fleets and facilities and staffing way in excess of the new core traffic base.

That cannot continue.

Contrary to the indications in June and July, there is no way that air travel volume can “rebound.”  BGI forecasts indicate it will be 2024 before 2019 levels come back. IATA and others are similar in their forecasts. The hope is that we’re all wrong.

(And, please, do not get sidetracked when reading about the millions traveling over Thanksgiving. They mostly were going to visit family. Grandma does not traditionally demand incoming kinfolks to quarantine.)

What this means is that the new dynamics of the marketplace no longer support the structure, size, strategies and market services of the pre-2020 air transportation system. Domestic demand simply can’t come back soon, based on the confusion across the states on how to handle the situation, not to mention statistics that in many cases cannot be trusted.

Trans-Atlantic & Trans-Pacific Demand Are Toast. As for international travel – a major component of not only airline revenues, but also indirectly-generated domestic enplanements – compared to pre-CCP/China Covid – it is as dead as a dodo in hunting season. Not coming back anytime soon.

Summary: We Are Closing Into Crunch Time.  In the first half of 2021, there will be some very challenging adjustments in the airline industry. The airline sector cannot continue indefinitely to have major parts of their fleets “parked” when the prospect of a demand resurgence is getting more and more distant.

The Positive News: Airline Leadership Expertise Is In Place.  In airline front offices, it is apparent that nobody is getting blindsided to this situation. Today,  the U.S. airline industry is now piloted by probably the strongest business leaders in its history. Every single airline system can be pointed to as having “war time” leadership. Different strategies – but full recognition of the future.

That’s the reason that in the coming year, it is very unlikely to see any operational failures among American carriers. If ‘Vegas reopens completely – go there and make book on it. But it also means that there will be major changes in strategies and route systems that are obvious as gravity: smaller airline systems, new operating economic imperatives, and new route strategies. Financially, there are other airline industry challenges – higher debt loads and reduced revenue streams… an issue to watch.

It’s Not Just Airlines Getting Zapped… It’s All of Aviation. Airlines don’t exist in a vacuum… there is the enormous corollary damage to the supplier sectors – the entities that were in place to serve the needs of the pre-2020 airline industry.

Wrenching changes are already taking place… changes that will materially affect the U.S. economy, thanks to the China/CCP pandemic.

To start, a smaller airline industry means less need for things like new and replacement parts, and that’s a hit to a whole constellation of suppliers. It’s more than General Electric warning last week regarding the plunging demand for new aircraft and engines. It is also a reduced set of revenue streams for component manufacturers. Less need for technicians doing landing gear overhauls. How much less jet-A will be sold? Right now, suppliers are looking for different customers and applications for excess jet fuel that won’t be needed.

It means less demand for new airport boarding bridges, deicer units, GPUs and even lav trucks. How about passenger parking revenues? Concession agreements that don’t reflect the decline in terminal traffic.We can keep going…

The effects of airline decisions regarding highest and best use of airliner assets have already started with elimination of service at places like Williamsport, or New Haven or Newburgh/Stewart. Or partial reductions at other secondary airports. All the kings horses and all the kings men and all the “speed date” events possible can’t put this former Humpty-Dumpty together again. It’s a new system, with new planning demands.

The tentacles of this pandemic-inflicted nuking of the economy are there by the thousands. The imperative is for airports and communities to fully recognize the new realities and plan for them now. Reliance on past approaches and past metrics won’t do.

More Insight To Come. In the next few weeks, The Monday Insight will be covering additional areas where the aviation industry will be seeing structural changes necessary to adjust to damages done by the post-China-CCP pandemic.

We will be talking about areas and outcomes affecting airports, communities and suppliers that, unfortunately, are being completely missed. Bookmark this page… remember, BGI is the leader in aviation trend forecasting. And we don’t follow “consensus” thinking.

Final Point Not To Miss: There will be no “re-bound” – but instead a reconstruction of the role of air travel as a future communication modality. We will be exploring this aspect in the coming weeks. Log on and get perspectives not found elsewhere.

More Video-Based Insight On-Line. And in the meantime, as for new perspectives, take a couple minutes and review our latest videos at Aviation Unscripted, the newest and most incisive source on YouTube exploring the new challenges – and opportunities – facing airports, airlines, suppliers and communities.

In the meantime, all of us at Boyd Group International wish you a great week ahead!