As 2020 drew to a close, many in the aviation industry thought the worst of what was by far the worst industry crisis of all time was over. This braking maneuver from 100 to zero in the shortest possible time, the many setbacks, the unpredictable decisions of governments, which often differed diametrically from one country to another, the new virus variants. The first vaccines against the coronavirus were on the verge of being approved in Europe, and it should also be the way back to the future in aviation.
At the start of 2022, the airlines are somehow better off. Some, especially in the USA, are even making profits again, because demand is at or above pre-crisis levels despite everything. Hardly any airlines have gone bankrupt because governments around the world have pumped aid in the order of 300 billion US dollars into the sector. In Europe, the summer went fairly well, and considering the circumstances, the autumn was actually quite enjoyable. Lufthansa was able to repay the state aid prematurely, and the next dispute with the pilots will soon begin again – as if nothing had happened.
But the two-year pandemic and its structural and political consequences will likely be with aviation for many years to come. You will still have many consequences that are not yet apparent today. Incidentally, this does not mean the Omikron variant, which has now caused bookings at Lufthansa and others to collapse again from mid-January. The big airlines will also survive this latest volte – with or without new state aid. The capital markets have been open to them for an astonishingly long time, for more than a year. Those who could increased their liquidity as much as they could, just in case.
Two structural changes
Two structural changes, however, will remain in the long term. The first is financial: the sector is now hugely indebted, and the debt needs to be paid back, somehow. The income is still well below the old level, the costs have not fallen significantly. Especially on the cost side, when the short-time work expires, there will be another shock at the airlines and airports in Germany in the spring: The state no longer pays part of the salaries, and there is no further downsizing, which is probably too much anyway happens. You only have to count the minutes at the baggage carousel in Frankfurt while waiting for the suitcase or in the endless waiting loop at the Lufthansa call center.
However, the high level of debt forces companies to save wherever possible. It withdraws money from areas where investment is urgently needed. At Lufthansa, it is the comparatively old fleet of aircraft that would have to be renewed even more quickly. Or money that would be sensibly invested in the obviously necessary renovation of the IT.
Flying and the environment
The austerity dictate, however, collides with the second structural change: Aviation will no longer be able to return to the desired state of 2019 because it is no longer politically acceptable. Flying yes, but much more environmentally friendly and sustainable, no more growth at any (cheap) price. This is not just about investing in new aircraft and new technologies such as hydrogen propulsion or electric regional aircraft.
The European Union has very specific ideas about the regulations with which it wants to force changes in aviation. Among other things, these include binding quotas for sustainable fuel, which is currently only available in negligible quantities and is very expensive. Lufthansa has calculated that in the worst case it will incur additional costs of more than two billion euros – every year. That is more than the total profit in good years and twice a normal annual profit.
Aviation’s struggle for survival is far from over, it is only just beginning. Because it has to earn its right to exist anew in a world that values sustainability, despite empty coffers.