The global pandemic nearly devastated the airline industry, and its entire supply chain, in 2020 with further outbreaks slowing recovery in 2021. Some of the impacts of the pandemic will be long-lasting, while others will fade away. Let’s examine some of the key trends that will remain and become a lasting impact for the foreseeable future. The decline in business travel While domestic leisure travel has recovered to pre-pandemic levels in the United States and has moved closer to pre-pandemic levels internationally, business travel remains down considerably over prior levels. The rise in desktop videoconferencing and services like Zoom has changed the way in which many people interact, and this will be a lasting impact. It is true that nothing can replace an in-person meeting, where body language can be read. With travel, social opportunities emerge for more personal interactions to enable participants to better judge the character of the people they are dealing with. But for the road warriors, is in-person travel really necessary quite as often for people they already know? Rather than every trip being in-person, as the situation often was pre-pandemic, the result might be that a portion of the trips, with existing clientele, will switch to virtual means. Business Class is expected to be 10-15 percent more empty as business trips are replaced by virtual ones. (American Airlines) Overall, we’re projecting between 10 and 15 percent of business trips will be replaced by virtual trips, which has a huge impact on airline revenues. Yields for business trips tend to be much higher than those for leisure trips, particularly for expensive last-minute fares. A reduction of 10 percent of business trips could mean as much as a 30 percent revenue shortfall for airlines - which will result in the need for higher leisure fares to maintain adequate margin levels. Higher yields will change the growth rates in leisure travel, and we can expect future airline growth to be slower than in the past, with a growth rate of 3 to 3.5 percent annually in the US and Europe once market normality is reached post-pandemic and the pent-up demand for travel wears off. Higher prices will be a lasting impact of the pandemic. Does slower growth means fewer airplanes? Normally, a slower growth rate would translate to fewer new aircraft as a lasting impact of the pandemic. But we are not in normal times. There is a major technology revolution underway aimed at improving our environment. Aviation will certainly be a part of that revolution, with electrification, hydrogen technologies, and advancements in sustainable aviation fuels all aimed at providing carbon-neutral flying. While demand may be slowing, the changing technologies and, particularly in Europe, environmental goals will result in airlines replacing older and less carbon-efficient aircraft with newer aircraft as they become available. As a result, the order books for environmentally efficient aircraft will be strong, offset by weakness in older technology aircraft. Replacing older and fuel-inefficient aircraft will be a theme as we enter the late 2020s and early 2030s, and the service lives of existing aircraft may not reach the traditional 25 years for current technology aircraft delivered after 2025. Labor shortages The pool of available pilots for major airlines is changing, partially because of the pandemic, when pilots were furloughed and sought other opportunities. A particularly large number of pilots are reaching retirement age, enough in the United States to absorb the entire pilot pool of the regional airlines during the next few years. We need to bring into the industry a number of highly trained pilots in a short period of time to avoid shortfalls. Given the high costs of training new pilots due to short-sighted Congressional actions in the United States, replacement of the pilot pool is unlikely to happen without labor shortages and dislocation among the regional carriers, which may become a lasting impact of the pandemic. There is a solution to the pilot crisis, which is automation. Can a single pilot effectively operate a commercial aircraft? With the most modern of today’s aircraft, the answer is yes. There are a number of business jets that are single-pilot certified, and the latest technology offered for business aircraft includes an automatic emergency landing system from Garmin. That system requires only a push of a button to communicate with air traffic control, navigate to the nearest airport, and execute an automated approach that will stop the airplane after safely landing on the runway. Amazing technology is rapidly becoming available that incorporates elements of artificial intelligence to aid in the flying process and to potentially replace pilots altogether. While pilots during the 737 MAX crashes had only four seconds to react to an emergency situation and could not, an automated computerized system would likely isolate the problem and take corrective action faster. But market acceptance of “Charlie” flying the airplane rather than a Captain and First Officer will be one of the key elements to solving the problem. But as technology gets better and better, and success stories from new technologies emerge, we will get to the point of single-pilot flying. While pilot unions will object and potentially even strike, the advantages of a human with a computer co-pilot will eventually emerge as a superior alternative, and a lasting impact helped along by the pandemic. The emergence of Urban Air Mobility During the pandemic, we all took a time-out from travel for a few months, and then slowly returned to the air. That hiatus enabled those involved in new concepts to continue to refine their ideas and introduce new concepts for the return of air travel - urban air mobility during the year travel disappeared. Those concepts will have a lasting impact on the industry. Today, air transportation is typically from airport to airport. In the future, it will be from off-airport locations to off-airport locations, with electric aircraft flown by both physical pilots, remote pilots sitting behind a computer screen, and eventually automated pilots as technology evolves. A large number of start-ups, some of which have gone public, will be competing for a market niche. Boeing and some other major players are waiting in the wings, with some major industry players preferring to invest in leaders as technologies mature rather than taking the risks investing in start-ups, even though it will be an order of magnitude more expensive. Some major players, such as Airbus and Embraer, have their own units developing aircraft as separate business units. Vertical Aerospace is just one of many start-ups in the UAM market. (Vertical) How real is Urban Air Mobility? Simply look at the fifty or so companies with plans for certifying aircraft before 2025. At the Zhuhai Airshow, more Chinese initiatives were announced. The current market leaders have prototypes flying and strong order books. one with more than 1,300 orders. Existing rotary-wing operators have ordered hundreds of these new aircraft, with the expectation that electric technologies will replace older helicopters in key missions. Although the head of Airbus Helicopters said recently that UAMs will form a separate part of the market. Will airlines become involved in UAM, or will new enterprises emerge? Will the regional airlines become the de-facto leaders in UAM operations, or will new players enter the market? American, United, and Virgin have announced investments in eVTOLs, but there are a lot of unknowns, except for one - the technology works, and it is coming. The key questions will be market leadership, first-mover advantage, and barriers to entry. There are exciting times ahead of us. The electrification revolution The pandemic, and the reduction in pollution when China was shut down, led a lot of people to rethink the lasting impact we are having on our planet. Moving fossil fuel around the world is not the most efficient process, and the impact of ships waiting to unload cargo due to pandemic-induced lockdowns and labor shortages has led to higher prices. Meanwhile, technologists are looking for the next major breakthrough to provide cleaner energy and alternative propulsion. Battery technology is the key to electrification, and we are seeing significant forward movement from the battery industry. At last week's Motor Bella event in Detroit, a company named Lyten emerged from stealth mode and revealed the world’s first Lithium-Sulfur battery, with three times the energy density of traditional Lithium-ion batteries. The advantages include increased range, a safer technology than lithium-ion and solid-state batteries (no fires), faster charge rates, up to 50 percent lighter cells, and a cycle life greater than 1.400 cycles. The technology curve for batteries will continue to move strongly, making electrification possible for larger and larger aircraft in the future, although Airbus thinks it is going not quick enough and has placed its eggs in the hydrogen basket. With developments in hydrogen fuel cells and mass energy storage, a new era is underway that will fundamentally change transportation, including automobiles and aircraft. The post-pandemic world will be greener, driven by a new generation of technologies. Reducing supply chain risk The pandemic impacts on key industries, including aerospace, have made us aware that supply chains are fragile, particularly when they including multiple intercontinental relationships that can be impacted by events beyond local control. Being dependent on suppliers 6.000 miles away can result in operations being quickly shut down. Just look at Detroit’s low production levels due to a lack of computer chips from China. Companies have already begun to rethink global supply chains, looking for domestic alternatives to ensure that factory shutdowns don’t occur that impact a company’s ability to deliver products and sustain profitability and employment. Supply chain disruptions are something companies tend to live with only once, and quickly find alternatives. We have begun to see movement in aerospace to ensure that geographic and political risks are taken out of the equation, which will be a lasting impact of the pandemic. While no one expects aerospace companies to become totally vertically integrated, prudent risk management will ensure that supply chains are less susceptible to future disruptions, whether faced with future pandemics, natural disasters, or political risks. The bottom line The global pandemic occurred just as a technology revolution was beginning, and the two elements will be linked from timing, investment, risk management, and supply chain perspectives for many years to come. We have reached a point in social evolution where it is clear that protection of our environment is critical, and carbon neutrality must be achieved, even for industries with difficulties facing aviation. Technological advances, new business models, and innovative travel will be the lasting impacts of the post-pandemic era. We can’t wait to see the results.
