Looking ahead to 2021: Aviation is at a pivotal moment, two big players should stay = JF Oberlin University Hashimoto visiting professor | Reuters

TOKYO (Reuters) – The airline industry, whose passenger demand has “evaporated” due to the spread of the novel coronavirus, will face a critical moment of survival in 2021. see it. He noted that even if the economy recovers, it will be difficult to return to the pre-COVID-19 situation as lifestyles and business practices that do not involve mobility become common. In Japan, the idea of ​​merging two large companies has revived in some quarters, but he said the principle of competition should remain.

Here are his thoughts:

<持續的COVID-19大流行，不斷變化的需求結構>

The global economy is expected to return to pre-coronavirus levels by the end of 2021, according to the Organization for Economic Co-operation and Development (OECD), but air passenger demand, especially for international flights, shows no signs of improving and is not improving. able to keep pace with the economic recovery. That’s because international travel remains restricted due to immigration restrictions in various countries, and the use of online meetings rather than traveling in person is becoming more common, especially for business people. Of course, every company has plenty of cash on hand. But there is no doubt that 2021 will be a critical time for survival.

According to the latest forecast of the International Air Transport Association (IATA), the number of air passengers in 2020 will decrease by about 60% compared with 2019 before the outbreak of the new crown virus, to 1.8 billion passengers, which is expected to decrease by 40%. By the end of the first half of this year, each company will run out of cash on hand in an average of 8.5 months, and some companies are expected to go bankrupt in the first quarter of 2021.

Although it is expected to return to the level of 2019 by 2024, there are many uncertainties and the possibility of a sharp decline exists.

Japan has decided to temporarily suspend its “go travel” measures to boost travel demand amid a resurgence of infections around the world. JAL expects international passenger demand to recover to 25% to 45% of pre-COVID-19 levels by the end of the fiscal year, and domestic passenger demand to recover to 72% to 87%. ANA expects 50% of international flights and 70% of domestic flights to resume, but uncertainty is growing.

Qualitative changes in the structure of passenger demand are inevitable. From the perspective of crisis management, assuming that the infectious disease pandemic (global epidemic) reappears, companies that have learned the lessons of the COVID-19 pandemic will continue to promote online meetings, telecommuting, and the localization of some supply chains. A business model that relies on the movement of people.

ANA Holdings and Japan Airlines (JAL) have started utilizing low-cost carriers (LCCs) in light of changing demand structures. The business model of low-cost airlines has a strong ability to withstand event risks and can be evaluated as the correct strategy to deal with the new crown crisis.

The first goal was to accurately capture the leisure and personal needs that first resumed. Also, as the economy falters, customers opt for cheaper flights.

Low-cost carriers have lower fixed cost outflows than larger carriers, so they can weather the storm longer. Thorough hygiene management to prevent infection may increase operating costs and reduce the number of short-haul return flights (this is the profit model of low-cost airlines), but the advantage of low-cost airlines is that they can efficiently carry large numbers of passengers with a small number of aircraft. personnel. This seems to work.

Even if passenger demand eventually recovers to 2019 levels, commercial demand, especially international flights, will likely decline as businesses restrict business travel. As a result, yield (revenue per kilometer per passenger) falls and the business earns less. Falling yields hurt big companies but benefit LCCs.

<環保意識增強與鐵路的競爭>

The aviation industry also faces the challenge of addressing environmental issues. Airplanes naturally emit large amounts of carbon dioxide (CO2), and environmental groups have increasingly criticized them. In Europe it is sometimes called “fly stigma”. In the United States, President-elect Joe Biden, who is concerned about environmental policies, supports the expansion of railways, and the global “high-speed rail instead of airplane” movement is likely to intensify. .

Considering the environmental image of institutional investors and consumers, it is conceivable that ordinary companies will restrict the use of aircraft. The French government has included a green policy as a condition of its capital injection to Air France and has signaled a policy of eliminating short-haul domestic routes that compete with rail.

Taking the new crown epidemic as an opportunity, the integration theory of ANA and JAL was rekindled. In particular, there is a view that international routes should be consolidated into one company, but major airlines are established by owning domestic and international routes and a network connecting the two. On top of that, full-time international flights are too susceptible to event risk. If ANA and JAL had focused on international flights, they would have been bankrupted by the corona crisis.

In fact, Singapore Airlines, which specializes in operating international flights, is facing a crisis, and the Singapore government is providing huge support of more than 1.2 trillion yen through the sovereign wealth fund. The same is true for Cathay Pacific in Hong Kong.

Not only the price but also the service is being polished due to the competition between the two companies. The principle of competition should be preserved.

* I will delete the redundant wording in the subtitle and resend.