ISTAT Jetrader - Autumn 2020 - 26

Uncertainty is the only certainty
* Industry is in Phase 2 of a four-step cycle
* At the start of an uncertain journey
Step 1 - Shut down
Step 2 - Suspended animation
Step 3 - Recovery
Step 4 - New normal

A rolling cycle of fleet groundings,
beginning in China
Forced inactivity as the pandemic
advances & peaks
A gradual, phased re-start as airlines
assess demand & borders re-open
Demand and networks settle into a
re-based growth trajectory

* Shape and timing of recovery remain unclear

Shape of recovery remains unclear
Shut
down

Suspend

Pre-covid RPKs

Recover

Slow

Moderate

New
normal

Rapid

* Recovery contingent on future pandemic waves

The industry has settled into stage two:
suspended animation. The timing of the next two stages
are still impossible to determine.
expected to contract by over 2.5%
in 2020, the worst performance
since at least 1960. Countries that
rely heavily on international trade,
commodity exports and tourism will
suffer the most. However, this baseline
forecast assumes that the pandemic
recedes, allowing lockdowns and
social distancing methods to be lifted
and cross-border restrictions eased
during the second half of the year.
Even then, a 4.2% recovery in 2021
will not restore output to previously
expected levels. The World Bank's
optimistic scenario assumes a sharp
economic rebound following the
near-term lifting of pandemic control
measures; government stimulus
packages are successful in restoring
consumer and investor confidence; and
financial markets, business activity
and consumer demand normalize.
Even in this unlikely scenario, the 3%
contraction in global GDP this year
would be much larger than anything
seen during the global financial crisis.
And in their downside scenario,
the World Bank assumes the COVID-19
26

* T H E O F F I C I A L P U B L I C AT I O N O F I S TAT

outbreak persists longer than expected,
with restrictions on movements and
interactions prolonging the disruption
to domestic activity, further lowering
confidence. This would lead to more
widespread business failures, killed
off by debt servicing and a collapsing
demand. At a country level, historically
high debt obligations would lead to
widespread sovereign defaults and
financial crises. Under this scenario,
global growth will shrink by 8% in
2020, and the subsequent recovery
would be sluggish, barely 1% next year,
hampered by severely impaired balance
sheets, heightened financial market
stress and more bankruptcies.
With these potential economic
backdrops to select from, how should
we think about aviation's post-COVID
crisis? The airline industry has moved
beyond shutdown, the first phase of
what I think is a four-step process. The
industry has settled into stage two:
suspended animation. The timing of the
next two stages - recovery and the
new normal - are still impossible to
determine. The invisible enemy remains

poorly understood. It can't currently
be controlled. And in this respect, it's
very different from previous external
systemic shocks, making comparisons
only academic interest.
We can't presume to successfully
apply lessons from the past; there are
still too many uncertainties. We don't
know when or whether COVID will
re-emerge in subsequent waves. We
don't know if, once stricken, individuals
become immune for any period of time.
We don't have a vaccine, nor do we
know whether vaccination would be
effective as a one-off or would become
an annual requirement, like the flu
shot. We don't have clear steer from
governments on how social distancing
measures might be loosened or new
measures introduced. Critically, there is
no sign of a coordinated global effort on
the horizon.
Meanwhile, global economies are
in a tailspin, heading to the deepest
recession since the 1930s. Millions will
be unemployed, countless businesses
will fail, income levels and savings will
fall, and there will be little money left
for discretionary spending. On top of all
of that, there's the fear factor, raised to
the nth power by government messages
and the health experts, and fanned by
the media: fear of catching coronavirus,
fear of passing it onto others, fear
of needing treatment for other lifethreatening afflictions, fear of being
old and fear of flying. The economists
have no idea whether the recovery will
be U-shaped or L-shaped, or possibly
another letter, such as W, as secondary
virus spikes emerge, but the chances
of a V-shaped recovery have already
receded, and it's clear that air travel
will be one of the last sectors to come
back on stream.
So, what will a restart look like?
Well, we can speculate with a degree of
confidence. As the pandemic continued
to spread around the world, the earliest
affected countries began to return to
a sort of normality some three to four
months after their initial lockdowns. In
addition to China, where industrial and
ISTAT Jetrader - Autumn 2020

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