UK Aviation; Covid, Brexit - 12 months on (Part 1)
In the first of this two-part series, Simon Miles reviews the last 12 months, looks at the havoc that Covid-19 has wreaked on the aviation industry and where it has left us. Next week, in the second part, Simon starts to look at the opportunities, understand what the industry has to do and what it may look like as we begin to rebuild.
Back in March 2020, our skies were emptying, but could we have predicted just how bad it now is and could have done anything to prevent it?
During the last year, I’ve written about many of issues within this article and other facing the industry. Twelve months on after reviewing where we are, the situation facing the UK aviation industry in particular is bleak. The content of this article is, frankly, depressing but before we can even think of rebuilding we must first consider and understand how we got to this point, what lessons can be learned before the green shoots can appear.
Statistical roll-call
In terms of the collateral damage, it's enormous. There are no positive statistics right now. Pre-pandemic, the UK aviation industry was strong, the third largest aviation network in the world. It, directly and indirectly, supported almost one million jobs and contributed £5.2bn to UK GDP. Within a year, the pandemic has decimated it.
Over the last year, we have seen some staggering statistics, some of the highlights are listed below;
Somewhere between 25,000 and 30,000 jobs of those directly employed by the UK industry have gone with many more also gone within the supply chain. It's a similar picture across Europe
Around 17,000 aircraft were grounded at the peak of the downturn
Over 6000 workers based at Gatwick Airport have either lost their jobs or are at risk of redundancy
Lufthansa and Air France have removed their entire fleets of Airbus A380's, likely to be scrapped. The oldest airframe was eleven years old, the youngest only six years old
IAG has been burning through almost £70 million per week, posted a loss £6.2 billion loss and passenger revenue fell by 75%
Passenger figures at Heathrow Airport down 82.9% in December 2020 compared with December 2019, with only Terminals 2 and 5 operating
Exeter Airport had just nine passengers pass through the airport in May 2020 from almost 100,000 the previous year.
British Airways takes £2bn in state-backed bailout loans; Virgin Atlantic takes loans totalling £1.2bn during 2020 and a further £160m in March 2021
Airports Council International data indicates that 193 of the 740 commercial airports in Europe currently face the prospect of insolvency
The legacy left by Flybe
I've written several times about the effect of Flybe's demise has had on the industry. Even in 'death' it appears to speak from the grave.
Storm clouds were on the horizon many months before the first lockdown when in February 2020, Flybe's much anticipated day of reckoning finally came. The official line on Flybe's demise on 5th March 2020 was blamed, in part, on the negative effect of Covid 19.
Flybe’s demise a few weeks before the first UK lockdown was, perhaps, coincidental. The reality is that the pandemic would have put it out of its misery anyway only a short time later. The cynics may suggest that it was an excellent time to bury bad news. In reality, the rot of bad management and poor decisions meant that the writing was on the wall long before that. With a fleet of 63 aircraft when it went down, the size and nature of Flybe is likely to be too big a void to fill. It’s unlikely that we will see another airline like Flybe.
The long-term effect of Flybe's actual existence and subsequent demise is complex, wide-ranging and should not be underestimated. It had a difficult childhood, problematic mid life and had a long and painful death. In many ways it may have been better if it had never existed and the gap filled with smaller, more viable companies with robust business models. What it has left in its wake will likely have a significant long term effect, particularly for UK aviation, for years to come.
Extraordinarily high CASK (one of the highest in Europe), almost constant lack of profitability, numerous cash injections and bad fleet decisions were just some issues. This combined with over £135m invested by the Virgin Connect consortium in 2018 in an attempt to turn them around and keep them flying at the time when at least one of the partners, Virgin Atlantic, were themselves having significant financial difficulties.
Their demise hit UK regional airports hard, particular Exeter and Belfast City and even larger airports like Birmingham and Manchester. However, it is Southampton Airport that has arguably seen the biggest effect. Flybe represented 91.2% of their total flying programme. The loss of Flybe combined with Covid appears to have pushed Southampton to the edge.
Pre-pandemic, when Heathrow and Gatwick were at (or near) capacity, Southampton looked like a viable alternative for Southern England with good connections into Paris-CDG and Amsterdam. Nevertheless, even at that time, the airport hopelessly overexposed, the classic almost all of the eggs in one basket scenario, not much spreading of the risk.
However, with no surviving airlines anywhere near the same size as Flybe and a runway that is 164 metres too short to operate aircraft of Boeing 737 or Airbus A320 size, the airport is in danger of becoming a white elephant. Although the extension has recently been approved in principle, will it be soon enough to save Southampton?
The is now talk of a resurrected Flybe during late 2020 and suggestions that the original, now heavily indebted, consortium may still be prepared to invest. Given the history and the repeated failed attempts to make this business model work either as Flybe or Virgin Connect, you have to ask yourself at this point, is this just pure insanity? As Michael O'Leary recently said, 'If I was starting an airline today, I wouldn't.'
The sound of silence
As the pandemic took hold, the whole industry became, well, quiet. With skies virtually empty, you would assume that a lot of midnight oil was burnt in offices all over the country trying to figure out what to do and how to survive.
The silence from both the industry and the government was palpable. Despite the fact the most companies, particularly the airlines, were, and still are, haemorrhaging cash at an alarming rate, the only chatter that could be heard related to ticket refunds and the whether or not the government were likely to provide funding. Apart from that, the industry remained strangely quiet.
As an early indicator of how the pandemic would play out, Michael O'Leary called it saying in May 2020, 'the summer will be lost'. Looking back, it was blindingly obvious that all of the forecasts of the time were pure guesswork, and so it turned out.
Meaningful dialogue between government and industry during this period appears to have been virtually non-existent. Airports and the industry supply chain can and have represented themselves, but they are dependent on the airlines, which are in turn reliant on the UK and other governments allowing them to fly.
In February this year, I saw an article on social media about a joint press conference initiated by easyJet, TUI, Jet2, Loganair and Virgin; 3 days later, after scouring the internet, I found one small article in the Daily Mail. Whilst I applaud the intent, the reaction appears to have been somewhat underwhelming.
Pre-pandemic British Airways and easyJet employed over 55,000 staff and operated over 600 aircraft. This gives them significant leverage and influence. Both have been pretty quiet overall, but why?
Have they put their competitive differences aside for the sake of their mutual survival? Not, it appears, so far. Have they been working hard behind the scenes? Who knows, they don't tell us so we assume not. Perhaps they adopted a poker face, waiting to see who blinks first. If, as reported, IAG (as an example) are burning £10m per day, it's going to be an expensive game with virtually no winners.
The day of reckoning could be soon after the end of furlough; it is then that we will start to see the actual cost of their collective strategies.
UK government
Much of the dialogue between industry and HM Government during this period appears to be mainly about financial support packages. Although they had little choice in reality, the government should be applauded for initiatives such as furlough, general industry support and, in particular, the airport and ground handling funding package.
However, government decision making particularly, the high profile border issues and the stop/start nature of lockdown have created enormous problems for the aviation industry and without meaningful dialogue. The lack of cohesive industry response is astounding.
I'd forgotten about this until.....
With all the talk of Covid dominating media and general conversation, I'd forgotten about Brexit until quite late in the year.
Although there were five years of so-called 'preparation', in September of last year, the UK CAA issued a 'Readiness for Brexit' statement. It states that they 'have been working out what a 'non-negotiated outcome' would look like, and preparing for it, for the last four years'.
The reality of what Brexit meant to an already decimated aviation industry became apparent soon after the completion of the transition period in December. It is now clear that no reciprocal agreement was negotiated, placing ACMI carriers like Titan Airways, Jota Aviation, CargoLogicAir and Air Tanker all at a significant disadvantage to the EU registered counterparts.
Crazily, it's now easier to hire EU based operators to do their European ACMI work than it is to hire UK registered operators. UK operators had contracts carrying PPE, mail, football teams and car parts around Europe are now losing around 70% of their business since January because of the new rules. How and why did we ever get to this point?
Is that what the UK CAA meant when referring to a non-negotiated outcome, or was this actually negotiated? The UK government say its listening but with a significant track record of not admitting its mistakes, it clearly isn't.
The word ‘unprecedented’ is now heavily overused but the situation we now find ourselves is just that. Were mistakes made? Yes, most definitely. Will the industry learn its lessons? That remains to be seen.
Next week, the second part of this blog sees Simon looking at the future through a more positive lens, explores the challenges, the opportunities and what the industry must do to seize the initiative.