IATA DG Walsh: Full Network Restoration Years Away
While airlines are reporting a strong demand environment going into the northern hemisphere summer, the full restoration of global airline networks is likely years away, IATA DG Willie Walsh cautioned.
Speaking to Aviation Week Network editors in Washington on May 2, Walsh forecast a strong summer for the industry, especially on transatlantic routes and in domestic markets. He expects the US domestic market will have a particularly robust performance.
But even as carriers begin to cross the threshold of operating as much capacity as 2019 or even more, many points on airline networks have not been restored and will not be for some time, Walsh said.
“The idea that the industry could just recover to where it was [before the COVID-19 pandemic] was nonsense,” he said. “Significant parts of the [global airline] network will take years to recover.”
Walsh said a good portion of new routes introduced just before the pandemic hit in early 2020 will not be added back quickly. “If you go back to what you were seeing in 2018 and 2019, there was a lot of expansion, a lot of new routes being announced. Most of these, particularly long-haul international routes, are unprofitable in their first year,” he said. “With airline financials where they are, there’s no way an airline is going to take the risk of adding back in capacity that was unprofitable prior to the downturn. So, it will take time to rebuild networks.”
Walsh emphasized the importance of alliances and joint businesses between carriers where partners can recover networks between them. “But there will be parts of the global network that will take significant time to recover,” he said. “In fact, there may be some destinations you won’t see back on the network for five, six, seven years as the airlines look to recover their financial position and repair the balance sheet that’s been damaged through this crisis.”
Airlines are uncertain about how the pandemic will play out going forward, Walsh said. “You will see a more cautious industry as a result of what we’ve gone through and that’s principally because everybody’s wondering about what’s going to happen when the next variant arrives,” he said. “Will governments react the way they did [during waves caused by prior variants] and start closing borders? That’s what was killing the industry.”
Hong Kong (HKG), long one of the top air transport markets in the world, will struggle to regain its footing, Walsh warned, pointing to the strict border measures imposed by the city’s authorities and the slower rate at which Asian governments are reopening borders compared to other parts of the world.
“If you look at a carrier like Cathay, with the restrictions in Hong Kong, it’s been really, really tough for them,” Walsh said. “I would worry about Hong Kong being able to regain its place as a global hub airport ... Given what’s happened in Asia, rebuilding a network in Hong Kong is going to take a long time. Other hubs will see that as an opportunity. Singapore (SIN) is clearly seeing this as an opportunity. Middle East hubs likewise see this as an opportunity. Asia is definitely lagging and that’s going to be tough on the Asian carriers.”
Another factor complicating Asia’s recovery is Russia’s invasion of Ukraine and the knock-on effects on airlines, including the closure of Russia’s airspace.
“Given that international travel in Asia is so low, it hasn’t really had the impact that it would have had if this happened in 2019 because most European airlines have got pretty low capacity going into Asia and have been able to regroup,” Walsh said. “It clearly has been a major challenge for Finnair given their geographic location and the options available to them to reroute.”
Walsh expects Russian airspace will be closed for some time. “That will be a concern as Asia starts to open, but at the moment, the impact that has had on Asian carriers and European carriers is low because of the low volume of traffic that has been traveling between Europe and Asia.”
Walsh said rerouting around Russian airspace is less problematic than it would have been in the past. “You look at the aircraft in operation today and most of these aircraft do have the range to be able to reroute,” he explained. “If this had happened 10 years ago, aircraft would have had to look at tech stops. Most of the aircraft operating between Europe and Asia have extended range capability.”