The coronavirus pandemic has brought unprecedented challenges to airlines in Europe and beyond. Satu Dahl examines the European low-cost and regional aviation market.

With carriers in Europe cutting frequencies to popular destinations and easyJet confirming the closure of three of its bases in the UK, it is clear the impact of Covid-19 for the aviation industry continues to be incredibly challenging.

On 13 August, IATA released figures detailing the pandemic’s impact on Europe’s air passenger numbers, employment and economies. Although the market has seen an increase in flights in recent months, data has shown that there are still less than 50 per cent of flights in operation compared with the same period in 2019, with further forecasts showing passenger numbers falling by 60 per cent in 2020, representing around 705 million passenger journeys.

Regional aviation

The European Regions Airline Association’s (ERA) director general Montserrat Barriga shares her views on the current situation for regional aviation. “The disastrous effects of Covid-19 on the aviation industry have been plain to see, with decline in European traffic reaching as low as 90 per cent at the peak of the pandemic.

“What’s more, this overwhelming figure does not even present the full picture, with many of these flights that continued to fly carrying cargo. The number of passengers was in fact much fewer according to ACI Europe, which reported falls of more than 98 per cent.”

Barriga notes that uneven government aid all over Europe has initiated a shift in market powers with regional aviation carriers suffering the most and facing the toughest challenges as a result of unfair competition. “If this happens, it will not end with the airlines, but will have direct and dramatic impact on the economic recovery of the European regions and the people living there, working directly in the industry or tourism sector or dependent on infrastructure.

“The risk of airline bankruptcies therefore remains very high throughout the coming months and possibly years, leading to lost connections and a reduction in consumer choice. Despite facing this financial burden caused by Covid-19, airlines will also need to invest in new technology – a need heightened by its ability to provide passengers with greater confidence as a result of its reduction in physical and interpersonal contact – and continue their efforts in reducing their environmental impact if they are to survive.”

Competitive advantage

Travel industry data and analytics company Cirium has been studying the market and the impacts of the pandemic and says that signs are pointing to low-cost carriers (LCCs) recovering faster than their mainline counterparts.

“In recent weeks, governments have cautiously lifted travel restrictions in Europe. After this prolonged period of hibernation, we are seeing airlines slowly but steadily ramp up their operations,” says Cirium’s vice-president of market development, David White.

“As of July 2020, Cirium data shows that LCCs are operating at around half of their capacity when compared with the same period last year. Meanwhile, mainline carriers are operating at just a third of their 2019 levels, as Covid-19 continues to restrict long-haul flight operations.”

According to White, much of this can be attributed to the leisure market rebounding more quickly than business travel. He says that, in light of a shift to remote working and increased duty of care concerns among corporates, the highly profitable corporate travel market looks set to remain depressed for some time. “This trend favours LCCs, which are well positioned to cater to the demand for short-haul travel to popular European leisure destinations, thanks to their point-to-point route networks”, White notes.

“In the near term, LCCs have a distinct competitive advantage over full-service operators with the ability to not only retain but grow market share and build customer loyalty at the expense of mainline carriers. “But these short term gains do not guarantee a return to profitability. “Since most European LCC flights are intra-European, travel restrictions and quarantine requirements remain dynamic and unpredictable.

“The recent spike in Covid-19 cases in Spain, and the resulting 14-day quarantine requirements imposed upon returning UK passengers, is an example of how the travel experience can change with almost no warning. Sadly, this is something that will do little to restore consumer confidence in air travel, which is already at an all-time low”, White says.

Competition in the low cost and regional market also remains fierce, putting downward pressure on prices and squeezing profit margins, he notes.

According to IATA, 80 per cent of airline seats globally are on routes with at least two competing carriers, while nearly 30 per cent have five competing carriers. “At the same time, LCCs are less able to adopt social distancing measures onboard if they want to achieve break-even load factors. Operating with an ‘empty middle seat’ policy or similar would cap load factors at around 60 per cent for single-aisle aircraft – making cash-positive operations nearly impossible.”

A clean approach

With fears of a second wave of the virus looming in Europe, this could see safety-conscious passengers choose to pay more for mainline carrier flights, which offer socially-distanced seating options as well as the added space and privacy of business class, White explains.

“Efficient use of assets is key to profitability for LCCs and regional operators. However, the introduction of new health and safety protocols at airports around the world is also putting pressure on aircraft turnaround times.

“LCCs must quickly turn flights around and maximise utilisation of every active aircraft in their fleet in order to operate profitably. But new aircraft disinfection and sanitisation requirements as a result of Covid-19 are strict.”

Initial figures suggest hygiene measures have significantly increased turnaround times, adding approximately 10 or more minutes on average, or 40 per cent, to an already tight target turnaround time of 25 minutes.

White says LCCs are counting the cost of higher ground services fees, higher airport fees from additional time spent at the gate and lower daily utilisation rates for active aircraft in their fleets. As a result, they’re now looking for ways to mitigate the impact of added cleaning time by finding new ways to improve other aircraft servicing processes – accelerating changes already underway before the pandemic.

“For example, a few carriers are experimenting with machine vision and other innovations to gather the data necessary at each step in the process to monitor, analyse and reduce turnaround times. This includes increasing efficiencies in baggage handling, catering, refuelling, safety inspections and boarding and deboarding protocols, in order to offset the additional time spent on aircraft disinfection.”

Embracing change

Innovation through digital transformation will be a key differentiator for airlines across the board as the industry enters the recovery phase, with those willing to embrace change better positioned to take advantage of opportunities in a post Covid-19 market, as well as drive recovery across the rest of the sector, adds White.

“The new normal requires a new approach – less reliance on decisions made from past experience, greater situational awareness and more data-driven decisions. The path to recovery is digital – creating the agility and resilience needed to adapt to an ever-changing operating environment.

“The current situation is painful and requires some very tough measures to align costs and revenue. However, continued investment by LCCs in data and analytics is more important than ever before. Those who accelerate their digital transformations now will emerge from this crisis stronger and more competitive than those who don’t.”

Brexit battles

Another major change for the European market is also fast approaching: Brexit. But has there been any more clarity for the aviation industry?

Barriga explains that, due to Covid-19, official conversations surrounding Brexit stopped abruptly back in March. “This has meant – despite the looming deadline of the Brexit transition period – that there is still no clarity of the effects we can expect to see on aviation.

“We have, however, remained in close contact with our airline members operating in the UK to ensure we are aware of their concerns.”

Regarding how the market will be developing in the near future, Barriga does not see the airline business continuing as usual. “As we now enter the challenging period of restarting aviation from virtually nothing, we must ensure consumer confidence is rebuilt and that the industry can respond to demand and resume essential air services in a sustainable manner.

“As part of this, it is important that a consistent approach is maintained across Europe and that all measures introduced by member states, stakeholders and the air transport industry are financially, operationally and logistically viable, as well as being practical in their execution.”