COVID-19 turned the airline and aviation industry upside down. Moreover, the aftermath of COVID-19 will redefine the entire industry. Up to now, Chinese airlines seem to handle the pandemic much better than competitors from Europe and the US. What does that mean for the future of the aviation and airline industry?
- Contrary to US and European airlines, Chinese airlines seem to handle the pandemic more successfully.
- They avoided taking on large amounts of debt, layoffs, and fleet reductions.
- Therefore, Chinese airlines are in an excellent position to conquer market shares and become innovative forerunners.
COVID-19’s Devastating Impact on the Airline Industry
Suppose you deal with airlines and aviation or are somehow interested in this topic. In that case, I’m pretty sure you’ve read this sentence a billion the last months: The COVID-19 pandemic has a devastating impact on airlines and the global aviation industry. Parked aircraft, plumping passenger numbers, and probably the biggest layoff we’ve ever witnessed.
Every Airline and Region is Different!
However, once we leave the macro-picture and dive into details, we can see that COVID’s impact on airlines differs. Or in other words, regions, and airlines have responded and handled the pandemic differently. In fact, this is primarily linked to COVID’s intensity in a region. Especially Asia (except India) seems to manage the pandemic more effectively than Europe and America.
Moreover, when analyzing single airlines, two aspects are apparent:
- Low-cost airlines are doing better due to lean cost structures and more possibilities to hibernate.
- Network carriers with a high percentage of international traffic are significantly under pressure due to travel restrictions.
Chinese Airlines and Aviation Market Stand out
Besides the aspects mentioned above, Chinese airlines seem to stand out. First, they were ultra-fast to pivot to freight when COVID started. Second, as Seeking Alpha states, “they have also managed to avoid taking on large amounts of debt or significantly diluting shares throughout the crisis.” That all helped Chinese airlines to expand during the downturn, unlike airlines from Europe and the US.
Chinese Domestic Aviation Market — The ace up the Sleeve
On top of the aspect that Chinese airlines made the right decision, the huge Chinese domestic market certainly is a considerable stake. While European airlines are heavily struggling with international travel restrictions, the Chinese government has supported a revival in the domestic travel industry. Moreover, the government has been helping airlines to expand even in this environment.
The interim report from China Southern Airlines sums up the situation precisely:
“At the same time, the air transport industry also enjoys several favorable conditions. Firstly, the aviation market in China will take the lead in recovery. Characterized by ample potential, strong resilience, and a large maneuver room, China’s economy has a solid foundation for dealing with difficulties and challenges. As a result, the aviation market in China will be the first to rebound, and the overall trend of recovery and development is prosperous. Secondly, there is a strong potential demand for passenger travel. During the pandemic, the demand for tourism and family visits was suppressed. If the pandemic continues to be effectively controlled in China, the demand for consumption is expected to be released. Thirdly, there is strong policy support. The Chinese government has issued a series of policies to support the recovery and development of the catering and tourism industries, and reduce taxes and fees for the aviation industry, including the annual exemption of civil aviation development funds.”
The Balance Sheet, Financial Capabilities, and the Future of Aviation
With all the developments, Chinese airlines seem to do much better than European and US competitors. Although state support isn’t unusual in China, the balance sheets of Chinese airlines are much stronger at the moment. Moreover, we haven’t seen massive layoffs at Chinese airlines — as we did in Europe and the US.
So, what does that mean for the future? First, I’m highly convinced that European and US airlines won’t drive massive innovations in the mid-term future. This is a financial issue. When taking a closer look at European and US airlines, you can observe that almost all innovative projects were stopped or paused.
Only business-relevant projects are still ongoing. For most European and US carriers, the current focus is on cutting costs, reducing aircraft, employees’ layoffs, and stimulating demand. Ressources, in terms of human resources and finances, to drive innovation simply aren’t available. Moreover, we can witness a labor movement, especially of IT experts.
Are we Going to See More Chinese Innovations in the Aviation Market?
Chinese airlines are in much better shape. Financially well equipped, a robust domestic market, and no workforce issues.
Accordingly, if Chinese airlines play the game the right way, we are probably at the Chinese aviation decade’s advent. On the one side, Chinese airlines will take over market shares from US and European airlines. But, on the other side, they also have the ability to drive future innovations.
About The Business Perspective
With the Business Perspective, we provide a view on business topics once a week. We usually cover topics from technology to employee engagement and business intelligence. And frequently, we also talk about our favorite industry: aviation. The article does solely reflect the authors’ opinion.