A new world order?
By: Suren Ratwatte
Tags: Global Aviation Industry, Airlines, Airline History, Aviation Industry

A deserted street in Melbourne’s central business district. Photo by Zoe Singleton on Twitter

Six months into the coronavirus pandemic, the world is slowly coming to terms with the fact that life, as we knew it in early 2020, has changed forever. Melbourne, Australia where I live, is in ‘lockdown’ for a second time and it shows no sign of ending soon. New virus infections are stubbornly persistent and a panicked state-government appears to be paralyzed. The only noise to be heard other than birdsong, is a gentle sigh as the economy collapses.

COVID-19 is proving to be the seminal event in modern history, dwarfing even 9/11 and the SARS epidemic in its economic impact. The crisis has impacted the airline and travel industries particularly hard. We are only now coming to terms with how much damage has been done to an industry which was worth half a trillion US Dollars in 2019. .

As the entire world reluctantly accepts that ‘social distancing’ is our immediate future while waiting for an effective vaccine, even the few bright spots in the airline world are being extinguished. Initially many pundits theorized that airlines with strong domestic route structures would weather this storm. But entire countries (such as India and Brazil) are in the throes of the pandemic and other nations are facing closure of state boundaries within the country (e.g. Australia and Canada). Even large, profitable airlines such as the US ‘Big Three’, Qantas and Indigo (of India) are seeing their fleets grounded and their balance sheets awash in red ink. Most airlines have experienced declines in revenues decline exceeding 95% in Q2 2020 compared to the same period a year ago.

Ironically, China is ironically the least affected market. Having successfully (some would say brutally) suppressed the pandemic that appears to have originated in Wuhan, the nation has seen a recovery of its domestic aviation businesses to almost pre-pandemic levels. While yields remain opaque, frequency of flights and aircraft occupancy levels have certainly improved surprisingly well. China accounted for 31% of pre-pandemic capacity in Asia; today it has 49% — a staggering shift in only six months.

Looking back in time to the start of the industry

Many years ago, in December 1944 to be exact, a group of men met in Chicago, USA in the depths of winter — while a World War was raging not far away.

Imagine for a moment what was going on at that time. For five years the entire world had been engaged in a titanic struggle. By the time of this meeting, in 1944, the tide had turned. The Nazi Reich, pummeled by the Russian steamroller in the East and the Allied invasion in the West, was being slowly strangled. American and British forces were gradually pushing the Japanese empire back in Asia, island by island, at a terrible cost.

Meanwhile, bomber aircraft of a size and speed hardly imaginable a few years previously, were reducing German and Japanese cities to rubble. In a few months they would unleash a weapon so awesome that it would bring the war to an abrupt end.

Laying the foundation for civil aviation

Sequestered in a Chicago hotel, a group of bureaucrats representing 55 countries went on to draft a document that laid the foundation for the world’s civil aviation infrastructure. The airline industry, as such, began in the 1920s and was quickly extinguished by the war. This conference was intended to lay the framework for a post-war industry that would use the technological leaps enabled by the conflict, to spawn a business connecting the world.

The stated goal of the conference, known as the ‘Chicago Convention was to allow for the development of international civil aviation “… in a safe and orderly manner”, and that air transport services would be established “on the basis of equality of opportunity and operated soundly and economically.”

The convention went on to establish an agency called International Civil Aviation Organization (ICAO), which would become an agency of the United Nations. To this day it remains the governing body of all matters pertaining to civil aviation.

Vision into reality

The process by which the ideals of the Chicago Convention were transformed into reality and a globe-spanning airline business was long and torturous. Most international delegates traveled to the Chicago convention by ship and train, with perhaps a short flight in something similar to a Douglas DC-3. The ‘mandarins’ could never have envisioned the jet transport airplane (there were none in 1944), much less the supersonic Concorde or the gigantic, double-deck Airbus A380.

The Convention established what is known as the ‘Five Freedoms of the Air’, which set out to lay the framework for the regulation of air commerce between nations. This provided the foundation for ‘bilateral’ Air Service Agreements between nations that were envisaged to ensure a fair share of the traffic flows between prescribed points.

Freedoms of the Air. The Chicago Convention only stated five. Image courtesy Slideshare

However, an implied (but never stated) ‘sixth freedom’, allowed some geographically well-placed airports to become ‘super connectors’. They were able to use their bases as a transit point or ‘hub and spoke’ in airline-speak. This allowed those airlines to connect places using their base as an intermediate point, a ‘freedom’ that the drafters of the Chicago Convention did not envisage.

Aircraft parked at Cathay Pacific’s base in Hong Kong. Courtesy digitalcreed

Seventy-five years later, the regulated and staid world that the Chicago convention imagined had been replaced by a starkly different reality. In many parts of the world, a handful of ‘super connector’ airlines with sprawling airports dominated the market. Cathay Pacific, based in Hong Kong, gleaned 52% of its revenue from only two country pairs. Similarly Emirates with its Dubai ‘mega-hub’ was dependent on 1% of its network for a staggering 34% of revenue.

The plight of today’s many ‘flag carriers’ hobbled by restrictive governments, saddled in debt and unable to compete with their more profitable privately owned rivals, would have appalled the people who drew up the concept.

An opportunity for change

The aftermath of the COVID-19 pandemic will mean, among other things, that the world of civil aviation would have undergone a paradigm shift. We have realized now that until such time as effective vaccines are available and a sufficiently large number of people are vaccinated, the virus cannot be controlled. It will be a minimum of 12 months before this is possible. More likely it will 24–36 months before the pandemic is fully contained and ‘normal’ unrestricted travel, as we experienced it in 2019, can be even imagined.

The reality is that many (if not most) airlines will have ceased to exist by then. Even those with the resources to have survived, would be facing a radically different world. Many people may have neither the means, nor the inclination, to travel at anywhere close to the frequency of the pre-COVID era.

The hiatus that is upon us has already caused extreme hardship to the entire travel industry. But it does allow an excellent opportunity for the world community to meet and formulate a plan for success that will ensure that the airline system emerges from this debacle in a positive manner.

Change is frightening, and humans are reluctant to embrace it. In this case it has been forced upon us. If we squander this opportunity to change the foundations of the system first imagined in 1944, and transform into a stronger, fairer and more environmentally conscious structure, that would be a terrible mistake.