Industry Roundtable

Aviation in the shadow of COVID-19

The global economy is still reeling from the impact of the coronavirus pandemic, which hit the U.S. in March 2020. The aviation industry has arguably experienced the greatest financial toll of any sector. The International Air Transport Association projected in June that worldwide, airlines will lose more than $84 billion this year, and passenger traffic may not achieve pre-COVID-19 levels until 2024. We reached out to executives in a variety of aviation business sectors — from global aircraft manufacturers and charter services, to airline pilots and cargo operators — to get their take on this crisis. Here’s what they had to say.

Q: How has the COVID-19 pandemic affected your business sector to date?

C. Jeffrey Knittel
C. Jeffrey Knittel (’80), CEO, Airbus Americas
C. Jeffrey Knittel (’80), CEO, Airbus Americas: This is the worst downturn that this industry has faced. The pullback here has been much more dramatic than 9/11, and it’s been global. No one has really been spared. Revenue passenger miles at one point were down 90%.

This is a high-fixed-cost business. If you have an 80 to 90% drop in passenger kilometers, your need for airplanes today drops, and the number of airplanes you’re storing goes up. That is putting a lot of pressure on this industry.

The industry as a whole is pulling back – slowing things to maintain our balance sheets.

Rebecca Posoli-Cilli
Rebecca Posoli-Cilli (’90), President and COO, Freestream Aircraft, Ltd.

Rebecca Posoli-Cilli (’90), president and COO, Freestream Aircraft Ltd.: The COVID-19 pandemic had a positive impact on aircraft sales. The very few, desperate sellers dropped their prices early in March and April and then transactions stopped for 60 days. Inventory is now drying up, prices have stabilized and quality aircraft are going under contract rapidly. First-time buyers are predominantly in the $4 million to $7 million range.

Appraisals saw an upward trend due in part to margin calls, insurance changes (to no-fly) and general portfolio management. The charter business also had an ‘adrenaline rush’ as families and executives needed to travel home and shelter in place. By April, this activity stopped, with the exception of companies like VistaJet and XO, which neither furloughed employees nor ceased operations. Teterboro Airport itself resembled a ghost town.

The charter market has returned with a vengeance. Every operator should be enjoying this opportunity to gain new clients and prove their unique services.

John Hackworth
John Hackworth (’09), founder of Professional Pilots of Tomorrow, and pilot for JetBlue

John Hackworth (’09), founder, Professional Pilots of Tomorrow and pilot for JetBlue: Beyond the obvious anxiety of potentially losing one’s job, a major source of frustration I’ve heard from ALPA (Air Line Pilots Association) member pilots across all airlines has been not knowing [what could happen]. This is a result of the carrier’s management either not knowing themselves, not sharing, or misinformation being spread through the rumor mill.

As a member of ALPA’s Pilot Peer Support [PPS], I personally have seen an uptick in the number of calls from pilots across the network.

Our responsibilities as trained PPS volunteers are to act as an ear for those struggling with their circumstances and provide them the tools and resources to help themselves. It’s important to acknowledge the growing mental and emotional struggle from facing an uncertain future.

We’ve all been holding our breath since early March, and our faces are turning blue.

Ray Jancso
Ray Jancso (’91), FedEx Express Crew Travel Services

Ray Jancso (’91), manager, FedEx Express Crew Travel Services: Early in the pandemic there was a drop in demand in several markets. There has since been a significant increase in demand for continued and expanded operations to support movement of business-to-business and business-to-consumer goods, and with that, an above normal increase in the fiscal expense for materials and manpower to conduct those operations.

In addition to the expenses every business is encountering, such as personal protective equipment and sanitizing of facilities, we also have to meet the stringent, and sometimes frequently changing, COVID-19 entry requirements of many foreign governments. Those restrictions have required changes to routing, augmenting crew, conducting in-country COVID-19 testing and utilizing more costly government-designated hotel vendors.

So while FedEx Express is experiencing volumes usually not seen until the holiday peak season, it’s taking a tremendous amount of additional effort throughout the company and an unusually higher amount of expense to meet demand and maintain our high level of service, while keeping our team members healthy.

Q: How do you see the coronavirus crisis disrupting aviation in the future?

Knittel: In terms of international flying, I think you’ll see airlines operating a more fragmented system instead of operating hub to hub. As most airlines have learned over time, the yields are better when you’re operating spoke to spoke, and passengers will pay for not having to connect into a hub.

Smaller passenger airplanes will also be in greater demand, such as the A220 and the A321. And as routes open up — or even as people want to fly transcontinental and transatlantic — the 321LR and XLR, which can accommodate passenger loads of 150 to 170, will be a great fit.

The A321XLR has only been out less than a year in terms of offer and we’ve already sold 450 of them [as of summer 2020]. The market is there, and I think COVID will drive increased demand for that aircraft in the long run.

You’re also going to see the industry coalesce around educating the public — about why it’s safe to fly in an airplane. Holistically, the travel industry has to come together to solve the problem. Innovation and discipline from a safety perspective, the combination of those two things are powerful and will get us through this.

I think the industry will be different. I think when it bounces back it will be smaller — there’s little doubt about that. But it has the potential to grow stronger.

Posoli-Cilli: Between first-time buyers coming into the market and current owners adding on to their fleet, aircraft sales remain strong with an immediate recovery. Of course a new owner can struggle with a steep learning curve of costs, operations, taxes and legal ramifications. The worst scenarios in the coming year will be partnerships where two friends decide to share an aircraft. Often within 18 months it becomes a disaster, and friends become foes.

All of our clients have decided to keep their aircraft, upgrade or add. Not one is shutting down their flight department. Simply put, anyone with access will choose to travel privately, leading to stronger sales in aircraft, charter and share programs.

Hackworth: Being involved with Professional Pilots of Tomorrow (PPOT), a volunteer mentorship nonprofit, we’ve seen a serious impact on our members and our leadership team. A great deal of our volunteers are pilots from regional, mainline and cargo operators, and many are facing losing their livelihoods, if they haven’t already. I’m inspired by how many are continuing to offer their support to aspiring pilots regardless of their own unfortunate circumstances.

We’re all wondering how this will impact the next generation of aviators. We believe mentorship organizations have a responsibility to be there, when the doors reopen, to support up-and-coming professionals.

Jancso: The unknown of how long the presence, or spread, of the COVID-19 virus will be a factor, makes it difficult to say what other challenges might come into play. Certainly, there’s risk for another shutdown of key business and factories that would impact demand for air cargo services. Ever-changing entry and testing requirements in foreign countries will continue to complicate operations. But I’m confident that air cargo carriers like FedEx Express will rise to meet the challenge.