By Tonci Peovic*
“The problem with the Corona Crisis is that the future is no longer, as it used to be.”
Once the virus corona crisis is over, the world will no longer be the same place as it used to be. The reasons for this are multiples. The Corona primarily influenced the fear of citizens for health and existential needs, primarily in the supply of products for everyday needs, and to protect health from corona infections.
How did countries deal with?
We see that different countries in the world have varied in terms of measures to protect the spread of the virus, but more or less all countries have faced a lack of necessities for everyday needs, especially products for the health needs of citizens in epidemic conditions.
Increased demand for inventory creation but also inability to supply has appeared on strange items such as toilet paper, baker’s yeast, fresh vegetables, and for health products, a shortage in pandemic-consuming products such as disinfectants, protective masks, protective gloves and drugs.
There is a particular fear of a lack of food items due to difficulties in the functioning of supply chains in the context of business closures or national borders. These difficulties confronted us with the question of how much we relied on supplies within our country, and how dependent we were on supplies from world production canters, either in European countries or in world production centre’s in the Far East. Initiatives are already emerging to strengthen local production of food and supplies over imported ones. However, we are aware that this initiative is only possible if production is competitive, so that it is adequate in price and quality to products that have come from imports so far.
With regard to medical products, the crisis has shown that dependence on imported products is in fact a security threat to the nation, because how else to explain the inability to fight the virus of a captain of the aircraft carrier “Theodore Roosevelt” who has the firepower to wipe out the face of a smaller country , but in the event of a virus infection, sends an open letter asking for help.
Lesson learned and consequences
After the crisis, the world economy will be in a deep recession with many unemployed people seeking security within their home countries. A drop in GDP will result in reduced purchasing power or reduced demand for non-essential products.
During the crisis, many organizations, institutions and companies have learned how to organize meetings or work remotely using IT technology so they will transfer those experiences to day-to-day activities after the crisis.
Once the Corona virus crisis site closes, the world will be aware in several directions. Preparations for a new virus, as well as fear of it, will be dominant in determining the economy of the 21st century after the crisis, on new bases that will be different from those before the crisis.
There will be incentives to restore the production of strategic products within national economies referring specifically to food and drink, medical preparations and medicines, protecting energy sources, but also strengthening independence from energy imports and vital products that cannot be found in external markets under increased demand
The World Trade Organisation initiatives, which have so far been based on three principles, will not be feasible in the future in the medium term. Trade liberalization, reduction of custom tax and opening the service market will be under severe probation by state authorities.There will be a significant deviation in all three freedoms promoted so far by the WTO, so that individual states will deviate unilaterally from these principles in order to protect their strategic , public or economic interests.
All these activities will have a major impact on the countries that have so far supplied the world with cheap products from the east, which means that China and other countries in the Far East that have been supplying the western countries will experience the greatest drop in demand. This applies not only to drugs and medical products, but also to industrial products in which the Far East has manufactured components, such as components for the auto industry, household appliances or even road vehicles. A good portion of buyers will challenge themselves before purchasing, whether I will be able to get a spare part for my car in the event of an epidemic recurring.
This shift in supply chain will reduce demand for Chinese products, which will throw China into a recession. This effect will be reflected in the demand for energy and raw materials that are expected to fall in the world market. Reduced demand will result in low oil prices and strategic raw materials that have traditionally gone to Chinese producers while maintaining high prices.
Aviation at the glance
It is customary to plan air traffic growth by a double index of GDP growth, but as GDP decline is expected we can expect a decrease in air traffic demand.
The aviation industry will end the crisis with many companies that will not survive. Large airlines operating intercontinental flights will reduce their fleet but are expected to remain on the market after the restructuring, while part of the regional airlines that based their markets on cheaper tickets will disappear from the market. The number of business-class travellers will decline as a result of the decline in GDP and the application of IT technologies in business, and demand for cost cutting after crisis.
Due to the bankruptcy of airlines, a large number of planes is expected to be grounded, as well as jobless pilots, so it can be predicted that prices for used planes will fall and demand for new planes will be reduced, which will be especially challenge to already crippled Boeing but also to Airbus accordingly.
The desire to travel to distant destinations will be under fear of crisis recovery and possible blockages in distant countries, so a greater decline in demand for intercontinental tourist travel can be expected compared to regional ones.
We can also expect financial problems in the Middle Eastern carriers, which based their business on the hub & spoke model of distant destinations.
The reduced purchasing power of the population as well as the loss of permanent employment for a part of the population will reduce the demand for air transport, while the reduced supply of surviving carriers ASK will result in higher prices for air transport products.
Airports under pressure
With regard to airports, further pressure is expected to reduce operating costs and, in some cases, to close airports operating below the profitability threshold. Airlines have already made demands for reducing the operating costs of both airports and air traffic control providers during the corona crisis. While this initiative will be fruitful for airports because the airports are market oriented, I expect that ANS providers will increase their unit rates significantly, because unlike airports they operate under the so-called “Full cost recovery” model, which in in terms of reduced traffic, it means an increase in unit overflight and more expensive service. This will especially effect secondary regional airports operated by low-cost companies. Other airports wishing to be competitive will carry out additional activities to introduce handling and dispatch technologies without the use of human labour, with automation, robotization and the wider application of artificial intelligence to airport operations.
As tourism is consisted by travel and accommodation, we can expect different chain effect on tourism from aviation changes. Real estate market will probably be effected by decreasing prices in Mediterranean leisure destinations, but travel arrangements prices in it resorts are expected to raise.
An open question is the application of environmentally friendly technologies to air transport. On the one hand, more modern aircraft engines that are less polluting but also fuel consuming are more economically volatile under the high cost of jet fuel. However, in low jet fuel price and costly renewal of aircrafts, as well as the strategy of nationalisation of airlines, no significant leap forward is expected towards environmentally friendly air transport technologies , unless financial incentives are implemented to introduce these technologies.
In any case, any crisis must also be a challenge for new opportunities. Those changes that are painful in non-crisis conditions and that managers do not want to face for reasons of resistance or fear of disruption of flows, are easily applied in crisis conditions.
In crisis management, values are not in the past but in the future. The future is built on competencies and timely preparations, in which one must understand new realities and have a timely response to them.
If this article provoked your thinking about the new future of air transport and motivated you to organize and prepare for the same in a timely manner, I am grateful to the ATN for including the article in program at this time of fear, meditation and challenge.
(*) Tonci Peovic MBA, IAP has significant experience in airport management as CEO at Dubrovnik, Zagreb and Brac airport in Croatia. He is invited instructor in AMPAP airport management training program owned by ICAO and ACI , and worked as international consultant in different airport development programs around the globe as well as elected vice chairman of International Association of Airport Executives. Mr. Peovic was acting as ICAO Security Auditor at the beginning of ICAO security audit project.