- Carriers facing a debilitating cash-burn
- "Test and release” may well be the answer to airlines’ prayers
It is no secret that the travel industry has been devastated by the outbreak of Covid-19. The extent of the airlines’ woes is unprecedented. As easyJet’s (EZY) chief executive Johan Lundgren propounded last week, “aviation continues to face the most severe threat in its history”. The group expects to post its first-ever annual loss for the period to September, and envisages flying at just a quarter of planned capacity during the opening quarter of the current year.
Days later, British Airways unveiled a top-level management shake-up – with boss Alex Cruz stepping down. He has been replaced by the head of Aer Lingus – BA’s sister company under the International Consolidated Airlines (IAG) umbrella – and remains in situ as non-executive chairman.
With the situation shifting from bad to worse, there have been intensifying calls for Westminster to bring in an effective travel, test and trace policy – protecting passengers from harm, while reducing the existing frictions of border-crossing in the time of coronavirus. The challenge for government is to agree on a system which balances diagnostic accuracy with speed and practicality – while ensuring that any programme marries up with international protocols.
Months of volatility
As has been well-documented, the airline sector was badly hit at the start of the virus outbreak by the introduction of widespread lockdowns – grounding almost all flights. The summer brought hope – with more of us taking to the skies after months of hibernation. But now, with a second wave of sickness gathering pace, many countries that had been placed on the UK’s ‘exempt’ list have been labelled danger-zones once again. And the prospect of a two-week stint in isolation to enjoy a five-day trip to France is, to say the least, not exactly enticing.
Such volatility on travel guidance has shrouded the financial future of the sector in fog – and raised serious questions about its lasting viability. For the second half of 2020 alone, the International Air Transport Association (IATA) fears that carriers will burn through a huge $77bn (£59bn) in cash – equivalent to $13bn per month, or $300,000 per minute. And the trade body warns that a slow recovery for sky-bound journeys could see that burn rate average $5bn-$6bn per month next year, too.
Gloomy data
Such concerns are steeped in very real data. According to brokerage Jefferies, year-on-year online searches for tour operators are down by roughly a third at present, versus a lesser decline of 25 per cent back in July. More worryingly, web searches for the winter-sun holiday destination Tenerife have collapsed by roughly three-quarters year-on-year – suggesting little short-term enthusiasm for jetting off in the fourth quarter.
Throwing this picture into even starker relief, Heathrow Airport has revealed that traffic fell by more than four-fifths year-on-year in September, with a loss of 5.5m passengers. And while short-haul flights are partly to blame, so too are restrictions on long-haul business travel – something which has, in turn, knocked cargo volumes.
Travel taskforce
Amid rallying cries for action, a UK government ‘Global Travel Taskforce’ has now been established as a joint project between the departments for transport and health. While a single-test system is not deemed a viable alternative to self-isolation, a “promising” framework has been mooted whereby inbound travellers could combine a shorter period of quarantine with a confirmatory test.
Heathrow’s chief executive John Holland-Kaye welcomed this approach but cautioned that government “needs to act quickly to save the millions of UK jobs that rely on aviation”. He emphasised the benefits of a common international standard for pre-take-off testing, suggesting that the UK could establish such a programme in conjunction with America.
Where are we with testing?
“Test and release” may well be the answer to airlines’ prayers – albeit, as implied by Mr Holland-Kaye, such a system would presumably rely on overseas cooperation. But first – and far from least – diagnostic processes need to pass muster. And the UK has been plagued by problems from the start.
True, testing capacity stood at 309,921 on Monday 12 October – up from zero at the beginning of the pandemic. But the highly anticipated NHS ‘test and trace’ app has only just launched. Moreover, the country remains at risk of supply-chain disruption. Earlier this month, Swiss healthcare giant Roche (SWX:RO) revealed that it had endured delays to the dispatch of certain products because of “unforeseen issues” when it moved to a new warehouse in England. Roche provides some of the equipment needed by labs to process virus tests – and while it said at the time that it was confident of resolving the problems in question, every day counts in the current climate.
Smaller companies
That said, the crisis has created opportunities for smaller British companies to come to the fore – and there’s an argument that the pandemic will snap the country into creating a competitive diagnostics sector, particularly if it can facilitate a return to more normal levels of travel.
As health secretary Matt Hancock conceded earlier in the pandemic, our pharma behemoths have “no great history” in this specialism – but we do benefit from lesser-known businesses with strong expertise. France-based, London-listed Novacyt (NCYT), for one, has seen its shares escalate by an eye-watering 5,000 per cent since January – thanks to the one-time minnow company’s early creation of Covid-19 testing kits. It remains to be seen whether such momentum can be sustained beyond the crisis. Aim-quoted Omega Diagnostics (ODX), meanwhile, is part of Westminster’s ‘UK-Rapid Test Consortium’. And according to Sky News, Nottingham-based diagnostics firm SourceBio International – which has been carrying out many Covid-19 tests – is planning a £130m Aim IPO. The float is expected to be announced on 15 October.
There was some hope that a fast test at the airport could hold the solution to easy travel – and such sentiment was bolstered by the news in September that TT Electronics (TT) had worked on a device, produced by British start-up iAbra, which claimed to be able to detect the presence of the virus in just 20 seconds. But the ‘Virolens’ device still needed to go through clinical trials – and such goals are, ostensibly, highly ambitious.
On the face of it, government has a mammoth task on its hands, requiring input and collaboration between the travel and healthcare industries – and fast. Following discussions with industry stakeholders, the testing taskforce expects to report back to Downing Street early next month. Consumers, businesses and other nations will be watching.
