Establishing an airline amidst crisis: the good, bad and ugly
Within a couple of weeks of the abrupt stop in the aviation industry, there was no secret that the industry expected airlines, particularly those that struggled prior to the crisis, to go bust. Despite the dried-out stream of revenues, that was not the case . Governments around the world acted fairly quickly and handed out state aid and state-guaranteed loans in order to ensure the liquidity of airlines based in the country and, in turn, connectivity from and to the country. Even during the pandemic, connectivity was crucial, as air travel companies began transferring vital medical equipment, bringing back stranded citizens and ensuring the smooth flow of cargo as online shopping started to boom. Furthermore, as borders around the world are slowly opening up, business needs to happen and, once again, while limited in numbers, connectivity becomes crucial.
But not every country has an airline to support or a carrier that would offer the capacity to satisfy the demand. And crises might be the perfect opportunity to create something out of nothing, especially when long-established competitors have grounded their fleets and a newcomer would almost have the exact same starting point compared to an airline running in the business for a long time.
Virtual airline: the good
One government has decided to do just that. Lithuanian Minister of Transport Jaroslav Narkevič stated that Lithuania aims to have its own carrier, as nobody can assure that the same level of connectivity would be available in and out of the country as the coronavirus pandemic blows over. The process of obtaining an Air Operators Certificate (AOC) can be a lengthy one and requires a lot of starting capital, thus the window of opportunity might close. Thus, Narkevič indicated that a virtual airline would allow flights to start much sooner, in addition to the fact that the initial round of funds would be much lower. The virtual airline would use the services of an Aircraft, Crew, Maintenance and Insurance (ACMI) company, which would also allow the newly-established flag carrier to be much more flexible in size, in terms of fleet and route network.
The Minister noted that the goal to establish the airline is to be around late-2020 or early-2021.
And the window opportunity is even wider due to the fact that ACMI operators currently have little business. After all, at its simplest form, such organizations as Hi Fly or Avion Express offer additional capacity to other companies, whether it would be airlines or tour operators, to carry passengers when the companies themselves are overflowed with traffic, particularly during the peak summer season. In emergency situations, ACMI carriers, with their flexibility, could also throw out a helping hand.
Nevertheless, little business means more leverage in negotiating a price on the side of the proposed virtual flag carrier. This could prove to be vital, especially during a downturn of traffic, as operating costs would be limited when yields are also limited.
The general consensus in the industry is that some sense of normality and 2019-levels of traffic would rebound by 2023 or, in the worst-case scenario, 2024, long-established airlines began downsizing their fleets and cutting unprofitable or barely profitable routes to save costs. This could theoretically allow for easier acquisition of an intangible asset that was in high demand, but low supply prior to the pandemic: airport slots, especially in European airports like London’s Heathrow (LHR) or Gatwick (LGW), or France’s Paris-Charles De Gaulle Airport (CDG), or the main airport at the European financial hub, Frankfurt Airport (FRA).
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