Being a small island state with heavy dependence on external tourism is possibly the worst economic scenario that one would like to be in to recover from the pandemic downturn. Malta’s reliance on air travel for connectivity with the rest of the world presents a daunting challenge for political and business leaders struggling to keep the country’s economy on an even keel.
The CEO of Malta International Airport, Alan Borg, did not resort to wishful thinking when expressing his views to Times of Malta on the evolving trends in air travel post-COVID-19.
His comment that in April the airport handled the same number of passengers in a month that it would usually handle in an hour during the busy summer season encapsulates the crisis that the airline industry is facing.
International research companies are building models to try and predict how air travel is likely to change in the medium and long term as a result of this almost unprecedented global economic meltdown. Air travel projections could be affected by various factors, none of which are good news to Malta’s economy and the tourism industry in particular.
Of course, while we would all like to believe that the crisis will resolve itself within a matter of weeks, the reality is that we don’t yet know how long a medical solution will take to be available. In the meantime, air travel will depend on a multitude of factors, most of which are beyond the control of business leaders.
What travel restrictions will governments impose until it is once again safe to travel on an aeroplane? When will people feel safe enough to travel on business or for leisure? Are new megatrends evolving that will mean that fewer people will travel to attend meetings as teleconferencing becomes cheaper and safer? Which airlines will still have a viable business model to survive in the coming lean years with or without state aid?
The European airlines industry was suffering from overcapacity even before the onset on the pandemic.
Whatever EU regulators may decide on state aid to compensate for the pandemic downturn, it is unlikely and unsustainable to perpetuate taxpayers’ bailouts for those airlines that lack the clout to compete with the more efficient airlines.
Perhaps the most worrying unknown in this bleak situation is the question of how the inevitable recession that is bound to grip most European and global economies will affect traveller sentiment. Economists are coming up with various recovery scenarios, ranging from the least likely to the most likely, even if all are built on premises that are yet uncertain.
A prolonged U-shaped recovery seems to be the one favoured by many economists.
This scenario indicates that the recovery will be gradual and stretching beyond 2021. It would be characterised by a slow decline in the medical emergency, a lockdown persisting for several months in some form or other, travel restrictions extended, an economic recession and only a gradual return of consumer confidence.
The best strategy to combat this turbulence is one based on collecting and studying medical and economic data daily. Action needs to be taken based on scientific data rather than aspirational objectives.
When Malta reopens its airport for business, it may need to do so with a different business model as a result of the pandemic. Hopefully, the revised model will mean a more sustainable future for all the community.