Will surging COVID infections push back a recovery in aviation? And what’s behind Europe’s new restrictions on U.S. travelers? Listen in to find out.

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Here is a rush transcript of the Check 6 podcast for September 2, 2021.

Joe Anselmo:              Welcome to this week's Check 6 Podcast. I'm Joe Anselmo, Aviation Week's Editorial Director.

                                   This summer began on a high note for the aviation industry. In the U.S., COVID-19 infections were declining dramatically and air travel was rebounding sharply. Europe even reopened to U.S. tourists. Some analysts saw it as the beginning of a V-shaped rebound in air travel.

                                   But as we head into September, the clouds are back. COVID is surging again in the U.S. because of the highly contagious Delta variant. The European Union has proposed new restrictions on American travelers, and the Biden administration stubbornly refuses to let Europeans in, even though Europe now has higher vaccination rates and fewer COVID infections than North America. As The Moody Blues would sing, "Has the sunshine we've been waiting for turned to rain?"

                                   Here to discuss this all, Aviation Week's Executive Editor for Commercial Aviation, Jens Flottau. He joins us from Frankfurt, Germany. Also joining us is Kevin Michaels, Managing Director of Aerodynamic Advisory and a regular Aviation Week columnist. Jens, let's start with you. Tell us what's going on in Europe with all these new restrictions.

Jens Flottau:              Yeah, it's complicated. That's the bad news part of it. So, the European Commission has proposed new restrictions for transatlantic travel, given the high infection rates that we see in the U.S.. Basically it's saying that all non-essential travel from the U.S. should be stopped, except if you were vaccinated. And that caveat is important because that obviously means that a lot of people will not be affected by this new mechanism.

                                   The other uncertainty is of course that European member states are in charge of their own rules. So, this is just a proposal and it's not always that they all follow these proposals. It's a complicated situation, but obviously the message isn't great. As you say, it's not a message of opening up. It's a message of closing down, making travel harder, at least for some. And obviously that's not what the industry had hoped for going into the fall. Summer was okay, but in the fall, a lot of people were hoping for corporate travel to come back and long haul charter to come back. And as far as we can tell today, those hopes may well be disappointed.

Joe Anselmo:             Jens, I checked the numbers this morning. 70% of European adults are fully vaccinated compared to just 63% of American adults, even though the U.S. had a head start. Shame on us for that. Why won't the U.S. let Europeans in? And is there maybe an element of politics to these new restrictions from Europe?

Jens Flottau:               The short answer is I don't know. A lot of these restrictions have not made sense to me, anyway. And this is true for the U.S. restrictions. This is true for some of the restrictions that have been put in place in Europe or Asia. Every government seems to pursue its own policy. Some want to shut down completely. Some opened up. Some are somewhere in between.

                                   As far as the politics of this are concerned, there is an element, I believe, in this which may actually be good news for the airlines. Europe had opened up to U.S. travelers earlier this year, hoping that the U.S. would do the same for Europeans. That has not happened. Now, you could interpret this move that's been announced this week as upping the pressure on the U.S. politically to follow. And we'll see what happens. But maybe now that everyone is kind of back on a more restrictive regime, they're going back to negotiations and opening up because clearly it's in no one's interest to limit travel like this and limit economic activity as a result.

Joe Anselmo:              Kevin Michaels, your next Aviation Week column goes live on September 7th on Aviationweek.com. But I've gotten a peek at it. Give our listeners a little bit of a preview of what you wrote. It wasn't pretty.

Kevin Michaels:           No, it wasn't. I wasn't my normal, optimistic, Midwest U.S. self in that commentary. And the argument, in brief, is that I think there's been kind of an industry consensus around air travel recovery in global RPKs in 2023. I think that's probably the center of gravity. The optimists are saying 2022 and some say maybe a little bit later. In our company, AeroDynamic has been late 2023 consistently for the last 18 months. A lot of our clients thought we were crazy pessimistic when we told them that back in April, 2020. ‘What do you mean not until 2023?’

                                   But the argument is that the little fly in the ointment now, the black swan that's emerged is the Delta variant. And COVID is an RNA virus and RNA viruses mutate faster than DNA viruses. And now we've had that with a Delta variant. I'm not an epidemiologist, but it looks like the research indicates right now that it's far more transmissible, as we all know. And a very simple way of putting that is that if the Alpha variant, the typical person infected with COVID infected two or three other people, with the Delta variant it's between five and nine. So, it's substantially more transmissible.

                                   What does that mean? It means that the herd immunity, the level of vaccination to get to herd immunity isn't 70% anymore. It's more like 90%, and that changes the game. And I think that's partly what's behind some of these government actions along with some of the politics that Jens just referred to. So, where I go with this is just that I think the recent events indicate that we should probably be at least considering that more pessimistic scenario of 2024 and beyond, giving that a little bit more consideration than we have before. Especially with 65% of global RPKs being international traffic.

                                   And it's becoming so complex with the myriad of policies, testing regimes, no standards, et cetera, that for business people the hassle factor is enormous. And the risk of being caught abroad and being quarantined for two weeks, that's a high risk to take. And then for leisure travelers, the cost of testing in some cases can rival the cost of the ticket itself. And as we know leisure markets tend to be more elastic. If you put effectively a testing tax on this, it will certainly have that negative impact.

                                   And then finally, if you look at the world so many people I talk to say, you know, ‘I was in Dallas-Fort Worth last week. It was totally crowded. The industry is back. Oh, I was in JFK.’  But the whole world isn't JFK or DFW. Domestic North America RPKs are about 16% of global traffic. So, it's possible that North America comes back very strongly domestically and it takes the world three years to recover at the same time. Those are not mutually exclusive arguments. And the rest of the world, where there are massive gaps in testing regimes, and that's one I highlight in the article, it's going to take several years to get to large parts of Asia, Africa, Latin America [vaccinated]. And now the goal has increased from 70% to 90%. So that is really the argument in brief.

Joe Anselmo:              Jens and I were talking about the North America and Europe. Asia-Pacific, another very important market. And some of the governments over there are just drawing lines around their countries, aren't they?

Kevin Michaels:          They are. And Jens alluded to the fact that different countries, all these different policies. But if you just take Australia and New Zealand and China, here's three examples of countries that have decided that they want to eradicate COVID within the country before they open up, as a precondition for opening up. So the Delta variant and whatever else is coming just throws them back.

                                   And of course, China has three or four of the most important activities. Not only do they have the Winter Olympics, they have the Asian Games. They want to eradicate COVID as much as possible before they open back up. But what it means is that they basically signaled they don't want to open for international travel in a significant way until sometime next year. Late next year, potentially.

                                   So, again, if we're supposed to get back to recovery by 2023 and China, which is responsible for 18% or 19% of RPKs both domestically and international is doing that, it's just going to take longer.

Joe Anselmo:              We've seen a lot of optimism about demand for new airplanes recovering. And there's been talk this summer about Airbus and Boeing surging production rates again. What does all this mean for airplane builders and their suppliers, Kevin?

Kevin Michaels:           I think it reminds us that we need to have a healthy bit of skepticism about the rates that Airbus is talking about. And, of course, the air travel market, we've been talking about it as if it's one, but again, it's bifurcated. Domestic markets, 35% of global RPKs, came back robustly in most places until the recent reversal in China. Russia's had a tough time as well recently. And international was 65% and that's been dead. And so therefore the single aisle optimism, to some extent, there was some justification in that because domestic markets are strong.

                                   But I think it's a reminder that taking it to 75 A320s a month and beyond in a few years time, the skepticism that, let's say for example, Safran has showed and its very famous, different point of view with Airbus. I think it deserves, I think, increased scrutiny and merit.

Jens Flottau:               Yes. And I think both Boeing and Airbus will just have to get used to the idea that what they see now will be in place for much longer. These low rates with all the consequences on how you organize your production, how you don't really ramp up 777X when it becomes available. And to look at the business as a whole and make the assumption that you have to get through this for many, many years at this level.

Joe Anselmo:             Jens, NBAA, the big business aviation show in the U.S. taking place in October in Las Vegas, they just said ‘If you want to come to our show this year, you have to prove you're vaccinated.’ If you want to travel internationally right now, you more or less have to prove you're vaccinated to go to most other countries. Isn't this just the new normal? I mean, we're not headed into another draconian lockdown where most airplanes are grounded, are we?

Jens Flottau:               I wouldn't say it's the new normal. It's the normal. I've traveled to many, many countries for decades and it's just normal that you have to prove some vaccinations. It's different vaccinations in different countries, but you have some countries that have required this for many, many, many years. So it's not new at all. The new part is that you now have to prove that you are vaccinated against COVID. And fine, no big deal for me. Just do it and you can travel once everyone has agreed on the rules.

Kevin Michaels:          But, if I could, Joe, so to Jens' point, yeah, for travel to Africa and so forth it's normal that you would show your WHO vaccination card going to certain countries for malaria and whatnot. But I think what's different now is it's a lot of countries that haven't had to do that before. And they don't have standards in place to do so.

                                    I just got back from a trip to South Africa, going there and coming back. And the vaccination cards didn't play a role. They don't have policies either in the U.S. or in South Africa for vaccination cards. They only want to know about the test. And therein, of course, lies one of the difficulties that we've all come against. You need to be tested within 72 hours, usually with a PCR test. PCR tests take two to three days to get the results back. So you have a one day window to get your test done, to go someplace. And that's crazy.

                                   So, what I'm waiting to see, and Jens, I think you probably dug into this a lot more than I have, is what was the progress just on vaccination status and showing just this massive patchwork? But I haven't seen many standards emerge with the vaccination cards. They only care about the tests.

Jens Flottau:               IATA has been working on this Travel Pass, which is being introduced over time. I just looked at it today. I've downloaded the app, but it's still not functional. But there are digital apps available. I have two alone in Germany, both of which are on my phone and which I'm using to get access to events, not to speak of travel. And I know of many other countries that are kind of in the same place.

Joe Anselmo:              Well, Kevin, let's give you the final word. What are some of the wildcards you're looking at for the next few months?

Kevin Michaels:          You know, Joe, I thought we should end maybe on a positive note here.

Joe Anselmo:              Love to do that.

Kevin Michaels:          We don't want the listeners to leave this podcast and just go jump off a building or something here. And there is some positive news out there in all of this. And I think, look, the sharp rebound in the U.S. and in Europe before this, the whole pent-up demand hypothesis is alive. I mean, we've seen that demonstrated, and it was incredible how fast domestic traffic came back in the U.S. And the vaccine, the global vaccine capacity next year by some estimates will be 15 billion doses. And it looks like we need about 8 billion doses to get the world fully vaccinated. And now we may need booster shots. And only about a third of those are the mRNA technology, which is really proving to be the most effective thus far. So we've got to worry about that.

                                   And these mandates that Jens spoke to, I think the carrot aspect of this crisis is probably over and governments are going to sticks and mandatory requirements. And that's going to drive changes in behavior. And we're now seeing an acceleration of vaccination, certainly in the U.S. A lot of the holdouts now we're finding that they're going to have to do this moving forward. So there's a lot of money. There is pent-up demand. We've seen the effects of that. And I think the key thing here is going to be, we need to get IATA, ICAO. It's got to be all hands on deck to get standards in place as soon as possible, because those standards are the underpinning of international travel that we've taken for granted for 40 or 50 years. And that's now all thrown into disarray, and it's just going to continue to hold back travel until we get there.

Jens Flottau:               And just a final word from me. I had a chance to talk to Lufthansa CEO, Carsten Spohr the other night at an event. And he talked to us about a dinner he had at the beginning of the pandemic with some experts who told him that a pandemic lasts two years. It takes two years to get through this. Now, of course, back then, that was terrible news. Today, it's rather good news, right? Because it means we're through this next March or something. And they are relatively optimistic as far as '22 is concerned, even knowing how long it takes. And that it has taken longer than they thought.

Joe Anselmo:              Okay, well, let's end this here on those optimistic notes because that makes me feel a little better. And by the way, Jens, you're scheduled to come for meetings here in Washington, D.C., at the end of September and go to IATA AGM assembly in early October in Boston. If anyone from the Biden administration is listening, he's fully vaccinated. He's willing to take a test. This man is no danger to our country. So wake up, please.

                                   Thank you, Jens. Thank you, Kevin. That's a wrap for this Check 6 Podcast. You can subscribe to Check 6 in Apple podcasts, Google podcasts, Stitcher and Spotify. Special thanks to our producer in Washington, D.C., Donna Thomas. Have a great weekend and stay safe.