King Sisyphus is a figure in Greek mythology famous for his eternal punishment. Sisyphus, who was punished by the gods for rolling the boulder up a hill that would always roll down again, consciously accepted his punishment, and although he knew that it would roll down again, he kept on rolling the boulder up with all his might. (1) This is an eternal punishment for Sisyphus.

At the meeting held in Istanbul in 2008, Giovanni Bisignani, the then Director General and CEO of IATA, likened the aviation industry to Sisyphus, stating that after a long uphill journey a giant boulder of bad news is driving the sector back down. Since Bisignani's such statement, we have witnessed that the industry rolled down a few times with the boulder. I think the biggest pandemic of the century also dragged the sector down from the summit to the furthest place, hence to a long and challenging uphill journey.

As I mentioned in my previous articles, as airlines are a common component of the industry I believe it is necessary to focus on airlines in order to see the impacts of the pandemic on the industry. We can easily comprehend how the sector has rolled down from the losses and debts as of the end of 2020. At the end of 2020, Turkish Airlines announced US$ 742 million loss, German airline company Lufthansa Group € 6.7 billion, United Airlines US$ 7.1 billion, Pegasus Airlines US$ 266 million, Southwest Airlines US$ 3.1 billion - its first annual loss since its establishment, and all other airlines reported significant losses. The International Air Transport Association (IATA) forecasts that the airline companies make a total net loss of US$118 billion in 2020 due to the Covid-19 pandemic, and demand falls by 65.9%. It also states that companies can return to profitability towards the end of 2021. While the vaccination rollout raised hopes as we entered 2021, restrictions and lack of ticket sales lead to silent and nervous wait within the sector. Currently, the industry is not in a position to respond to a possible sudden high demand because the necessary arrangements are slow and weak due to financial difficulties.

While the differences between the financial outlooks of the companies before the pandemic were in shades of gray, the majority are now in the black area. Furthermore, they will inevitably be separated with clear lines as black and white in the post-pandemic period. Because companies, whose financial structures have not deteriorated much and/or received sufficient state aids, will recover faster after the pandemic and start to take hold of the regions and routes of other weak companies. Strong companies will have flexibility in their profit margins, while weak ones will not compromise their profitability. As a result, we will be able to see quite clearly that the companies will fall into the black or white area at the end of 2021 and the beginning of 2022. In the post pandemic period, we will unfortunately see that some of the companies will file for bankruptcy and some others will declare new collaborations and mergers/acquisitions.

On the other hand, the airlines of the countries that are leading the vaccination race and achieve herd immunity the fastest should also be taken into account. Currently, the US, China and the UK are ahead of the race. Despite the financial disruption, the US and Chinese airlines may gain momentum in exiting from the crisis with the increase of domestic flights and some international flights, and this may lead them to get ahead of other companies.

While 42 airlines with more than two thousand aircraft in their fleets have declared bankruptcy since the beginning of the pandemic, some others have been nationalized. On the other hand, we also hear that nearly 30 new airline companies have been established or at establishment phase in all over the world. The strategies and steps to be taken by such new companies as well as what they bring to the sector are issue of concern. 

As for Turkey, as I mentioned in my previous article, we see that Turkish Airlines and Pegasus Airlines maintain their financial and functional operability despite the negative impact of the pandemic. There is no clear information about other companies but all stakeholders of the sector have started to express their expectations regarding direct or indirect support since the beginning of the year. Even though nearly € 2 billion support was announced to be given, no support has been received so far (except for the support provided to tour operators, airlines and all other companies).(2)  

We are aware of the current severe situation and we discuss how to exit this crisis. We are now entering a path free of dark clouds for the sector, where hopes blossom and positivity is higher than pessimism. First and above all, we know there is a robust demand, and people's desire to travel has increased a lot for the post pandemic period. On the other hand, before the outbreak, the flexibility that allows customers to make travels in line with their own wishes and needs (dynamic packaging) was getting trendy. However, the pandemic suspended this new model. In the post pandemic period, thanks to dynamic packaging (the opportunity for the airline to meet with the customer directly without a tour operator/agency), the additional income to be obtained through offering various services to passengers such as hotels, car rentals, etc. will also play a significant role in binding up the wounds.

Again, we will see certain sales, which we only see in low-cost airlines in the past such as in-flight food and beverages (buy on board), luggage, seats, etc. that increase additional income, will become widespread in flag carriers (such as Lufthansa) and network airlines.

In IATA’s 2020 annual review report, we see that the aviation industry closed 2019 with a net profit of US$ 25.9 billion after tax. We can clearly see that the above mentioned US$ 118 billion loss (perhaps more with the financial statements to be declared) can be recovered only within 4-5 years after returning to normal and to 2019 levels. At least two-year period is needed for easy management of debts, if everything goes well.

In the meantime, another critical question arises. When will the airlines achieve the level of contributing to their shareholders and investors after they enter into the process of improving their financial situation and binding most of their wounds? In order to answer this question, it is helpful to look at ROIC (Return on Invested Capital) and WACC (Weighted Average Cost of Capital) of the sector in previous years. When we look at the graph, the picture is not positive at all. The expected situation is that the return on the company's capital is higher than the cost of capital (ROIC > WACC), thus creating an effect that increases the assets of its shareholders. However, the graph we see unfortunately illustrates the opposite; in other words, the aviation sector has continued its activities in a way to reduce the assets of its shareholders since 2000. The fact that we have witnessed many bankruptcies and mergers as a result of events and developments since 2000 also validates this graph. While the sector has been in distress for many years, it is difficult to predict when it will contribute to its investors / shareholders even after the pandemic. We can predict how debts can be managed and reduced, but it is difficult to predict when the ROIC > WACC is achieved and how it will be sustainable.

It is obvious that the aviation industry will be reshaped from scratch and various new business models will emerge, as in many other industries after the pandemic crisis. No matter from which perspective we look at the sector, the acceleration in economic growth is interdependent with the aviation industry. The aviation industry’s continuation of its profitable activities that create added value is of great significance both for the global economy and country economies. Countries that are aware of how considerably the aviation industry contributes to the world and the economy do not hesitate to provide billions of dollars of aids. However, the main issue is searching for an answer on how the sector can keep on its way by achieving sustainable added value in the post pandemic period, and finding a solution. Until a permanent solution is reached, the aviation industry will not be able to avoid the rolling-the-boulder-up-cycle, just like King Sisyphus.