A long-term shift in attitudes around climate change, travel and work triggered by the COVID-19 pandemic could serve to significantly curb aviation growth in the next decade, according to analysts at Swiss bank UBS.
Research released last week by the financial giant forecasts global air travel growth for the decade between 2018 and 2028 could shrink 10 percent compared to expectations prior to the coronavirus outbreak, due in large part to a global acceleration in the shift from planes to high-speed rail.
The shift could slow previous expectations from aviation equipment manufacturers of a 5.1 percent annual growth in air traffic over the next decade to 4.6 percent, it said.
"The COVID-19 outbreak is showing industrialized countries not only what clean air means and how to cope without traveling, but also how healthier populations in a cleaner environment cope better with coronavirus," the research states. That shift in mindset is set to bolster plans to improve high-speed train availability and further fuel growing concerns around climate impacts, resulting in a slight slowdown in global appetites for air travel, it argues.
The shift is set to be felt most dramatically in Europe, where growth could drop to around 0.1 percent annually — a far cry from the 4.1 percent growth rate expected in 2019 manufacturer forecasts, the report contends. In other major markets, growth also could slow, the report suggests, with growth projections trimmed from 3.2 percent to 1.8 percent in the United States and from 8.1 percent to 6.4 percent in China.
Such a reduction in demand would require the retirement of roughly 2,000 older-generation planes across the next 10 years — or roughly 196 aircraft per year — which UBS analysts calculate would save between 2.7 and 3.4 million tonnes of carbon dioxide annually.
The report comes amid calls for airline bailouts during the current crisis to be contingent on strict carbon reduction and clean technology targets — proposals that much of the industry appears to be resisting.
Meanwhile, a growing shift away from air travel also would deliver an enormous boost to global rail markets, with manufacturers of rolling stock, signaling, controls and breaks all likely to benefit, according to the research. It expects high-speed rail to grow faster than any other segment, with European industry body UNIFE forecasting 10 percent compound growth per year in the medium term, more than triple its 3 percent forecast for overall rail growth.
UBS said it now expects high-speed rail's growth in Europe to eclipse UNIFE's expectations. "We estimate the European high-speed rail (HSR) market opportunity to grow to [$11.96 billon] in 2022 ... well above the [$6.41 billion] forecast of the European rail industry body UNIFE, suggesting a compound annual growth rate (CAGR) up to 10 percentage points over the UNIFE base in 2020-30," it noted.
The report also notes that mass transit signaling companies — in particular France's Thales and Alstom, Germany's Siemens Mobility and Canada's Bombardier Transportation — are set to reap the rewards of $6.52 billion of revenue opportunities in the sector over the next decade, according to the findings.
The liberalization of the Spanish and French networks scheduled for this year, which could topple rail operators RENFE's and SNCF's domestic monopolies, as well as a 10-year $93.70 billion railway infrastructure upgrade program unveiled by Germany last year, could further help drive cheaper fares and higher train frequencies across some of Europe's largest economies, according to the report.The COVID-19 outbreak is showing industrialized countries not only ... how to cope without traveling, but also how healthier populations in a cleaner environment cope better with coronavirus.
UBS expects Spain, France, Germany and Italy to add some 800 high-speed rail units over the next 10 years, which will generate between $43.48 billion and $65.22 billion of revenue opportunities. Overall, it estimates roughly $108.70 billion of high-speed rail investment opportunities in the European Union and a further $111.97 billion in China.
Consumer travel behavior is also likely to shift after the current pandemic is brought under control, according to UBS. A survey carried out by the bank of 1,000 adults across China and four European countries indicates the majority of leisure travellers are open to spending up to six hours on a train, and rail price reduction was identified by participants as the biggest incentive that would encourage them to make the switch away from short-haul flights, it said. Business travellers surveyed had a shorter threshold, however, claiming that they would be willing to spend two to three hours on a train for a work trip.
The UBS analysts, therefore, expect low-cost airlines that travel shorter routes to be hit the hardest by the shift in travel attitudes. "We see downside risk to [airline] routes of under 300 miles," the report noted. "A backdrop of increasing awareness of climate change, the introduction of aviation charges, new high-speed rail infrastructure, as well as increased competition on current train routes could lead to trains gaining market share versus planes."
Moreover, a further boost for cross-border rail travel is expected soon in the form of the EU's new standards for the sector — the European Rail Traffic Management System — which are being rolled out across the bloc to ensure interoperability between different markets.
In the immediate term, air traffic is down dramatically as global governments clamp down on international travel to try to halt further spread of the coronavirus, which is having a devastating impact on the aviation sector and the global economy more widely. Once the pandemic is broadly under control, of course, economies will start to open up and airlines will seek to ramp up their travel route offerings once again. But the prospects of travel habits quickly returning to what they were before the pandemic look increasingly uncertain.