PARIS â€" So far, so good. The collapse of the British economy predicted by the former Chancellor of the Exchequer George Osborne, in a case of a Brexit victory, has not materialized. The services sector, which represents 80% of the UK's GDP even rebounded unexpectedly in August, and business activity recovered its level of March, at 53.2 points.
The car market followed in a similar direction. After almost stagnating in July (+0.1%), the number of new automobiles registered rose 3.3% in August, compared to the previous year. "The initial shock (provoked by the June 23 referendum) has started to clear up," says Chris Williamson, chief economist at Markit. "An imminent recession has been avoided."
Brexit supporters see these positive indicators as confirmation of their optimistic forecasts for the future, especially given that these statistics come on top of more reassuring data.
Last week, manufacturing showed a rebound after falling in July, with a PMI index reaching its highest since October 2015.
Meanwhile, the tourism sector witnessed a bonafide boom this summer. American and European tourists took advantage of a weaker pound to visit the UK. According to Tourism Alliance, the number of visitors nationwide grew 18% in July compared to last year. All sectors have benefited from this windfall: luxury hotels, Airbnb, historical sites, amusement parks.
"As if nothing happened"
The pound's fall also encouraged more British people to spend their holidays in the UK rather than in the U.S. or in the eurozone. Between June 23 and the end of August, the pound sterling dropped 10% against the euro, and also dove against the dollar. On Aug. 15, it reached $1.287, a 30-year low. But by this past Monday, figures from the services sector pushed the pound back up against both the euro and the dollar.
London's Millennium Bridge and Saint Paul's cathedral â€" Photo: Photasia
"For the time being, consumers continue to lead their lives as if nothing had happened," says Robert Wood, chief economist at Merrill Lynch in London.
Still, the fact of the matter is that all the reassuring numbers cannot hide the emergence of worrying signals from the UK's commercial partners. At the recently concluded G20 summit, Japanese Prime Minister Shinzo Abe asked his UK counterpart Theresa May for more clarity from London about the implications of Brexit for Japanese companies. As for Barack Obama, he clearly told May that a separate trade deal with the UK was not among Washington's priorities. These two strategic partners let it be understood that their investors could decide to stay away from the UK if London should fail to negotiate a "soft" Brexit deal.
And beyond such threats is the very fact that not all indicators are positive. "The pound's fall has absorbed part of the shock that the Brexit victory provoked," says Wood. "But the reality is that the UK has gotten poorer, that the housing market isn't doing well and that growth will take a hit."
Of course, exports have benefited from the pound's fall. Foreign sales of UK-made products are at a two-year high. But the currency's devaluation has affected the prices of everyday products, even though the average rise in July was just 0.6%. More importantly, the costs of production materials have increased significantly. "Industry and the construction sector in particular have seen an important rise in material costs," says Markit's Chris Williamson.
More worrying still, some investors have announced that they are freezing certain development projects because of the uncertainty of the coming few months. Lloyds Bank said in late July it would cut 3,000 jobs, while cosmetics manufacturer Lush plans to move part of its production to Germany.
Economists agree that prices will continue to rise and that, more importantly, it's too soon to assess the impact of the referendum's result. "We'll only start having a clearer idea from October onward," says Iain Begg, professor of economics at the London School of Economics. "It will probably take at least a year to measure the referendum's impact on the UK's competitiveness."
Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.
It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.
More than a year later today, experts believe that air traffic won't return to normal levels until 2024.
But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:
Cleaner aviation fuel
The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.
While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.
Fees imposed on the airline industry should be funneled into a climate fund.
In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.
Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.
High-flying ambitions for the sector
Hydrogen and electrification
Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.
One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.
Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.
New aircraft designs
Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.
International first class will be very nearly a thing of the past.
The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.
Aerial view of Rome's Fiumicino airportcommons.wikimedia.org
Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.
The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.
Data privacy issues
However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.
Auckland Airport, New Zealand
The billion-dollar question: Will we fly less?
At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.
Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.
40% of Swedes intend to travel less
According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.
But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.
At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.
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