How quickly are the vaccine cavalry coming?

Finally, some good news for the UK aviation industry

The UK airline industry has dropped back into virtual hibernation after the partial recovery during the summer was squashed by the second wave of the pandemic. That caused pretty much every country which was previously exempted from the UK’s 14 day quarantine requirement to drop off the list. Flights to and from the UK over the last week were 77% down on 2019.

Today, the government announced that it was modifying its quarantine requirements from December 15th, at least for England. Scotland, Wales and Northern Ireland may follow suit shortly. Passengers arriving in England who pay for and secure a negative COVID test after 5 days will be “released” from quarantine. In practice, that will cut the requirement to self-isolate by about a week. That will help, but that still means quarantining for 6-7 days plus the £65+ cost of a test. That remains a major deterrent to travel, so this change is not going to do much to dig the industry out of the hole that it is in.

However, a string of positive announcements on vaccines has finally offered some degree of clarity for the path to a genuine recovery for the industry. As UK prime minister Boris Johnson put it recently:

“We can hear the drumming hooves of the cavalry coming over the brow of the hill…“

With airlines losing billions each quarter and running down their dwindling cash reserves, the cavalry cannot come quickly enough.

Based on announcements to date, I decided to take a stab at outlining a possible timeline and path for the UK industry recovery.

Timeline for rolling out a vaccine in the UK

The most recent announcement by the Oxford University / AstraZeneca team is perhaps the most significant of the three vaccination announcements to date. As well as being easier to manufacture and able to be stored in a normal refrigerator, it is the vaccine on which the UK has made its biggest bet. 100 million doses have been secured by the end of 2021, with 19 million expected to be available to the UK by the end of next month.

The best results achieved in the effectiveness trial (about 90%) were obtained by administering a half dose, followed by a full dose a month later. That means 100 million doses should be enough to vaccinate 67 million people. That is more than enough to cover the whole UK population, even allowing for some wastage, once you exclude the very young and the hopefully small number of people who will refuse to get vaccinated.

AstraZeneca has said that it will be able to produce 700 million doses by the end of March 2021 and 3 billion doses by the end of the year. Given that the UK is right at the front of the queue, it seems to me that it will have enough vaccine to get the job done by the end of March. That is even leaving aside supplies of the Pfizer and Moderna vaccines that the UK has also secured. The government seems to be taking a similar view, setting out the hope that “life will return to normal after Easter”.

It will be a major logistical challenge. Getting through two injections each for 67 million people over a 3.5 month period will mean administering 1.2 million vaccinations a day. By way of comparison, about 330,000 COVID tests are being done each day, although that has been heavily constrained by lab capacity.

Vaccination priorities

The government has been clear that the initial priority for scarce vaccination capacity will be protecting those at highest risk. The old and front line health care workers will be first in line. The UK has 25 million people over the age of 50 and about 2 million people were identified as needing to shield due to medical risks. There will be a big overlap between these numbers. The National Health Service employs 1.2 million people and 1.5 million are employed in the care-home sector, although many of these would not be classified as “front line”. So maybe a conservative estimate of the “priority” sector might be 30 million, or about 45% of the population.

If things go to plan, the UK has a chance of completing vaccinations of all priority cases by the end of January, or maybe a month later if safety approvals take longer or logistics go badly.

However, it seems to me that restarting the travel sector has a good chance of becoming a priority use for UK vaccination capacity from February or March. Perhaps even earlier for business or essential travel trips.

What does this mean for air travel and airlines?

Alan Joyce, CEO of Qantas, has said that he expects proof of vaccination to become a requirement to fly. I think he is correct.

If my timeline is correct, vaccinations should be available to non-priority people who want to travel overseas starting in February or March. That would enable all restrictions on UK outbound travel to be lifted in time for a full resumption of travel for the summer 2021 season. If things go well, for Easter too. Other country restrictions may still be an issue, but it seems a reasonable assumption that other countries will be happy to allow unrestricted travel from the UK if all travellers have been vaccinated.

Inbound travel is another question, but I would expect the other developed countries to be in a similar position to the UK, allowing most international travel to resume unimpeded for the summer season.

At least as important for the aviation industry, once people become confident that summer 2021 travel will be “back to normal”, bookings will resume in earnest. We know that when restrictions are lifted, bookings spike and there is a lot of pent up demand. We are about to enter a period which would normally be the biggest period for bookings in the northern hemisphere. The influx of cash from strong summer bookings will be incredibly helpful to airlines trying to survive the winter.

The good news on the vaccines has already bolstered investor and lender confidence and this will allow companies to raise money on better terms. Many airlines have taken on heavy debt loads, and those that have not already raised equity capital will need to do so. Up to now, making any kind of forecasts on which to value airline equity has been almost impossible, due to the huge dependency on developments in the pandemic. Some certainty starting to emerge on the timing of the path back to normality will make a big difference to the availability of capital.

Darkest before the dawn

There may now be light at the end of the COVID tunnel, but there are still some dark days ahead. There will be airlines and other travel businesses that don’t make it out to the other side of winter.

But after what has been a catastrophic year for the industry, there does now seem a good chance that wishes for a “Happy New Year” may actually be granted.