Flight attendance: airlines after the pandemic

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Hello, and welcome to the Intelligence from the Economist. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Latin American migrants fleeing violence and seeking a better life are now heading toward America's southern border in record numbers. What's missing from that long running story is the increasing number that choose instead to stay in Mexico. And there's a lot of history, and not just a little sociology. In Japan's tradition of public bathhouses. They've been in slow decline in recent decades, but a movement is building to save them, and many are benefiting from a hipster makeover. But first, The number of air travelers is as high as it's been during the pandemic. At least in America, we are going to do that.

Everyone to take their seats right now.

But if you're going to fly, you might want to brace for some unruly behavior. By last week, America's aviation regulator had logged more than 500 investigations into it.

This year, after several more. Put on your mask. Put on your mask. Put on your mask. Bathroom trips.

Okay, now if I slap the phone off your hand right then it's erratic.

Behavior and snorting a white substance.

For comparison, there were only around 150 in all of 2019 when a great many more people were flying. Truth is that even on the ground, the airline industry is a bare knuckle business. Profits are hard to come by. Companies are born, learn to fly and go bust all year long. It's airline's earnings season and tomorrow investors will be watching. Delta's results, probably still in the red, but on track to profitability later in the summer. Next week it'll be Easyjet and United. The week after Ryanair and iag, which owns British Airways and a string of others. Now that the pandemic is receding in some places, how will the industry gain altitude?

The pandemic has been absolutely catastrophic for air travel. In 2020, travel was down by about 66% on 2019.

Simon Wright is the Economist's industry editor.

But look, fewer carriers went bust in 2020 than in each of the previous two years. So something odd is obviously going on here.

Is this something odd? A bit of state help bailing out these carriers.

Bailouts are part of it, but you have to look at the history of airlines. Really. Only 30 carriers over the last few years of the hundreds around the world have actually made decent profits. In between, we have a variety of airlines that are sort of backed by states, some that are owned outright by states. It's a business that has always had a deep involvement of governments. For many, running an airline is a point of national pride, having the national flag on the tail plane. A good example is Japan's bailout. They noted that quarter of a million jobs at stake and its role in connecting far flung parts of the country.

Well, that's Japan's. But lots of governments stepped in to help their flag carriers. How did those pan out?

Iata, which is an airline body, reckoned that over the course of the pandemic, 225 billion has been handed out globally. Sometimes this has come with strings attached. For example, France has increased its stake in Air France KLM to nearly 30%. Germany now has a 20% stake in Lufthansa. They have a hopeless Alitalia. It's now fully state owned. It keeps them alive. But at what cost?

What do you mean, at what cost?

Airlines that have taken big government bailouts, and particularly ones that now have governments as shareholders, will find it very difficult to restructure to the degree they need to do. Governments will be wary about allowing them to make big job cuts. They may be obliged to run routes that governments feel are important for connectivity. So I think they'll have a problem in doing the sort of restructuring that they really need to do.

And in your mind, is it clear that they need to Restructure all the.

Forecasters reckon it's going to take until 2024, probably until air travel gets back to 2019 levels. And in order to survive in a new world of fewer fliers saddled with enormous debts, the way to get ahead is to have a low cost base. If you're spending years and years paying back this money, it's going to be impossible to invest in the new services, products and technology that will help you sort of get ahead. And also, look, bailouts don't guarantee success. The Gulf carriers, the flag carriers in Singapore, Cathay Pacific, but they rely on long haul trips and heavily on business passengers as well. And that relies on the whole world reopening.

So how does domestic travel figure in here for the carriers that deal? Mostly in that the airlines that are.

Bouncing back most quickly are the ones with big domestic markets, that is the US and China in particular. In the US, 60% of air travel is domestic. In Europe and the Middle east is around about 10%. And China surpassed America as the world's biggest domestic market, partly because it bounced back from the pandemic more quickly than America. And so in China, domestic flying has returned to pre pandemic levels. In the US it's a little bit lower, but if you look at the July 4th weekend on some of those days, it actually surpassed 2019, which is the pre pandemic year. So, so things are much, much better for the domestic carriers in those countries. These airlines have also been helped by bailouts. The US government made available loans to the tune of about 32 billion. But because they're coming back, the American airlines have started to raise money on the market. American Airlines raised 10 billion in debt in March, most of which is going back to repaying loans. United, 9 billion a month later, same sort of thing. So domestic travel and the early exit from onerous government debts may give the US and Chinese carriers a bit of an advantage.

And what about the no frills end of the market?

The low cost carriers have been eating the lunch of the full service carriers on short haul routes for many, many years now. And because these low cost carriers have been doing really well and been pretty profitable, and also because they have the very, very lowest cost base, they have strongest balance sheets, particularly in Europe. Also because they have these lower costs, they can cut fares to stimulate demand. So they're going to win market share. So they're in a pretty good position. The picture isn't the same everywhere. In somewhere like America, the ultra low cost carriers, they only really have 10% of the market, whereas in Europe it's 50% of the market. So they have a bigger market to attack, but it's much more tilted in favor of the big carriers.

So is that where the opportunity lies after the pandemic in these low cost.

Carriers and shorter routes?

We've seen the low cost carriers have come in, particularly deregulation in Europe. And there could be some opportunities in some niches. Aircraft are cheap, there are plenty of pilots, there are slots at capacity constrained airports. There are all kinds of reasons why now is actually a pretty good time to start an airline. And we're seeing this happening. There's breeze in the US which is flying between smaller US cities that have been slightly ignored by the bigger carriers. Avelo, which is taking tourists to Californian hotspots. But we don't see a dramatic restructuring. But what I think we will see is an opening up of the gap between those low cost carriers that operated successfully and the full service carriers, which I think are going to be stuck a little bit by the enormous debts they've taken on and the drop off in air travel. So I think that's the thing we're probably going to experience mostly, as you.

Say, it's a bit of a muddled picture. There will be winners and losers, but it will depend on how strong balance sheets were before, what the state of the bailout has been, how much of it is domestic travel, what's your view from 30,000ft, as it were? Will all of this in the end reshape the industry?

The industry's been through several upsets over the last few years. Every time somebody says this is going to restructure the industry and it never really does. I think it's because of this government involvement and the way the industry is structured. The reason you can't have big cross border mergers, it means that the industry's a little bit stuck in aspic. That doesn't mean there aren't opportunities though.

Thanks very much for joining us, Simon.

Thank you.

At America's southern border, record numbers of migrants are attempting to get in. In May, border officials recorded the highest monthly total in more than 20 years. Just over 180,000 migrants. Most have come from the so called northern triangle of Guatemala, Honduras and El Salvador, fleeing violence and poverty. But those numbers at America's border hide another trend. Many migrants are choosing to stop short. For years, Juan and Marta ran a successful transport company in El Salvador. When their business attracted the attention of gangs, thugs held them at gunpoint and demanded money. In 2019, Juan left to claim asylum in Mexico. He was given permission to stay, and he found work. By April of this year, Marta and their three children were allowed to join him. They're thrilled by the prospect of a quieter life in the northern Mexican city of Saltillo. There, they say, they have a legal status that they wouldn't have in America. They can work and study. Their children can apply for high school scholarships.

We're now seeing many migrants, mainly from Central America, stopping short of the United States border and claiming asylum in Mexico instead.

Sarah Burke is the economist's bureau chief for Mexico, Central America, and the Caribbean.

To give some figures of how it's changed, in 2015, there are about 3,500 requests. But by 2019, so four years later, the number had increased to 70,000.

And it looks as if that trend is set to continue.

I mean, yes, for sure. A bit of the previous increase may be thanks to former President Trump's policy of obliging those who are claiming asylum in the US to stay south of the border in Mexico while their applications were processed. This is something that Joe Biden ended when he came to office. But this year looks set to break new records, too. I mean, Mexico had over 41,000 requests for asylum, more than half of which were from Hondurans, in the first five months of this year. I mean, some of those people may still be seeing Mexico as a sort of stepping stone to eventually continue north, but others who I've been talking to actually want to stay. This is their destination.

And what's changed here?

What makes them want to stay in Mexico?

Its laws are pretty welcoming, so its definition of refugee actually goes beyond the standard UN One. So it doesn't have to be that they in particular had something happen to them, but they can be fleeing widespread, generalized violence. So Hondurans almost qualify automatically. And, you know, it's pretty generous here that once they're accepted as refugees and recognized, they can do everything a Mexican do apart from vote. So they can work, they can use health care, they can send their children to schools. You know, most of the migrants are coming from Central America. So there's Spanish speaking, the language. There's no barrier. And culturally, Mexico is a big influence in the region. So it's a culture that migrants feel familiar with.

So what kinds of people are making the trip now?

I mean, it's. A few years ago, most migrants were young men on their own, and it was also predominantly Mexicans going to the US and then that stopped. In the last sort of 20 years, people have thought there have been more Mexicans coming back than actually leaving to the US and it became families that were arriving. So in Mexico's case, that's also the same sort of patterns as we're seeing in the U.S. so, by the end of March this year, Mexico was home to 3,500 unaccompanied children, which is another not just families, but people sending their children on their own.

And it sounds as if the systems Mexico has in place for this are already under strain.

I mean, yeah, totally. So they have legal frameworks that are quite good, but in practice, it's very hard to deal with these people, and those frameworks aren't always applied quite as they should be. So Mexico doubled the budget for the refugee agency last year to $2.4 million, but with a number of claimants rising fast. The head of the refugee agency was telling me they just need much more money. I mean, another problem is that Mexican law says asylum seekers have to stay in the state where they arrive while their claims are processed. If they're recognized as a refugee, they can then go move freely within Mexico. But the states where they arrive are obviously along the southern border, and those ones are among Mexico's poorest states. I mean, Mexico's north is quite rich, to put it very simply, and the south is poor. And so there's a few jobs. The public services are sort of scarce, and that causes tensions with the local community because it feels like there's a competition for resources and access to. To things like schools and healthcare and jobs and all the rest of it.

And what's being done to address some of these problems.

I mean, so the Mexican government recognizes that reforms are needed. So the big one is that the asylum system is being clogged up, not just with people claiming asylum, but people who want to migrate to work. And so they're trying to think of ways in which they could have more legal pathways, so, you know, for jobs so that people get visas to come and work here, and those people could then apply that way, as opposed to going through claiming to be a refugee. And then it's about ironing out regulatory hurdles, making the systems work more efficiently, having more resources. I mean, but Mexico probably needs more people who are happy to work. I mean, it has a young population, but it is starting to age. And so. And it has lots of businesses that say they can't get the people they need to work for them. So in more ways than one, Mexico is becoming a bit like its richer northern neighborhood.

Sarah, thank you very much for joining us.

Thanks, Jason.

For more analysis like this from our International Network of Correspondence. Take out a subscription to the Economist. Get a great introductory deal@Equality.com IntelligenceOffer the link is in the show notes. For centuries, Japanese people have relied on communal baths, the kind called onsen, fed by hot springs or sentos, with heated municipal water. For practical reasons, sentos have long been in decline. But for more communitarian reasons, a new generation is now trying to keep the.

Tradition on the boil.

When you enter the main bathing area, you notice first of all the silence.

Noah Snyder is the Economist's Tokyo bureau chief.

There are few voices. It's really only the sounds of water. It's this almost sacred feeling space. First you have to scrub yourself clean. Everyone tends to sit on little stools in front of personal showers and wash themselves. They're usually sort of cypress wood buckets that you can fill up to rinse off. And then there's a selection of warm baths ranging from the tepid to the scalding. And you soak for as long as you like.

And these bath houses are a big.

Part of Japanese culture.

They are indeed. Many of Japan's earliest public baths came attached to Buddhist temples. But the sento really took off in the dense sort of dirty urban environments of cities like Tokyo and its precursor, Edo. They were the place where many urban citizens came to bathe on a daily basis. And as a result, they really came to play an important role as these sort of common spaces that brought together people from different walks of life. When you enter the pools naked with your neighbors, the kind of strict hierarchies, the stiff formalities of Japanese life tend to melt away. So the sento are kind of a great equal, but unfortunately they've been on decline in recent decades.

And why is that?

The main reason is that the primary practical function of the sento has all but disappeared. In 1964, for example, when Tokyo was preparing to host the Olympic Games, then just around a third of homes had their own private bathing facilities. People relied on the sento to get clean every day. Now, at least 98% of Tokyo homes have their own baths or showers at home. So the sento have kind of started to dry up. So in the 1960s, at their modern day peak, there were more than 2,500 sent in Tokyo alone. Today, just over 500 remain. But there are some signs that the sento are making a comeback.

How do you mean?

Sento have started to acquire a little bit of a sort of retro cool factor amongst a younger crowd. I talked to one young sento owner in Kyoto who started to host concerts and flea markets in the bathhouse. And during off times, he started advertising online and using social media media. His daily customer base more than tripled and really shifted from senior citizens, who tend to be the main users of Sento these days, to folks in their 20s and 30s. Others have gone for sort of all out hipster makeovers. At Koganeyu, which is another Tokyo Sento, they hired a contemporary architect to do a remodel and turned it into this sleek concrete walled modern space with a craft beer bar and vinyl turntables.

So it's a matter of adapt or die, I guess.

For the Sento it is exactly. The clientele tends to be older, the proprietors of many of these places tend to be older, and many simply decide to shut down the bathhouse when it's time to retire. You know, it's tough for these bathhouses to really survive just as bathhouses these days, so they've had to kind of reinvent themselves. That said, the changes that are needed to bring younger people into the santo can be divisive. Older regulars sometimes find these sort of new bells and whistles alienating. A lot of purists worry that the democratic charm of the centos will be destroyed by turning them into these sort of hipster hangout spots.

So what's your view then on the future of these things? That divisive question of whether they can serve the community role, but also the democratic one.

You know, Jason, the cento have survived in one form or another for centuries now, and the pleasure of soaking in a warm bath is probably an eternal one. So if I had to guess, I'm a Sento optimist.

Thanks very much for joining us, Noah.

Thank you for having me.

And happy bathing.

That's all for this episode of the Intelligence. If you'd like us, leave us a rating and a review and see you back here tomorrow.