The industry that has taken the biggest hit during the ongoing pandemic is the airlines industry. Most airline companies are struggling because of low cash reserves and are at a risk of bankruptcy. Globally, airlines are estimated to lose $113 billion in passenger revenues, according to the International Air Transport Association. The industry has grown at a rate of 5 to 6 percent annually for the last six decades. But even before the crisis, a decline in this rate was previously predicted taking into consideration that the industry has matured.
The recovery of the air transport industry matters especially because it, directly and indirectly, creates 65.5 million jobs across the globe and tourism heavily depends on the it. In turn, tourism helps the aviation industry create economic growth and fight poverty. Aviation led tourism jobs (37 million of them) contributed $897 billion in 2016 to the global GDP.
THE IMPACT: IN NUMBERS
According to ICAO, the seats offered by airlines will decline by 32 to 59 percent, and the number of passengers will reduce by an average of 2500. The industry will experience a whopping $236 to 419 billion in loss of gross operating revenues of airlines. Asia Pacific and Europe will bear 60% of the global revenue loss. Airports are noticing a 50 percent loss of passenger traffic as well as more than $97 billion in airport revenues. The SARS recovery path cannot be replicated currently because the industry has already surpassed the SARS benchmark of 8 percent reduction of annual revenue passenger kilometer (RPK).
According to ICAO analysis, the factors on which the severity of the impact depends on are “the duration and magnitude of the outbreak and containment measures, the degree of consumer confidence for air travel and economic conditions”.
EXPECTATIONS VS REALITY
Imagine 2020 and the world without the coronavirus. The passenger demand, compared to 2019, would have increased to about 187 million this year and seat capacity by about 3.5 percent. A $22 billion increase would be noted in the airlines’ gross passenger operating revenues.
TIMELINE
Source: ICAO, Effects of Novel Coronavirus on Civil Aviation
WHAT THE FUTURE MIGHT LOOK LIKE
According to Paul Cuatrecasas, CEO Acquaa Partners, the industry should invest more in digital and technological advancements, as passenger traffic will decrease. He also suggests an alternate use of aircrafts, given that American Airlines and Virgin Atlantic are already using their passenger aircrafts to carry cargo and in 13 US airports, Delta Airlines is cargo-equipped to operate passenger jets flying to 70 locations.
A shift in consumer preferences will definitely be noticed - with consumers choosing other means like private transportation( e.g.: road trips), instead of crowded spaces like planes. Passengers will also push for better hygiene and sanitation practices. Temperature checks pre-boarding might become the new norm and different technology to check the temperature will emerge. The most obvious aftermath of the pandemic is the bankruptcy of airlines and possible consolidations. The latter might be a debatable topic in the American Airlines space given that there already only exists 4 airlines. Additionally, as Lorene notes in her article, “regional or smaller airports will see a decrease in traffic” as space arrangements will be made to distance passengers from one another. Lastly, airlines might abandon their large aircrafts for medium-sized ones that will accommodate fewer passengers.
IMPACT ON INDIA’S AIRLINE INDUSTRY
The airlines and their supply chain contribute a total of $72 billion to India’s GDP. For four years, India has been the “fastest-growing domestic market in the world” at 18.6 percent per annum. But now, 29 lakh jobs are at the mercy of the pandemic. India’s aviation industry will potentially struggle the most when compared to those in Asia Pacific. This year, about 40 percent of the Indian industry’s business volume could potentially be erased, with practically 0 revenue pouring in since late-March and the on-going lockdown. The Indian government needs to step-in in a big manner. In the rest of the world, US airlines are receiving a $25 billion bailout package and Australia, New Zealand and Singapore will receive $460 million, $360 million, and $82 million, respectively.
The aviation industry has rebounded multiple times in the past - it overcame the challenges put forward during the 2008 financial crisis, SARS, and 9/11. In the current instance, consumer confidence is key for the revival for not just the aviation industry, but also for the tourism sector.
Click here to read the blog post about the Covid-19 impact on the fashion industry.
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