A Commercial Q: Aviation vs COVID-19. What Impact has the Virus had on the Aviation Industry?

In recent weeks, there has been a spotlight on the aviation industry following the UK’s new 14-day quarantine rules for travellers arriving in the country. This follows the actions of Australia and New Zealand – well, they did it 3 months ago… But look at them now! The rules have caused nothing short of uproar leading to UK airlines such as Ryanair, EasyJet and British Airways to challenge the government ruling in court. Michael O’Leary, Ryanair’s boss who has been very vocal on the issue since the beginning, has described the measures as ‘irrational’ and ‘ineffective’. In this article, I am going to look at the impact the coronavirus has had on the airline industry and analyse how the industry will look a year from now.

Pre-COVID-19

Prior to the outbreak of the virus, the airline industry was ‘flying’! Between 2004 and 2014 the sector doubled in size, and its estimated that the aviation sector makes up 3.5% of the worlds GDP – around $2.7 trillion. Alongside shipping, aviation is perhaps the keystone for globalisation, with an average of 3 billion passengers and 50 million tonnes of cargo seeing the inside of an aircraft each year. Catching a flight in todays day and age is normal. Quite often people find cheap deals through the likes of Ryanair and EasyJet meaning that you could jet off to sunny Spain for a weekend without selling an arm and a leg. The question that remains then, in a post-coronavirus world, will we see a return to the 50s where air travel was reserved for the rich?

Has the industry really been hit that bad?

In all honesty, yes. It has been described as the biggest crisis in aviation history. During the week beginning 1st June 2020, the number of scheduled flights worldwide decreased 65.1% in comparison with the week beginning 3rd June 2019. Of course, this statistic varied between countries but in Italy, the year-on-year decline in the number of passenger flights decreased by 98%. At the time of writing, the International Air Transport Association (IATA) says that airlines have already lost $84 billion compared to last year, and this could increase to $314 billion by the end of 2020. Its a scary time for airline bosses. At airports across the UK, whole fleets are grounded. In fact, PwC estimate that 60% of the worlds airline fleets are currently sat in airports rather than taking to the skies. At the beginning of the lockdown I was walking by Manchester Airport and planes were parked on the runways as airlines just do not have the storage space for them. This means they are paying rent to the airports for an asset that is currently making them no money at all. Usually, the bigger airlines run flights 24/7, they have never needed to store their whole fleet, so it is safe to say we are in completely unprecedented times.

Let’s take a look at some specific examples of airlines hit bad by the virus. South African airways is currently being run by liquidators, Emirates are considering 30,000 redundancies and AirFrance has immediately retired its Airbus A380 fleet. On a more positive note, Cathay Pacific received a $5 billion dollar bailout from the Hong Kong government just to keep afloat. Diego Olmedo, an international aviation law expert working as a Legal Director for Clyde & Co, told Al Jazeera that the survival of airlines will depend on help from the government. US airlines have raked around $50 billion in loans and grants from the government but US airlines were already struggling before the virus hit. There were complaints from the likes of United Airlines about subsidies Middle Eastern governments were giving to airlines, citing that it is unfair competition. Therefore, we are likely to see a huge reduction of services internally and coming out of the US, which will of course have an adverse impact on employment.

What does the future of the industry look like?

Of course, we are just speculating here, but Benet Wilson, a travel and aviation writer, said that airlines will come out much ‘leaner and meaner’. It is likely that we will see the restructuring of airlines. Most commercial outfits tend not to have cargo branches, so business models will be altered to make way for this. Raphael Kuuchi, a special envoy to Africa on aero-political affairs and IATA, predicts that a more structured airline industry that has a focus on efficiency and profits will emerge, but this is dependent on airlines surviving the next few months. It is likely we will see a patch work of measures from different governments to allow for this to happen as it is important that air travel remains affordable and accessible.

Public health vs the economy

To put it simply, it is a question of public health vs the economy. Even when airlines began a regular service, will they reach the demand required to make a profit? There is of course the option of ‘socially distanced’ flights which sounds appealing as nobody likes the middle seat in the economy class! However, this is just not sustainable for passenger focussed airlines. Kuuchi expects airlines will begin to diversify into other areas of the tourism industry to weather the storm but the uncertainty ahead is a worry for aviation experts.

Sources:

https://www.statista.com/topics/6178/coronavirus-impact-on-the-aviation-industry-worldwide

https://www.aljazeera.com/programmes/insidestory/2020/06/aviation-industry-weather-coronavirus-storm-200613182058869.html

https://www.euronews.com/2020/05/22/analysis-can-the-aviation-industry-survive-the-coronavirus-crisis

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