Five Defining Factors for the Aviation Industry’s Recovery from COVID-19
by Sarosh Bhatti
Aviation Enthusiast - Strategist - Analyst - Forecaster and Planner
April 15, 2020
Some of us who witnessed 9/11 or the 2008 economic downturn have had almost a decade to forget the traumatic effect a sudden, global recession can have on a company. In a rapidly evolving situation like we’re facing with COVID-19, it becomes very challenging to balance what’s best for your company, protect your employees, and still deliver a great experience to customers amidst the chaos.
COVID-19 is already massively altering humanity and our global economy. There is no doubt that this pandemic will have widespread and long-lasting implications. As cases are recorded globally and recent reports show that nearly a quarter of the world’s population is now under some form of lockdown, an increasing number of companies are facing incredibly worrying times due to supply chain disruptions, diminished customer demand and government-enforced social distancing, among other challenges.
As of today (April 14), COVID-19 has spread to 210 countries/regions with 1,979,853 cases being reported. The spread of the virus has had a deleterious impact on the global airlines industry, and many industry players are now in a serious fight for survival as passenger numbers plunge.
The aviation industry is facing unprecedented challenges due to COVID-19 as it poses a risk to the travelling public because it can be transmitted between humans. There are quite a few forecasts out there, with the following one from ICAO highlighting the impact of COVID-19 on international aviation. Both V and U-shaped scenarios highlight steep declines of 41% and 51% is seat capacity.
While there are other forecasts out there and since the situation is so fluid, I thought it will be worthwhile to focus on key factors that will be instrumental in “how quickly” and “how significantly” passenger traffic will rebound.
1. 100% cure for COVID-19
This is the first and foremost element. Until there is a cure, no one will risk their lives and compromise social distancing, and as a result we won’t see much of the travelling public flying. An industry rebound will not happen unless there is a vaccine and 100% proven cure out there which is available to masses through the normal distribution channels, such as clinics, hospitals, express COVID centres etc. There are a lot of initiatives underway for the vaccine, but a tested, successful one is still not available.
2. Economic Conditions
The coronavirus has had a significant impact on the global economy in the stock market, employment rates, diminishing consumer demand etc. It is quite hard to predict the extent of the economic damage caused by COVID-19, but there is a wider agreement amongst the economist community that it will have severe negative impacts on the global economy. Early estimates predicated that most major economies will lose at least 2.4 percent of the value of their gross domestic product (GDP) over 2020. To give a context to global GDP, global GDP was estimated at around 86.6 trillion U.S. dollars in 2019 – which means that even 1% decline will have a major impact on economic output. Since these projections were made, a lot has changed with widespread restrictions on social contact to stop the spread of the virus, travel restrictions, etc. Global stock markets have suffered dramatic falls due to the outbreak, and the Dow Jones reported its largest-ever single day fall of almost 3,000 points on March 16, 2020 – beating its previous record of 2,300 points that was set only four days earlier.
The economic challenges caused by COVID-19 have raised unemployment rates globally with just the United States registering in the last two weeks in March almost 10 million people applied for unemployment benefits. Such a sharp and staggering increase has never been seen before, not even at the peak of the global financial crisis in 2009.
The economic challenges and high unemployment rates will deter people from taking leisure trips and cause organizations to cut their corporate travel budget to retain the financial viability of their organization, and this might delay the passenger demand.
3. Government Support
As global aviation and tourism sectors face a decline of epic proportions because of the COVID-19 pandemic, government support during this period will be crucial. Various governments are planning or have extended aid packages to save the industry, and this includes extending support to airlines, airports and other stakeholders. The response from governments around the world varies greatly, some of which are highlighted below:
· The British Government has told airlines not to look to the government and to find other means of financial support. Government would enter negotiations with airlines only after they had exhausted all other means of support.
· Australia announced an A$715 million (US$430 million) aid package comprising refunds and forward waivers on fuel taxes, domestic air navigation and regional aviation security charges.
· Brazil is allowing airlines to postpone payments of air navigation and airport fees.
· China has introduced a number of measures, including reductions in landing, parking and air navigation charges as well as subsidies for airlines that continued to mount flights to the country.
· New Zealand’s government will open a NZ$900 million (US$580 million) loan facility to the national carrier as well as an additional NZ$600 million relief package for the aviation sector.
· Norway’s government is providing a conditional state loan-guarantee for its aviation industry totaling US$533 million.
· US Government aid package includes $32 billion in grants for the airline industry. A further $25 billion will be available in the form of loans or loan guarantees for passenger airlines and $4 billion for cargo airlines. The package also includes $3 billion to pay airline and airport contractors and $10 billion for airports.
· Canadian Government is waiving ground lease rents from March 2020 through December 2020 for the 21 airport authorities that pay rent to the federal government which amounts to CAD$331.4 million.
4. Digital Adaption
Already, 70% of companies had a digital transformation in place or were working on one, but it seems most companies were not far enough along to make COVID-19 a non-issue. There are a few reasons why the Coronavirus, or COVID-19 have forced companies to visit a digital transformation faster. It’s essential that enterprises build in the necessary operational resilience to survive this new reality. This pandemic has showcased the value of data & digital transformation, and organizations should use this time to accelerate the transition. Even when the COVID-19 outbreak is contained, it’s unlikely things will return to normal. Instead, there will be a faster adaption to the slow pacing trends we have being seeing till now and are likely to shape the future for the long haul.
Many people in industries - that formerly prohibited it - are now working from home. Bankers, teachers, engineers, accountants, sales professionals etc. - work-life has changed for most of us. We are telecommuting with our colleagues and spending time with friends and family on video calls as well, in order to not completely get isolated.
This mass adoption of telecommuting is the most explosive change to occur as a result of the COVID-19 outbreak. While remote work is more normal now than it was a decade ago, a recent survey found that 49% of workers never worked from home. Whatever objections businesses have previously had to telecommuting, COVID-19 may be the moment that brings it into the mainstream and shows leaders that with the right technology, culture, and expectations, employees can be just as productive and effective from home.
If the current situation persists for 6-9 months and as companies adapt telecommuting into their business models, this will have major impact on corporate travel, as businesses will have gotten used to using online platforms for sales calls, product demonstrations, and boards meetings, and coming out of this pandemic companies will have tight budgets with less amounts for travel.
5. Social Impact
We are facing a global health crisis unlike anything in the 75-year history of the United Nations — one that is killing people, spreading human suffering, and upending people’s lives. But this is much more than a health crisis. It is a human, economic and social crisis. The coronavirus disease (COVID-19), which has been characterized as a pandemic by the World Health Organization (WHO), is attacking societies at their core. The COVID-19 pandemic is testing societies in various ways; for example, in some regions of the world, many depend on informal work for their livelihood. Physical distancing measures directly affect their livelihoods and make immediate social assistance imperative.
The COVID-19 outbreak affects all segments of the population and is particularly detrimental to members of social groups in the most vulnerable situations, continues to affect populations, including people living in poverty situations, older persons, persons with disabilities, youth etc. If not properly addressed through policy, the social crisis created by the COVID-19 pandemic may also increase inequality, exclusion, discrimination, and global unemployment in the medium and long term.
As emphasized by the United Nations’ Secretary-General, during the launch of a COVID-19 Global Humanitarian Response Plan on March 23, 2020: “We must come to the aid of the ultra-vulnerable – millions upon millions of people who are least able to protect themselves. This is a matter of basic human solidarity. It is also crucial for combating the virus. This is the moment to step up for the vulnerable.”
Conclusion
COVID-19 is an unprecedented event with catastrophic impacts on all walks of life, and that’s why the traditional way of business planning, forecasting, or financial planning will not be effective to determine how quickly and to what extent the aviation industry is going to rebound. The industry needs to look at the five lenses presented above as triggers to get better insights how to align their business model for the post-COVID environment. No one right now knows how long this pandemic is going to last, but one thing we have seen from history is that the aviation industry is resilient to global phenomena and always comes out stronger than before from global crisis.
References
https://www.icao.int/sustainability/Documents/COVID-19/ICAO_Coronavirus_Econ_Impact.pdf
