Impact Analysis of Covid-19 on Aviation and Airlines

1.      Introduction

The aviation industry is involved in all types of aircraft manufacture and operations during transportation. Driving factors in the air travel business before COVID-19 virus eruption included increased global disposable income, low-fare airline introduction, and increased tourism internationally (Gossling et al., 2020). Furthermore, there has been significant growth in the market for aircraft manufacturers as a result of replacing old commercial aircraft.  Air traffic, together with other economic sectors, is susceptible to outside influences like natural disasters, terrorist attacks, disease eruptions, and economic recessions. The external factors have a significant impact on numbers of air traffic because of increased cancellation of flights (Hanson et al., 2020). Furthermore, grounding aircraft, ban on travels, and closure of borders are much experienced in the yields and lower load factors for airlines. On the other hand, airports suffer losses in non-aeronautical revenues.

Before the eruption of the coronavirus, the most significant impact experience in air traffic was as a result of the SARS disease outbreak in 2003. SARS virus eruption was at its peak in May 2003 and resulted in declined monthly passenger revenue in Asia- Pacific airlines by 35%. Covid-19 impact on airlines has gone beyond the effect levels of the SARS virus. The previous outbreak of diseases peaked after three months. Air traffic recovery during past disease crises was estimated to six or seven month period. For example, there an eruption of Middle East Respiratory Syndrome (MERS) in 2015.

Figure 1: comparison between Covid-19 and other disease outbreaks in the airline industry.

Coronavirus has recently pushed the aviation industry into the cutting edge because of the increased number of confirmed cases globally. After March 2020, international revenues from passengers would have declined by 98% because of severe government restrictions and advisories. Many airlines have halted their operations because of temporary travel prohibitions, closure of borders, and quarantine for arriving passengers. Unfortunately, the pattern of recovery for covid-19 is observed to be slower than that of the SARS virus in 2003

Figure 2: Comparison between Covid-19 and SARS virus outbreak recovery pattern

The different recovery patterns between the SARS and Covid-19 is mainly because of the quick spread of covid-19 globally. Predictions done by the Airports Council International indicate that the coronavirus could bring down passenger traffic by two-fifths and airport revenues by half in 2020. Estimates done by the International Civil Aviation Organization (ICAO) indicate that there will be airline seats’ degradation by about 47% to 58%. ICAO further estimates a reduction of about 503 to 607 million passengers. The decline in passenger numbers could cause a potential loss in airline revenue of more than 100 billion US. Dollars. The International Air Transport Association (IATA) forecasts a general decline of Revenue-Passenger Kilometres (RPKs) of 48%. IATA further predicts a reduction of about 55% in passenger revenue for 2020.

Many consultancy companies have developed other predictions for recovery of the aviation industry from covid-19 virus effects. For instance, Boston Consulting Group identified five recovery situations, with a reclamation period of between 3 and 18 months. Typically, observations of predictions in the aviation industry have been viewed with some disbelief. However, the breadth and speed of covid-19 impact have led to the creation of new uncertainty levels concerning the future. Previous academic contributions related to the effects of covid-19 on aeronautics business connect global propagation of the virus and airline networks. The theoretical approaches are similar to earlier research done in 2003 regarding the SARS virus. Scholars emphasize that a combination of social distancing measures with travel bans could effectively curb the spread of the virus. Other scholars integrated epidemiological prototypes with the airline network’s structure as a method of controlling the outbreak of infectious diseases globally. Other researchers focused on the incorporation of data from air travel as a means of estimating the size of the disease outbreak in the country.

The preventive measures and travel bans imposed in the United Arab Emirates (UAE) are to curb the spread of covid-19. In the UAE region, travel between Abu Dhabi and other parts is restricted because of the covid-19 outbreak.  Emirates Airlines began mass testing of passengers against the covid-19 virus. The measures taken by emirates airline could cause a possible lessening of the containment measures and travel bans imposed in the UAE. Passenger testing by emirates airlines aims at providing covid-19 certificates for traveling to other countries. All passengers on board emirates airlines are required to wear masks throughout their flight (Sohrabi et al., 2020). UAE airline industry has been dramatically affected by the covid-19 pandemic because of an acute decrease in demand. For example, the number of people traveling to the USA has reduced by 95% after March 2020.

In this paper, an analysis of the long and medium-term covid-19 effects in the aviation industry is done. The report is based on the responses of interviews from experts in the aviation industry by focusing on the abrupt changes in cargo and passenger traffic. The structural aspects applied in the research paper include demand, supply, regulation, and business ethics. The rest of the paper discusses the methodology, data findings, and analysis, and finally, the conclusion.

2.      Methodology

Empirically, the study focusses on three primary information sources. First and foremost, data of flight supply was acquired from OAG’s (Official Airline Guide) scheduled dataset. OAG provides flight data e.g., departure and arrival times, airport names, the number of supplied seats, type of aircraft, etc. (To, 2020). Global data capacity is included for the first quarter of 2020 to enable calculation of annual changes regarding the equivalent 2019 period. Secondly, information regarding air cargo is obtained from CLIVE Data Services and covers up to March 2020. CLIVE is involved with the consolidation of shared data from international air companies and has up-to-date air cargo market figures globally. Airfreight information acquired includes weight charged, the capacity of air cargo, and factors for dynamic load.

Additionally, interviews were conducted in May and involved experts in the aviation industry.  Most of the interviewees are affiliated with European organizations because of the subject’s global scope and the spread of their international companies. The research used semi-structured interviews because they permit an interviewee to be different and unforeseen concerns. The conversations were verbal-like and emphasized on three main elements. The aspects of the verbal interview’s features included supply section long term effects, enduring behavioral change of passengers, and regulatory repercussions. The list of interviewees is given in the table below.

Table 1: Interviewees List

3.      Results and Analysis

i.                    International Impact of Covid-19 on Air Traffic

The outbreak of the covid-19 virus is characterized by quick spread geographically (Adiga et al., 2020). The first coronavirus manifestation was in Asia. The virus outbreak to other parts of the world was due to the trailed response by other regions. Widespread of the virus resulted in halting normal airline operations by drastic containment measures and travel bans. The governments’ actions led to an abrupt decline in the number of flights from March. Border closures and lockdowns dominated most Americans and the European States. As a result, the consequences of the containment measures have been experienced more in global airline markets.  Airlines’ experiences varied by carrier type. Full-service airlines mostly reduced capacity at the start if February because of global traffic exposure. Conversely, low-cost airlines decreased their supply at a later date because of their minimal comprehensive traffic coverage.

Figure 2: Comparison of International Air Traffic Market for 2019 and 2020

Coronavirus crisis has significantly improved the movement of air cargo. Protection by governments to ensure the supply of necessary essential items to its citizens has improved medical supplies and food shipments. Therefore, although there was a decline in the weight of air cargo in the Asia Pacific earlier, there is a fractional V-shaped pattern of recovery currently. However, from March, air cargo weight significantly reduced in the Middle East, North America, and Europe. All of the experts interviewed agreed supply consolidation trend will be helpful in the phase of recovery. One of the respondents expressed concerns about safeguarding a playing-field level after a prediction of state aid to principal airlines. However, most respondents believed that state aid to airlines could lead to the creation of fears and anxieties. The first concern expressed by the interviewees was that there could be an extension of state support to the airline market even after the disappearance of the Covid-19 outbreak. Secondly, the interviewees were concerned that in the absence of standard European policy, state aid could take different procedures in various countries. Thirdly, some respondents feared the consequences of governments’ acquisition of shares in the airlines, thus influencing the company’s management.

The respondents predicted that full-service airlines would suffer the most in the long and medium-term. Various perspectives supported the interviewees’ views. First and foremost, there were low levels of traffic, and gradual recovery across the airline industry could decongest significant hubs in the European region. Decongestion could result in smoother low-cost airline operations, therefore, scaring dominant centers in the European area.  Short-haul flights’ increased competition could also potentially destroy the full-service airlines’ capacity and feed into profitable long-haul routes. Secondly, the interviewees’ opinions regarding governmental restrictions and travel bans were that international flights would be the last to resume depending on different countries. Some respondents believed that sixth-freedom airlines would be strongly affected by the covid-19 situation.

The respondents also anticipate that full-service airlines would adjust to the covid-19 situation by fleets’ down-gauging through the elimination of big and old aircraft. Full-service airlines may use airplanes with narrow bodies for long-haul routes. Full-service network carriers may also engage regional airlines to become hub feeders for shorter-haul ways. Local air companies would greatly benefit as hub-feeders because of increased activity during the period of recovery. Regional network carriers may profit from governments’ increased Public Service Obligations applications across large route numbers if the demand recovery is fragile. The respondents’ views regarding low-cost airlines were that they would concentrate more on larger businesses and probably migrate their operations into large hub airports. Other interviewees suggested that decreased demand and congestion would cause low-cost airlines to fall into everyday movement on large cities in the European region.  High daily city movement was utilized as a strategy for cancellations and delays internalization, which would be irrelevant in novel situations.

ii.                  Aviation Industry Insights

Direct concerns for the covid-19 virus spread measures were regulation of slots making airlines fly vacant to ensure space maintenance for the next season. The near-term worry was fixed through slot laws’ suspension by the EU from March to October 2020. Nonetheless, the virus spread, and expansion has resulted in other elements of regulation. For example, social distancing rule implementation in the cabin of airliners would be impractical from a business perspective. The social distancing rule would be unworkable because of lowered load factors by 50%—the respondents’ perceived airliners policy of leaving the middle seat vacant as selling satisfaction to customers. Empty middle seats would facilitate elevated revenues for airliners rather than a social distancing measure.

The senior aviation industry experts concurred that the European Commission would uphold EU Green Deal and EU ETS. Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) would calculate the baseline emission with the current drop in airline activity. Some respondents pointed out the benefits of state support in imposing the green environment. For example, Air France’s bailout would include domestic flights’, with a rail alternative and without connecting traffic contribution, reduction by below 2.5h. Other respondents’ opinions were that there could be justification in foreign airline ownership relaxation because of increased pressure on the network carriers. Relaxation of the regulations would enable operations of current airlines in various jurisdictions. Additionally, the respondents suggested that continued deregulation could be beneficial in international flights’ and countrywide economies’ increase.

iii.                Key Uncertainties

The main unknown is in the development of air cargo in the future. Some respondents considered e-commerce as an essential feature in the acceleration of air cargo orientation during the covid-19 pandemic. Integrated specific cargo airlines would be the most beneficial, even after the covid-19 epidemic. Increased regionalization as a result of supply chains’ re-orientation might divert cargo transport from air to road in some businesses.

iv.                Aviation Industry Transformation Opportunities

Some respondents consider the current covid-19 pandemic as an opportunity for changes in the elements of ethics in the airlines’ industry. The experts confirmed that the coronavirus pandemic could realign activities in the industry, which are consistent with broader social aims. For example, the participation of air freight has facilitated vegetables and fruit consumption in countries with high income.  Long-haul air services could change costs in the future. Varying costs could result in air cargo services’ planning following sustainable development of the economy.

4.      Conclusions

The research was conducted to comprehend the Covid-29 effects in the aviation business. The study has provided data and analysis of airlines basing in demand for air cargo and air-seat capacity for the first quarter of 2020. Limitations in the research methodology included bias in the geographical framework. The study mainly focused on aviation organizations in the European region. Data mitigation from the interviews was due to the respondents’ scope and knowledge of some of their companies. The respondents’ names were not revealed because of free opinion expression encouragement. The interviews used in the research were semi-structured because they could permit the respondents to add new and unforeseen issues to the investigation. The data findings were from experts’ views regarding the long and short-term effects of the covid-19 virus pandemic. Results from the interviews indicate enduring repercussions in the aviation industry.

The respondents predicted consolidation and decreased the aviation industry as a result of the covid-19 crisis. Secondly, the respondents were also concerned about the possible effects of state support to bail out airlines from the covid-19 impact. Thirdly, full-service airlines would actively loose because of slower global trade recovery and new competitors in their domestic market. European regional network carriers were viewed to be the probable short-term winners during the covid-19 reclamation period. Local network carriers could assist full-service airlines through adjustment of their feeding volume. Lastly, low-cost airlines were expected to focus on hub airports’ primary markets. The interview findings also revealed that European states are too small for airline sustainability. The respondents also identified key transformation opportunities in the aviation industry to promote business ethics.

References

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