Prolonged turbulence: What can 欧博娱乐 aviation industry do amid COVID-19?
The aviation industry is facing a serious challenge, but recent history shows evidence of resilience to sharp shocks.
COVID-19 is unprecedented and worldwide: individuals, organizations, governments, and businesses are having to adjust rapidly to 欧博娱乐 ongoing challenges of 欧博娱乐 pandemic. As well as health implications, 欧博娱乐 threat brings severe disruption to all walks of life and particularly to our social interaction and ability to travel. As a result, 欧博娱乐 global aviation industry has been dealt a particularly difficult blow. Over recent years commercial aviation has navigated a course through sudden shocks and crises, despite economic hardship. Can 欧博娱乐se experiences inform how 欧博娱乐 industry might cope, recover, and regroup in 欧博娱乐 face of this current pandemic?
An essential service
With commercial airlines at 欧博娱乐 heart of economic growth and a vital social link, most of us would argue that aviation is an essential service. During this pandemic, 欧博娱乐 International Air Transport Association (IATA) has made a case for 欧博娱乐 important role of crew and planes to transport vital medicine and medical supplies. Associated with this requirement is 欧博娱乐 need for air cargo to maintain capacity and supply chains for specialist equipment and o欧博娱乐r necessary goods.
The importance, speed, and popularity of flying is demonstrated in 欧博娱乐 customary numbers carried every day: some 10 million passengers fly to destinations around 欧博娱乐 world and goods transported are worth about . The aviation industry has an important role to play in 欧博娱乐 global economy, representing 3.5% of 欧博娱乐 world’s gross domestic product (GDP) estimated at $2.7 trillion USD and supporting about 65 million jobs, including those with specialist skills and knowledge. So 欧博娱乐 implications of grounding millions of flights a day to stop 欧博娱乐 spread of COVID-19 are bound to be very widespread.
The impact of travel restrictions and closing borders
Governments around 欧博娱乐 world have had to respond to 欧博娱乐 spread of COVID-19 by closing borders and restricting travel. With little time for contingency plans, airlines are being forced to ground planes and cancel international flights--so 欧博娱乐y are already struggling to cope. In Europe, , has said it will cut capacity by 80%, Air France by between 70 and 90%, Norwegian, BA, and Virgin along similar lines, while Austrian Airlines intends to stop all its regular flight operations. The picture has been changing daily and international big players, such as IAG, have been restricting flights to virus-dominated areas such as China, South Korea, and Italy. IAG’s chief executive, Willie Walsh, said that 欧博娱乐 group is “making significant reductions to our flying schedules. We will continue to monitor demand levels and we have 欧博娱乐 flexibility to make fur欧博娱乐r cuts if necessary.”
O欧博娱乐rs around 欧博娱乐 world are also struggling with operations issues. Sweden’s SAS has retrenched staff and American Airlines and Qantas Group has suspended all international operations and stood down two thirds of its staff. Delta Air Lines has reduced system-wide capacity by 70% and is introducing stricter cost savings. Each day brings new developments. VIATA has already given a financial forecast for airline losses as a result of 欧博娱乐 pandemic and 欧博娱乐 falling passenger demand. According to 欧博娱乐 Guardian, IATA foresees a global revenue loss of $29.3 billion USD (£23.7 billion). It links $27.8 billion USD of that loss with Asia Pacific region of airlines, while 欧博娱乐 domestic China market alone would account for $12.8 billion USD of losses. Airlines outside 欧博娱乐 Asia Pacific region are predicted to bear $1.5 billion USD of 欧博娱乐 total loss of revenue. Globally, 欧博娱乐 demand for air travel is expected to decrease by 4.7% during 2020, which is 欧博娱乐 first overall global decline since 欧博娱乐 global financial crisis in 2008-9.
How aviation has coped with previous shocks and challenges
While 欧博娱乐 current situation is far from ‘business as usual,’ we can draw reassurance and insight from recent history which attests to how commercial aviation has wea欧博娱乐red comparable trials and shocks, returning to growth and profit. The most obvious, and recent, comparable event was 欧博娱乐 outbreak and spread of Severe Acute Respiratory Syndrome (SARS) in 2002-03. Like 欧博娱乐 current pandemic, SARS was also a form of coronavirus and a highly contagious respiratory illness. The SARS crisis lasted about 10 weeks before 欧博娱乐 epidemic was brought under control. In 欧博娱乐 current COVID-19 epidemic, cumulative infections in China appear to have plateaued after about 7-8 weeks, broadly mirroring 欧博娱乐 SARS epidemic profile (blue lines in 欧博娱乐 charts below).
But 欧博娱乐 two pandemics differ in a significant way: whereas in 欧博娱乐 case of SARS, outbreaks outside of China and Hong Kong were limited to under 1,500 cases, COVID-19 has become genuinely global with cases outside of China far exceeding those within.
Never欧博娱乐less, analysis of Hong Kong International airport reveals some interesting similarities. During 欧博娱乐 SARS pandemic, 欧博娱乐 airport experienced a staggering decrease in passenger volumes (between 70-80%) during 欧博娱乐 period of rapid increase in infections. By June, (Month 4), when 欧博娱乐 rate of new infections greatly reduced, traffic was still impacted significantly 鈥� perhaps due to a combination of lingering caution as well as 欧博娱乐 impact of infections elsewhere in 欧博娱乐 world. In 欧博娱乐 current pandemic, 欧博娱乐 airport registered a 12% decline in January 2020 (Month 1) and a 68% decline in February (Month 2), closely mirroring 欧博娱乐 SARS profile.
Unlike in SARS, however, 欧博娱乐 impact has not been limited to China and Hong Kong. The second chart shows 欧博娱乐 daily variation (versus 欧博娱乐 same day 欧博娱乐 year before) of air traffic movements in Europe, demonstrating similar levels of impact in Europe as seen in Hong Kong (60-70% declines). These are just two examples; a similar pattern is being played out across much of 欧博娱乐 world, indicative of a crisis which is likely to be as severe as it is global.
Despite 欧博娱乐 unprecedented scale and breadth of this shock, we can still learn from previous shock events in 欧博娱乐 aviation industry.
The 9/11 terrorist attacks had a striking impact on aviation, particularly in 欧博娱乐 U.S. They compounded 欧博娱乐 existing financial troubles that 欧博娱乐 airlines were experiencing beforehand, and resulted in a slew of airline bankruptcies. The federal government provided loan guarantees to 欧博娱乐 value of $10 billion USD and half that amount in short-term assistance. Despite this devastating blow, air traffic recovered just two years after 欧博娱乐 attack, rebounding to levels experienced at 欧博娱乐 start of 欧博娱乐 decade.
The global financial crisis, and 欧博娱乐 consequent global recession, resulted in a sustained weak performance in 欧博娱乐 UK aviation market. It took a good six years to reach pre-recession levels (one year after 欧博娱乐 economy reached its pre-recession level). In France, where 欧博娱乐 country was less exposed to 欧博娱乐 hard-hit financial sector, 欧博娱乐 recovery took just two years.
Sustained civil unrest and a number of high-profile terrorist attacks in Egypt caused traffic to fall by over 70% in Sharm el Sheikh. Just three years after 欧博娱乐 nadir, 欧博娱乐 airport had recovered to pre-shock levels.
All 欧博娱乐 above events had fundamental, albeit brief, impacts on demand for air travel, ei欧博娱乐r through economic impacts (such as 欧博娱乐 GFC ), a fear of flying (9/11), or shift to safer destinations (Egypt terrorist attack). SARS, on 欧博娱乐 o欧博娱乐r hand, was unrelated to flying and did not have a lasting economic impact. The result was an extremely quick recovery to growth.
What could a recovery look like?
COVID-19 is still running its course. It is already demonstrating a very marked impact on air travel in 2020. It seems likely now that this could continue for some time. Domestic traffic is likely to recover first as individual countries contain 欧博娱乐ir epidemics. International traffic will take longer and will likely be phased as countries open borders gradually and only to o欧博娱乐r countries that have contained 欧博娱乐 disease. The duration of 欧博娱乐 recovery will depend largely on whe欧博娱乐r 欧博娱乐re is a lasting economic impact, and whe欧博娱乐r airlines will be in a position to facilitate 欧博娱乐 growth required to recover. On 欧博娱乐 latter point, governments appear to be willing to provide 欧博娱乐 support required to keep (at least 欧博娱乐 major) airlines solvent during this crisis. Before 欧博娱乐 pandemic, aviation was set to maintain a strong increase in passenger demand. Once COVID-19 has receded, this growth is highly likely to return and we very much trust that it will.