The aviation sector contributes to an estimated 4% of global GDP, employing over 65 million people worldwide. However, with the pandemic-induced travel restrictions, the international air travel industry came to a near standstill. Following lockdown announcements around the world, there was a brief flurry of repatriation flights. Some 39,200 special flights were flown to repatriate 5.4 million people.
Soon after, there was unprecedented job losses in the aviation sector – accounting for about a 43% fall in direct aviation jobs. These spanned roles in airports, aircraft manufacturing facilities, airline companies and air traffic management.
Airline industry metrics pre-pandemic
If 2020 had not witnessed COVID-19, there would have been over 40 million commercial flights ferrying 4.7 billion passengers and 65 million tons of air cargo.
The International Air Transport Association (IATA) had put out a positive forecast in 2019 with industry revenues expected to register $872 billion in 2020. This would have meant a 4% gain over 2019 levels. A corresponding 4% increase was also expected in passenger numbers in 2020 after slowing growth levels were posted in 2018 and 2019.
Likewise, the aircraft manufacturing sector had also maintained a bullish outlook for 2020. Boeing, for instance, was planning a sizeable ramp up in production. An early-2019 report highlighted that “Boeing has announced its intention to boost production of its 737 MAX by nearly 10% to 57 per month in 2019 and has said it is studying ways to increase the monthly rate to between 63 and 70 in 2020.”
International business air travel— the most lucrative segment for airlines—was expected to register robust gains in 2020. In case of short-haul regional connections, business class fares were expected to increase by 2%. While only 12% of all passengers are business class travellers, they account for as much as 75% of total profits. 2020 seemed to hold great promise, and then the pandemic struck.
Domestic travel picks up
In a positive turn of events, domestic air travel has rebounded in most countries globally. In the US, domestic air traffic volumes have eclipsed forecasts. For an industry that was forced to adopt a ‘wait-and-see’ approach for almost a year and a half, it was a welcome change. In July 2021, consumer spending on airlines was—for a while—even higher than July 2019 levels. Ticket prices too have seen a strong rebound. Despite the looming threat of COVID-19’s Delta variant, pandemic weary travellers seem eager to follow through on long deferred travel plans.
Given the high levels of consumer confidence, airlines are also looking to hire once again. However, in the absence of international travellers, airlines with both domestic and international operations are toeing the line carefully. US based United Airlines, for example, would earlier fly numerous passengers from smaller regional airports to international hub airports. It has now opted to fly alternative routes since most countries still have international travel restrictions in place.
And these restrictions have meant a continuing grim scenario for Singapore – otherwise an aviation powerhouse. In a bid to generate revenues, state owned Singapore Airlines initiated a novel idea; it began offering ‘flights to nowhere’. These were three-hour flights that would take-off and land in the city-state’s Changi airport. However, they were discontinued after drawing flak from environmental campaigners.
Air cargo can fuel an aviation bounce back
While there is still uncertainty over when international air travel will be able to resume fully, not all seems dull and grey. Total revenues for the aviation sector in 2021 is expected to total $458 billion. Although this figure only represents 55% of the $838 billion generated in 2019, it is still a healthy 23% gain on the $372 billion generated in 2020.
Meanwhile, the IATA highlights that passenger revenues—in the current year—will total $231 billion, a noteworthy increase from last year’s $189 billion. However, it is still significantly below 2019 levels when it clocked $607 billion.
The shortfall in passenger revenues will be somewhat offset by a strong uptick in cargo revenues. This segment is on track to register $152 billion – an all-time high. This is up from $128 billion in 2020 and a significant 50% increase from $101 billion registered in 2019. The air cargo market showed steady growth amid the pandemic as demand picked up for essential goods and medical supplies.
In fact, many airlines were able to adapt quickly to the abrupt fall in passenger demand. They responded by reconfiguring their aircraft to ferry cargo across borders. Almost 46,400 special cargo flights were commissioned to deliver 1.5 million tonnes of cargo worldwide. These shipments were mostly medical supplies.
Over the pandemic’s course, cargo flights proved to be the silver lining for airlines globally. In fact, cargo volumes displaced passenger revenues by a wide margin – a trend expected to continue on international routes in 2021. There is further growth expected in demand for air cargo services, with forecasts suggesting as much as a 13.1% increment from 2020 levels, reaching 63.1 million tonnes. This will see air cargo volumes almost match 2018 levels.
Tech is helpful but cannot replace business travel
The lucrative business travel segment is probably going to witness a paradigm shift. There will likely be a marked change in business travel trends, with virtual meetings resulting in lasting changes. Therefore, in an added woe for airlines, the losses from travel bans will be compounded by this behavioural change.
While there is no doubt that face-to-face meetings will still be necessary, their frequency will be limited. For instance, the majority of board members’ meetings can take place electronically, with physical meetings being needed only a few times annually. This will imply sizeable savings for the concerned organisations but translate into foregone revenues for airlines.
As economies begin to recover, higher tech uptake and the now prevalent work-from-home regimen will reduce demand for business travel. According to a KPMG report, there could be an over 40% reduction in business travel demand since workers, and business travellers, have become accustomed to working remotely, or working in hybrid settings. Since there will be a strong focus to make up for lost revenues and corresponding profits, businesses will want to operate in a lean way. And aviation sector stakeholders will, therefore, have to re-strategise to maintain their viability in a post-pandemic world.
Airports, for instance, can prioritise further innovations that help lower costs. Emerging tech options such as artificial intelligence, virtual reality and Internet of Things must be explored to offer higher service levels at lower input costs. In addition, renewable sources of energy must be tapped into while adhering to building codes that promote energy conservation. Contactless check-in processes, RFID bag-tags and paperless immigration protocols can make regular airport procedures more efficient. Higher levels of tech adoption will also reduce the need for large passenger concourses and check-in areas. The saved real estate can then be monetised by offering retail or advertising options.
However, much as tech enabled conveniences have allowed for work to continue unaffected across many industries, there is agreement among a large share of business leaders that business travel is directly related to their organisations’ growth. According to the 2021 State of Corporate Travel & Expense report by Skift, 88% of business travellers said “Business travel is important for driving my company’s growth”. In simple terms, despite the availability of tech alternatives, the overarching sentiment remains that corporate travel is vital for long-term business success.
The report adds, “Fortunately, the industry is already starting to see organisations and travellers take to the skies, rails, and roads to build relationships, close deals, and spur recovery and growth.”
The airline industry has always bounced back
COVID-19 delivered a massive blow to the aviation sector, although this was not the first such debacle. But going by past crises when airline travel was impacted, there are two common themes that emerge. First, it was always business travel that took the longest to recover. And second, the aviation sector has always bounced back.
Following the 9/11 attacks, airline revenues dropped by an estimated $19.6 billion. This was a direct fallout of a drop in passenger confidence levels. However, in a bid to remedy the state of affairs, strong security measures were put in place to restore confidence in air travel. Business travel, meanwhile, took four years to recover to pre-9/11 levels.
Prior to COVID-19, the SARS outbreak was another health emergency that disrupted global air traffic. There was an estimated 35% drop in revenue passenger kilometres for airlines in the Asia-Pacific, in comparison with pre-SARS levels. However, international passenger traffic in this case took only nine months to recover.
When the 2008 Global Financial Crisis struck, airline travel was impacted but it bounced back as economies recovered. The then IATA Director General and CEO, Giovanni Bisignani, said the global economic crisis had “cost the industry two years of growth”. Passenger volumes, in this instance too, recovered within four years.
COVID-19 has been the most severe disruptor to air travel. The drop in passenger demand was abrupt and the sharpest the industry has ever seen since record keeping began. However, past downturns indicate the aviation sector has always bounced back stronger. It is clear that it will take longer this time, but it will take to the sky.