The Effects Of COVID-19 On Aviation

COVID-19 has put a strain on the livelihood and income streams of individuals and corporations alike. Most companies have been forced to declare bankruptcy as they could not discharge all of their debts as at when due.

Aviation is a huge industry. It covers everything about air travel. In the last century, Aviation has grown beyond more than transporting people from one place to another. It evolved into an industry that rakes in billions of dollars in revenue for various governments annually.

In this article, we would be examining the effects of COVID-19 on Aviation. We all know that the pandemic brought an economic standstill in different parts of the world and unanticipated shifts in various sectors. How has the pandemic affected Aviation?

Flight Statistics

Since the official declaration of the worldwide pandemic, and the stay at home order issued by the government officials of various countries, the Aviation industry has suffered huge losses, with the Asia-Pacific region taking the worst hit. Hong Kong was among the first countries to discontinue international flights as the pandemic elongated into months and couldn't be contained; other countries soon followed suit.

As the lockdown continued, the following ensued:

Airline Corporations were witnessing massive cancellation of flights. The International Air Transport Association (IATA) has recorded the cancellation of over 4.5million flights during this pandemic. As travel restrictions were placed on most airlines, passengers began to cancel flights that they already booked.

Aviation regulations have ensured that Airline corporations have to refund cancelled flights. So, this became a dilemma for most Airline corporations. Because they were mandated to refund cancelled flights, they were losing cash. Now, most of these Airlines circumvented this regulation by presenting vouchers to the passengers that cancelled their flights instead of refunding them. Some of them even had those vouchers extend as far as March 2022. To comply with the regulations.

Most Airlines travelled with empty cabins or scant passengers manifest. The lockdown didn't go into effect worldwide at the same time. Countries only began to enforce the lockdown when they could not control or contain the spread of the virus. So, most airlines had to convey little or no passenger at times when travelling between different air spaces. As the influx of passengers became too low to keep most of these corporations afloat, they began to cease operations.

In 2020, it is estimated that the Aviation industry will see a 50 – 52% drop in seat capacity and a reduction of almost 3 billion passengers flown. Some countries have recorded as low as -83% in the number of passengers flown.

Cargo

The price of cargo transport has tripled by April 2020. As of October 2020, the air freight rate between North America and Hong Kong 5.66USD/Kg. As passenger flights were cancelled, the cost of sending cargo by air changed rapidly. The lockdown became so strict that only the transport of essential services is allowed in some countries. This added to the hike in the price of cargo transport during the COVID-19 pandemic.

Impact on Airline Manufacturers

This is also an important aspect of Aviation. Airline manufacturers have had to bring their production to a complete stop. As the crisis of the pandemic continued, orders were being cancelled.

The Boeing Company, who just waded out of troubled waters with the Boeing 737 MAX failures, involving a lot of lawsuits and compensations here and there were most affected. As they had to stop production during the pandemic period, it is indicated that some orders might have to be rejected because of the huge production costs that it presents.

The Airlines manufacturer already plans on cutting about 16,000 workers. They have seen as much as 209 cancellations in orders in April alone. The British manufacturer Rolls Royce that specializes in the production of jet engines, is also not left out as they plan to cut about 17% of their workforce to maintain operational status.

Impact on Airline Corporations

The air transport industry supports approximately 65.5 million jobs globally. It provides 10.2 million direct jobs. Airlines, air navigation service providers, and airports directly employ about 3.5 million people. Airline corporations have not been left out in the Job cuts either. To keep costs as low as possible in the face of the Covid-19 crisis, airlines are forced to drastically reduce their workforce.

According to IATA estimates, 25 million jobs in the aviation sector (airlines, airports, manufacturers, subcontractors, service, etc.) are threatened worldwide, including 11.2 million jobs in the Asia-Pacific region. British Airways plans to cut 12,000 jobs or a third of its total workforce. For Air Canada, redundancy is likely to affect 50 to 60% of the workforce. The layoffs will reach 20,000 jobs out of a total of 38,000. On its part, Air France intends to lay off 15 to 20% of its employees. It has also predicted that the industry losses will plunge to $118.5 billion in 2020 and $38.7 billion in 2021. The estimates which were deeper than the previous predictions.

As a result of the pandemic, many Airline Corporations find themselves unable to honour their financial deadlines, thus declaring themselves bankrupt. This is the case of Virgin Australia who announced at the end of April that it would voluntarily discontinue payment.

British Airways was tagged "a national disgrace" in the UK as they believed the carrier was just using COVID-19 as a cover-up to actualise its hidden plans after announcing pay-cuts, compulsory leaves and lay-off of about 16,000 workers due to the impact of COVID-19.

Latam, the largest airline in Latin America with 41 000 employees, declared bankruptcy on 26 May 2020.

Aeromexico, another major carrier in Latin America filed for bankruptcy in late June.

In May, Air Canada announced it will lay off 20,000 out of 38,000 employees.

Other corporations, and not the least renowned, owe their survival only to the intervention of their respective regulatory authority:

Alitalia will be nationalized for 3.3 billion USD.

Emirates Airline also announced an unpaid leave to all categories of staff.

Air France-KLM is not exceptional as the industry continues to struggle through the effect of the pandemic. The European giant is set to receive another bailout of €6BN bailout from French and Dutch governments after Air France had received 7.7 billion USD in loans, including 3 billion USD from the French government and Dutch KLM also received a governmental bailout worth 4.4 billion USD.

Lufthansa is in talks with the German state over a bailout plan amounting to 10 billion USD, subject to the granting of a stake to the public authorities in the company's capital.

South African Airways issues became compounded when it grounded all its planes during the lockdown and yet to come back as the SA government has been reluctant to release any bailout to the carrier which has not made any profit for a decade and unable to settle the outstanding loans.

Across the Atlantic, a package worth 50 billion USD is allocated to struggling airliners.

On the global scale, the total sums of bailout plans requested by airliners amount to 200 billion USD.

It is imperative to note that for an industry of such sheer scale and economic strength, profits are razor-thin, and most airlines struggle to break even consistently. With extraordinary consequences, many airlines have grounded all, or all, of the planes in their fleet. The downturn scale for airlines became apparent when airlines began to seek government bailouts and some filing for bankruptcy.

Impact on Aircraft Storage

Charter flight is most common among businessmen and people with sporadic schedules. Majority of these personally owned aircraft populate the aircraft storage space as they do not see much usage as public airliners. But with the advent of the pandemic, the number of planes grounded has risen to an alarming rate.

As at January, only 3,217 planes in 30,000 planes were grounded, but in April, the number of grounded planes requiring storage space increased to 16,707. Some used runways are being converted into storage spaces for these grounded planes.

Impact on Airline Revenue

Critical analysis of the situation has shown that airline passenger revenue can fall by as much as 419 Billion dollars. On 5 March 2020, the International Air Transport Association estimated that the airline industry could lose between US$63 to 113 billion of revenues due to the reduced number of passengers. IATA had previously estimated revenue losses of around US$30 billion two weeks before their 5 March estimate.

By 17 March, IATA had stated that its 5 March estimate was "outdated" and that airlines would require $200 billion in bailouts to survive the crisis. IATA further revised their revenue loss estimate on 24 March to be $252 billion globally, a 44 per cent drop. Another further estimate was published on 14 April, which forecasted a revenue drop to $314 billion (55 per cent) and a traffic drop of 48 per cent in passenger count for 2020. All these and others have made IATA predicted that the aviation recovering may take up to 2024.