Impact of Covid-19 on Global Civil Aviation Industry
The novel coronavirus disease (COVID-19) has affected millions of people in at least 185 countries and has pushed the world economy into a state of recession. Businesses and industrial sectors all around the globe have been affected due to the sudden and magnified contraction of global trade on account of stringent restrictions imposed by many countries to contain the spread of COVID-19. Such restrictions have assumed various forms, notable among them being severe lockdown measures across populations, stoppage of economic activities, suspension of air travel and cargo movements and ban on global trade, amongst other things.
With countries suspending both international and domestic air travel as a containment measure to check the spread of COVID-19, aviation industry has nearly collapsed. As per the latest forecast of International Civil Aviation Organization, number of international air travelers could drop by 1.2 billion by September 2020 and gross operating revenues of airlines across the world could drop by as much as USD 160 to 253 billion for the period January 2020 to September 2020. This impact is not just limited to the airline industry – in terms of a decline in the number of passengers or the revenue – but can also be observably witnessed in international trade, global supply chains, logistics, investment and tourism, all of which rely heavily on the aviation industry.
According to the World Tourism Organization’s (an agency of United Nations) impact assessment of COVID-19, international tourist arrival could decline by 20% to 30% in 2020. This could translate into a potential loss ranging between USD 300 to 450 billion in international tourism receipts – about one third of USD 1.5 trillion generated globally from tourism exports (receipts and passenger transport). Civil aviation industry in Europe and Asia-Pacific are the worst affected by COVID-19, mainly because of loss of revenue from peak summer travel season in Europe and shrinking domestic civil aviation market in Asia-Pacific due to travel restriction imposed by Asian countries. Assuming that global lockdown potentially lasts until end of September 2020, Europe and Asia-Pacific can see decline of passenger revenue to the tune of USD 89 billion and USD 113 billion respectively, according to the International Air Transport Association (IATA) report.
In a bid to survive COVID-19 crisis, some airlines have taken a decision to cut jobs. UK based, British Airways has already decided to cut around 12000 jobs and Delta, a US based airline, also announced cutting 1,300 vendor jobs. Global slowdown in the civil aviation industry is taking a toll on revenue of the aircraft manufacturer such as Boeing too. Boeing has announced that it would cut 16,000 jobs after reporting a drastic drop in its revenue as a result of airlines delaying purchases and deliveries.
Governments across the world, to protect the civil aviation industry and direct and indirect jobs associated with the industry, has started bailing out cash starved airlines. France has already announced a state backed bailout package of USD 12 billion to Air France in loans and guarantees. The German government is in talks with Lufthansa, a German airline, to buy the stake in the airline to prevent it from bankruptcy. Australian government will provide Qantas and Virgin bailout package to the tune of USD 165 million to keep providing services to key domestic routes which is in addition to USD 1 billion provided earlier to Australian aviation sector. The US, which is the biggest market for domestic air travel, has also reached an understanding with major airlines in US to provide USD 25 billion as bailout.
Indian Scenario
Federation of Indian Chamber of Commerce and Industry (FICCI), which is an apex non-profit profit business organization in India, has sought a bailout package for the civil aviation industry in India. FICCI sought for direct cash support from the Indian government including interest free loans, two-year tax holiday to help the domestic civil aviation industry, deferment of term loans by up to six months and waving of aircraft insurance premium.
IATA estimates that Indian civil aviation industry will see a decline of 47% in passenger demand in 2020 as compared to 2019 which may translate into a potential loss of USD 11.2 billion in revenue for Indian airlines and also risking 2.9 million jobs in the Indian civil aviation sector. Airlines in India are sending their employees on leave without pay as their cash reserves have significantly depleted with air cargo business being the only functioning stream of revenue, which has also been impacted recently by severe disruptions in both national and global supply chains on account of the global restrictions and extended lockdowns across nations.
If reports to be believed, Indian airlines are planning to operate at one third occupancy post the lockdown, following the social distancing norms. This would mean that passengers may have to pay potentially 1.3 to 3 times more for ticket prices as airlines would need to charge more in order to compensate for loss of capacity and this in turn may also further affect the future passenger demand. Indian airlines are not only losing the current passenger revenue due to suspension of air travel, they are also losing on account of the aircrafts which are grounded due to COVID-19. As majority of the aircraft fleet of the airlines remain grounded, airlines are still paying lease rentals and simultaneously losing valuable aircraft life cycle. Indian government has not yet announced any official relief package for the distressed Indian civil aviation industry but it is in talks with various stakeholders for viable options to revive the industry.
While measures such bailouts and cutting jobs seems to be a temporary solution for a crippled global civil aviation industry, revival of the civil aviation industry will largely depend on relaxations in domestic air travel and operation of flights to select/key international destinations. Another key aspect integral for revival of global civil aviation would be to boost passenger confidence and regaining the trust of passengers. As per IATA, early signs of benefit of relaxing domestic air travel can be seen in China’s domestic aviation industry with 60% or more domestic flights taking off, a sign of return of passenger confidence. However, such measures will only be effective if passenger confidence is restored by containing the COVID-19 pandemic.