COVID-19 Impact: Airline Industry
The effects of the COVID-19 virus will be seen in the airline industry in the future. Based on current conditions and projections, passenger airlines may have smaller fleets, fly to fewer destinations, and serve fewer passengers. In the short term, airports will lose revenue, and that may continue if airlines merge or cease operations. Air cargo companies may have permanently lost share to ocean shippers, and aircraft manufacturers may be much smaller companies than they were in the recent past.
Airline Industry Market Segments
- The global aviation industry is divided into market segments: passenger airlines, cargo airlines, aircraft manufacturing companies, airport managing companies, and catering and other service companies. The segments will be affected differently in the future by the COVID-19 pandemic.
Impacts on Passenger Airlines
- Passenger airlines have been severely affected by the cancellation of flights and limitation of flights by governments. In the future, passenger airline company capacity to recover their business will be affected by the speed with which tours and traveling increase from where they currently are, which is at zero in many places. In 2020, many international and domestic flights were canceled to curb the transmission of the virus. Governments canceled the visas of foreign citizens and refused them entry. The reopening of countries to tourism may take substantial time, thus affecting airline recovery.
- Qatar Airways, Emirates, China Eastern Airlines, Lufthansa, Boeing, Airbus, American Airlines Group Inc., and Delta Air Lines are global airline carriers whose routes were affected by massive passenger and flight cancellations. Some grounded all or parts of their fleets. Some are seeking bailouts from their governments. Financial troubles have had impacts on all airline companies, and will likely continue to affect their ability to rehire employees and recover routes.
- Many airlines have had to lay off staff during the crisis, including Virgin Atlantic and United. Whether these staff can be brought back, and when, are questions that cannot be answered at this time. British Airways is proposing to lay off 12,000 people.
- Some airlines are proposing to reduce the number of flights they offer, and the number of destinations to which they fly, as cost-cutting measures.
- Temporary health protection measures including leaving middle seats vacant, requiring passengers to wear face masks, requiring crew to wear face masks, requiring temperature screenings for passengers and crew, and increasing the number and kind of cleaning regimes are some of the measures that have been discussed by various airlines.
- Some carriers may merge with others if financial pressures become too great for companies to survive on their own. Smaller carriers may be bought by larger companies and disappear. The future airline landscape may look very different from today.
- One source predicts that the effects of the pandemic on airline fares will be similar to the effects that took place following 9/11 and the Great Recession. "Following the September 11 terror attacks, airfare prices dropped 18 percent for the remainder of 2001, only for prices to rise 25 percent by 2003. Similarly, airfare prices dropped 21 percent during the Great Recession in 2008 and 2009 but saw a 24 percent increase in 2012."
- If one uses the same pattern and calculates changes using the 2019 fares as benchmarks, "Dollar Flight Club predicts a 35 percent decrease in airfare prices in 2021 and a 27 percent increase through 2025, assuming that travel resumes May 31, 2020."
- One study predicts what changes will mean for airline passengers. It suggests that "future travelers should expect to see reduced travel options, fewer flight delays and cancellations, more bag fees and miscellaneous charges and fuller and more expensive flights."
Impacts on Airports, Airport Managing Companies, and Ancillary Services
- Fewer flights and fewer passengers mean losses of revenue for airports. Airport revenues are directly linked to passenger traffic levels. The flight bans and flight cancellations seen around the world have led to fewer flights, and less revenue coming in to airports. When passenger traffic declines, "airports have limited ways of reducing costs. The cost of operating airport infrastructure remains the same, and airports can’t close down or relocate terminals and runways." Some airports may have to cease business.
- What are called "non-aeronautical revenues", such as fees for vehicle parking and space rental, are the main source of non-aeronautical income for many airports, especially in North America, where non-aeronautical income represents over 58 percent of airport gross income. The huge decline in passengers has a large impact on the airport’s and airport retailer’s income.
- The decline in passenger traffic at airports also affects the communities and all the personnel working in the various sectors and services at the airports. For example, ridesharing services and taxi drivers have few riders. Fast-food restaurants have almost no customers. Booksellers sell no books and t-shirt vendors have no buyers. The loss of personal income for the workers who are laid off from these jobs affects hundreds of thousands of families all over the world. It is impossible to predict when the jobs might return.
Air Cargo Companies
- With the decrease in airline flights, cargo shipments have been displaced and cargo companies have had to find other ways to transport their freight to destinations. The price of air cargo has increased since the beginning of the pandemic affected flights.
- Globally it has become a problem for many air freight shippers. The airlines have canceled or reduced their flights. This has had a substantial impact on air freight movement and available capacity.
- "Around 40 percent of annual global air cargo is typically transported in the bellyhold of passenger aircraft — contributing to the capacity pinch, with the vast majority currently grounded."
- Some airlines have been using their empty passenger planes to carry freight. These include Delta, Qatar Airways and Cathay Pacific. "These passenger aircraft are not only being operated by their respective airliners but are also being chartered by freight forwarders to boost their capacity." However, capacity is still not sufficient.
- In the future, airline cargo carriers that have lost freight contracts or relationships with shippers may have difficulty re-establishing their business.
Aircraft Manufacturing Companies
- In the future, aircraft manufacturing companies may have fewer employees, fulfill fewer contracts, and build fewer planes. Announcements from Boeing, GE Aviation, and Airbus indicated they were downsizing.
- A major company, Boeing, announced recently that it was reducing the number of planes that would be manufactured. "In a letter to employees, Boeing president and CEO David Calhoun revealed that the production rate for its 787 aircraft will be reduced to 10 per month in 2020 and to seven per month by 2022, with the combined 777/777X production rate also dropping to three per month in 2021. Production rates for its 767 and 747 aircraft will remain unchanged." This drop in production will result in a 10 percent reduction in Boeing's workforce. The company will use a combination of voluntary and involuntary layoffs and natural turnover to reduce the number of employees.
- Boeing also received a partial cancellation of an order from United Airlines. T United Airlines told Boeing that "it will be taking less than half of the new 737 MAX jets it originally ordered."
- GE Aviation has announced additional voluntary and involuntary layoffs that will see its 52,000 employees reduced by 25 percent as the company reduces its expenses by $1 billion this year, according to "company CEO David Joyce ... in a letter to employees dated May 4. The plans, said Joyce, include $2 billion in 'cash actions' in 2020 and follow a 'comprehensive strategy' ... to re-size the business to match its forecast for the commercial aviation market."
- Airbus announced that it won't know "the full short- to medium-term impact of the Covid-19 crisis until June." The European company suggested to reporters that it will likely "defer decisions on steps to right-size the business for another two or three months to allow more time to reassess the situation of its airline customers and also to get more complete guidance from governments on steps to ease lockdown restrictions."