86-Article Text-137-1-10-20201130
86-Article Text-137-1-10-20201130
Abstract. This paper aims to analyse the adaptation of the airline industry after the hit of
coronavirus pandemic. This virus is affecting the global economy by targeting the most
profitable industries and making them collapse. By making a qualitative analysis of the topic,
this research paper examines how the airline industry faces such a challenge. Also, it analyses
how several airline companies shut down through the huge debt that they faced and how
tourism declined sharply in all countries. This paper also examines the slow comeback which
was experienced by the airline industry. Finally, the paper proposes a set of policies to
overcome the current crisis and future setbacks.
Keywords: coronavirus, pandemic, aviation, industry, tourism, problem, qualitative
JEL Classification: G28, K2, L93
Authors:
Doaa Salman
October University for Modern Sciences and Arts, Cairo, Egypt
E-mail: [email protected]
https://orcid.org/0000-0001-8276-0959
Dina Seiam
October University for Modern Sciences and Arts, Cairo, Egypt
E-mail: [email protected]
https://orcid.org/0000-0002-0204-6753
Eman Fayaz
October University for Modern Sciences and Arts, Cairo, Egypt
E-mail: [email protected]
https://orcid.org/0000-0002-4399-0249
Citation: Salman, D., Seiam, D., & Fayaz, E. (2020). How Can the Aviation Sector Survive after COVID-
19? Virtual Economics, 3(4), 91-105. https://doi.org/10.34021/ve.2020.03.04(5)
Received: June 6, 2020. Revised: August 21, 2020. Accepted: September 26, 2020.
© Author(s) 2020. Licensed under the Creative Commons License - Attribution 4.0 International (CC BY 4.0)
1. Introduction
Viruses pose a serious threat to human health. They have caused far more deaths over the last
century than all military wars during the time. Influenza was responsible for about 100 million
deaths, most of them after the major epidemic of 1918-1919, known as the Spanish flu, as well
as the HIV which caused around 30 million deaths. In the year of 2020, there is a new virus
causing the death of thousands of people known as COVID-19. Since its first appearance in
China at the beginning of the year, the current coronavirus (Covid-19) has spread to almost
every country in the world. There has been reported infection among over 2 million people
and over 134,000 deaths (Gulland, 2020).
Such kind of viruses causes a serious damage to the society, both to health and economy. The
economy in China was the first to be shut down by the coronavirus transmission; however,
when it spread through Europe and America, countries all over the world took dramatic
measures to seek and curb it. Businesses and banks were closed and residents were restricted
to their houses. Standard economic processes were disrupted in peacetime to an unparalleled
degree, as daily life habits changed. Governments were taking steps trying to keep businesses
afloat and livelihoods from being threatened. Most analysts conclude that the economy has
already reached a recession. The global effects of the pandemic promise to be one of the worst
disruptions in decades (Bernard, 2020).
The aviation industry is currently fighting for survival and avoiding bankruptcy. This
introduction overviews the aviation industry’s strategy to cope with the current pandemic
from an economic perspective. The pandemic cleared the sky from airplanes landing them on
the ground with empty flights. This fact is the main reason behind this research analyzing the
impact of this virus on the airline industry, losing billions of dollars of global revenues, and this
impact was expected to continue growing if the virus is not controlled.
Many airlines cut capacity and took emergency measures to cut costs. Governments need to
take notice as airlines are making every effort to stay afloat as they perform the vital task of
linking the economies of the world. As governments targets to stimulus measures via
consideration for tax relief, charges and slot allocation will be required for the airline industry,
if not, it is expected to file bankruptcy which is not favorable for the country's economy since
most airlines are currently striving desperately to preserve cash and many are asking or forcing
staff to take unpaid leave, in addition to cutting flights.
The research is divided into different sections as we start with a literature review that
discusses three points: first is the pandemic, second is an externality, and the third point is the
types of externality. Then, we could see how different countries are affected by airlines like
Flybe, Trans States Airlines, and Compass airlines. Moreover, the effect on tourism will be
elaborated. Eventually, the research is ended with future expectations of what may happen in
the airline industry after the end of the pandemic.
Pandemic is a disease outbreak that has spread through a wide area, such as several countries,
or across the globe. Externality applies to a loss or benefit (spill-out) paid or earned by a third
party. The third-party, however, does not influence the development of the expense or
benefit. Externality may be either positive or negative and may result either from the
manufacture or consumption of a good or service. Breakdowns are the subject of a broad
analysis outside of any financial activity. Besides, externalities emerge from the decisions that
individuals and firms make in civil society and on the markets. Economic measures, such as
disease prevention, can create externalities and unexpected effects (Fisman & Laupland,
2009).
The disease is a pandemic and can affect the economies of the country due to its widespread.
Besides, we can see that the COVID-19 is causing different externalities from a pandemic;
these externalities can be either positive or negative. The negative externalities that can be
illustrated by panic buying in supermarkets, people after knowing the dangers of the virus they
rushed to the supermarkets and emptied its shelves like toilet papers, essential goods, masks,
and hand sanitizers without giving other people chances to purchase, and that can lead to an
increase in the commodity prices. The panic buying is irrational because buying more and
more will not solve the panic. Panic purchasing during the crisis can push costs up and get
essential commodities out of people's hands that need them most (e.g. health workers' face
masks) (Lufkin, 2020). Another negative externality is the macroeconomic fall-out since there
is a lock-down: factories are unable to produce, which caused many individuals to lose their
jobs, or cut-out their incomes since there is no productivity. Here the country faces different
problems which will result in the rise in government debts and cause tax burden on companies
in the future. Also, social behaviors that spread infection is a negative externality, when
citizens don't follow the guidelines of preventing the spread of the disease like social
distancing, wearing masks, washing hands, etc. that causes an increase in the number of cases.
On the other hand, there are positive externalities like the decline in pollution due to the
lockdown: the factories, schools, malls are closed, so output slowed down company
operations and limited transportation that result in lower C0 2 and N02 emissions and cleaner
oceans. China is one of the most polluted countries, yet current satellite images indicate a
drastic decrease in pollution rates in China, also NASA maps display a drop in nitrogen dioxide
(NO2) levels relative to the first 2 months of 2019 (Okyere et al., 2020). Moreover, in Italy, the
canal water in Venice became clean, first in a very long time, and dolphins started showing up.
An additional positive externality is the development of technology as a result of social
distancing at schools and universities around the country.
Good health and quality of life are perceived to be a global and jointly associated life
commodity, which ensures that economic and health growth interrelates into a fundamental
driver for sustainable economic development. Several researchers have demonstrated that
building a healthy community is a permanent benefit for the growth of society and economic
growth. Several related studies have been undertaken over recent years by different
academics to draw public and private sector’s attention to the effect of health care and climate
on economic growth and whether the government can achieve sustained economic growth
mainly during the times of health crisis (Alhassan et al., 2020). Due to Covid-19, countries face
a decline in economic growth, but what differentiates one country from another is the health
expenditure. When the nation has advanced health care, it will be able to control the disease
more than a country that doesn’t have one.
Tourism is also one of the main aspects that control the economic growth. The top four
countries that are reliant on tourism are Mexico, Spain, Italy and Turkey. Tourism is one of the
world's biggest businesses and one of economic activity's fastest growing industries. Several
studies have shown the long-term impact of economic development on tourism, also
numerous developing nations view tourism as a big part of economic growth and sustainability
policies, as a source of limited financial services, employment, foreign currency profits and
technological aid (Akan et al., 2007).
3. Research Methodology
This study is an exploratory conclusive research design since there are cause and effect
relations that seek to achieve better understanding of COVID-19's current situation in the
aviation industry to reveal new concepts and perspectives. A more detailed understanding of
certain areas of the topic has been demonstrated. This article relies on qualitative proof
regarding conclusions and the usage of secondary data derived from prior scientific articles.
Contribution of the travel and tourism sector in the direct GDP growth rate is 10.2%, which
represents USD 7.6 trillion. For instance, during one year the GDP for travel and tourism
increased from 3.1% in 2016 to 3.85% in 2017. This sector during 2016 provided 292 million
equivalent jobs. Moreover, 6.6% of total world exports and almost 30 % of total world exports
of services are represented by this sector (UNWTO, 2020). However, the COVID-19 outbreak
has had a negative influence on the aviation sector in many respects. The demand for travel
to Asia from the rest of the world plunged almost as soon as the news of the virus became
viral in late January. Just before conservation across the globe was implemented, airlines
began dramatically cutting flights to China, and other Asian destinations as COVID-19-related
fears and worries led travelers to avoid traveling to the area. However, it became clear within
weeks that routes to Asia were not the only flights to deal with lower demands. When the
epidemic extended to Europe, followed by America and Africa, demand for travelers plunged
worldwide. One was doubting trips away from home and sought to prevent anything requiring
air travel, despite the space given between each seat, people found it risky to fly (Business
Insider, 2020).
In December 2019, after the United States and the United Kingdom, China was considered the
world's third-largest aviation market, but four weeks after the beginning of the January 2020
outbreak, China's ranking fell to 25th place. The coronavirus undoubtedly had a significant
effect on airline activities, thus, on global aviation supply and demand, with many flights
canceled either by the airline itself or as a result of the authorities shutting airports or roads
(Mhalla, 2020).
16
14
Scheduled Sears (Millions)
12
10
0
20-Jan 27-Jan 03-Feb 10-Feb 17-Feb
Domestic International
Figure 1. The Number of International and Domestic Seats Operated within and from China.
Source: OAG schedules analyzer, 2020.
The above figure shows the number of weekly international seats that operated from China
has fallen to 1.7 million seats, which is an 80% reduction. While the domestic Chinese market
saw 10.4 million fewer seats operated.
According to the Official Airline Guide (OAG), a global source of travel information, the top
three Asian countries that have been greatly affected by the coronavirus outbreak are Japan,
the first market for Chinese travelers to record a decrease in scheduled airline ability of more
than 200,000 seats a week relative to the week of 20 January, a decline of 74.6 percent in four
weeks. Thailand is the second as a country that greatly benefits Chinese travelers, particularly
tourists visiting the country, reported a drop in ability of more than 76% between 20 January
and 17 February, and the third is South Korea, which also reported a sharp drop of more than
69% in its airline capacity.
Other major countries have recorded, as the same source states (OAG) that there has also
been a dramatic reduction of capacity over the four weeks, including Indonesia (92 percent),
Singapore (-89 percent), Hong Kong (SAR) China (80 percent) and the USA (-86 percent). The
ban policies of some countries also did not represent explicitly such capabilities as Italy,
although the magnitude of the effect was highlighted by the direct air links to other markets
such as Hungary, Oman, and Maldives (Mhalla, 2020).
-44% to -80%
Decline in international
passengers in 2020
According to the ICAO (2020), the consequences of the COVID-19 pandemic is way larger than
the impacts observed during the SARS epidemic that was in 2003 this is because of two main
reasons: the first reason is that since 2003, China's overall air traffic weight from and to the
country has doubled, and on the other hand, the domestic flights have decreased. The second
reason is that air traffic dropped substantially ever since 70 airlines canceled their long haul
flights. The total number of Chinese carriers has been reduced by 40%. The ICAO also
illustrated that until the spread of the COVID-19 outbreak, the affected airlines expected to
increase the capacity to and from China by 9% in the first quarter of 2020 compared to the
same time-frame in 2019. However, this was not the case due to the outbreak; a decision was
made to reduce the airline capacity, in which no less than 16.4 to 19.6 million travelers would
potentially miss the call. This significant capacity reduction would lead to an overall loss of
gross revenue of $4 billion to $5billion.
The spread of the pandemic will also have a negative impact on the profitability and the cash
flows of the airlines, due to the cancellations; this could cause the airlines' massive sums of
money in terms of lost income and operating expenses and would deprive certain sectors of
the travel industry, particularly hotels and retailers (Mhalla, 2020).
The International Air Transport Association (IATA) announced that the estimated global airline
industry sales losses are predicted to hit around 250 billion US$ in 2020, up from the previous
forecast of 113 billion US$. The sharp rise in the forecast of losses comes with more and more
countries closing their borders to global airlines. In addition, IATA officials said that the
recovery of the global aviation industry is unlikely to come soon because the world has never
seen a pandemic correlate with a global recession (Bureau, 2020).
In Europe and America, regulatory laws allow airlines to refund costs when flights are
canceled, but instead, airlines have provided vouchers or travel credits, in certain cases, that
are expected to be used by the year-end. (May 2022 was extended by other airlines via
voucher window). Generally, vouchers are available if travelers change travel arrangements
due to flight alerts, residency orders, and other limitations (Schaper, 2020). In March 2020,
the British airline Flybe crashed as a result of the recent coronavirus outbreak that gave the
carrier its final blow. The airline has been failing for quite a time. The UK government
announced in January that its finances were being debated and rescreening options were
being examined, adding that the Flybe management and its shareholders were putting the
airline "on the road to recovery," but Flybe was "complemented by a coronavirus outbreak
that had a serious impact on the market in recent days," said the airline. Although Flybe was
on the verge of failure, despite big investment from a Consortium caused by Virgin Atlantic
the last summer, the crash of the coronavirus forced Flybe over. About 40% of UK domestic
flights were run by Flybe. In addition, the UK Transportation Department announced that it
would help Flybe workers "as soon as possible" look for new jobs, and Loganair, a Scottish
airline, announced that it will take more than 16 flight routes and that over the next four
months, flights would be launched in phases (Toh, 2020).
Multiple airlines suspended penalties for flight booking modifications and cancelations after
the coronavirus epidemic following an appeal by Sen. Richard Blumenthal. Between the 20 th
of January and the 7th of March 2020, the US airline stock prices decreased by 30%. Flight
prices for domestic flights have also fallen. On 25 March, the US Senate passed a bill offering
$58 billion in loans and grants to aviation-related businesses, including $25 billion for
passenger carriers and $4 billion for freight carriers, plus $17 billion for businesses "essential
to preserve national security" such as Boeing. Airlines accepting the package should be
restricted from raising executive pay, offering dividends, or purchasing back shares over the
assist era (Slotnick, 2020a). Trans States Airlines is a regional airline from Missouri that
operates under the United Express name on routes to the United States. The airline is
expected to close its operations with ExpressJet Airlines, another regional airline in the United
States, by the end of 2020. Compass Airlines, a regional carrier operating in the US and Delta,
said that demand is collapsing as some of the first job cuts in U.S. airlines are occurring in the
crisis of the coronavirus. Airlines struggle to save money and are cutting their networks
drastically while seeking government assistance of more than $50 billion. Trans States Airlines,
told employees that it would move a scheduled closing of its eponymous airline up to April 1
(Josephs, 2020).
On the 21st of April, Virgin Australia, Australia's bankruptcy counterpart, entered "volunteer
administration." Although Brisbane's most operations were suspended and employees were
flooded, the airline continued to lose money on about 65 day-to-day flights. In the
restructuring process, the airline said it would continue working. After an appeal for aid from
the Australian Government was denied, it entered the administration (Slotnick, 2020b).
Accords with the interview by Allan Kilavuka, Kenya Airways Interim President and CEO at The
EastAfrican, Kenya weekly newspaper The Coronavirus outbreak (COVID-19) is going to
constitute a big income blow to Kenya Airways (KQ), even began to take action to minimize
their economic losses. The company anticipates a revenue loss of approximately $8 million for
both passengers and freight. The Israeli national corporation El Al also reported last week that
it will be willing to cut 1,000 of its 6,000 workers and that its expenses would be between $50
million and $70 million for the first quarter alone. Losses that may lead the organization to
decline dramatically. Air Canada reports, however, that 5,100 airlines are temporarily
employed and would cancel most of its international flights, including Finnair, Norwegian Air,
Westjet, and many others, but they are confronted by several difficulties and are trying to find
out how to keep them laying off workers in the market (Mhalla, 2020).
Tourism is considered one of the most quickly expanding sectors to be vulnerable, i.e. tourism
is influenced by any external or internal unexpectedness or tension in contrast to other
industries. The new Corona (COVID-19) epidemic has triggered disasters in the entire world in
this relation. A significant influence on the tourism industry is being exerted by the COVID-19
pandemic and steps introduced to restrict its spread.
1170
1020
2020 (estimate)
COVID-19
-290 to -440 million
-20% to -30%
2009
2003 Global economic crisis
SARS -37 million
-3 million -4.0%
-0.4%
According to the United Nations World Tourism Organization (UNWTO), the COVID-19
pandemic will result in a contraction of the tourism sector by 20% to 30% in 2020. This
estimate is likely to be conservative for countries relying on foreign tourists, as the recent data
on daily air traffic indicate a drop of almost 80% since January 2020. Although certain
economic industries will rebound after draconian controls have been abolished, this pandemic
may have a longer-term impact on international tourism. This is partly due to lower consumer
morale and the possibility that the free movement of people will be more limited. According
to the WTTC, the estimated time of rehabilitation for travelers to a destination in past viral
epidemics was around 19 months (Hamilton, 2020).
Obviously, all the countries are affected negatively by the pandemic that results in travel
restrictions. Every country is trying to control the virus by canceling flights in order to control
the number of cases, but that affected the economy significantly. In this section, we will
discuss the situation in several countries facing numerous problems due to temporarily
suspension of all international flights. Approximately two-thirds of international flights to and
from China were scrapped in February 2020. Flights between Japan and China saw a 60%
decrease in traffic, while the US and China saw a decrease of 86%. Two-thirds of domestic
flights inside China were likewise canceled, accounting for about 10,000 flights a day, while
ticket prices for the remaining flights decreased – the South China Morning Post announced a
three-hour flight seat between Shanghai and Chongqing rate. Passenger traffic fell by 75%
between January 25 and February 14 relative to the same time in 2019 (Lee, 2020). It is
reported that Indian airlines are reporting USD 600 million losses in the period January-March
(not including state-owned Air Index). The Government of India is considering a bailout
package for the aviation industry amounting to INR 120 billion (USD 1.6 billion) (Reuters,
2020).
5. Future Expectations
First, COVID-19 seemed like past crises: traffic and sales strike followed by a return to normal,
even though there was confusion about the magnitude and length of the impact. The decline
in sales suffered by airlines this year as a result of COVID-19 significantly exceeds the effects
of previous crises. It has got the characteristics of a civil war. Moreover, the next recession is
expected in 2020/21, which means that the rebound will take longer. Moreover, even after
healing, 'natural' is not going to be the same as before. There are expected to be permanent
effects on the air travel market. As a result of lockdowns, or close lockdowns, around the
world, people are increasingly finding new ways to live their lives, both at work and leisure.
More than ever before, technology is becoming a more practical and more commonly used
alternative to commercial air travel.
The figure below shows how deeply the COVID-19 epidemic will influence regions' capability,
passengers, and revenues in 2020. According to the ICAO estimates (2020), it is anticipated
that North America will reduce its capacity from 33% to 65%, drop in the number of passengers
will significantly decrease from 65 million to 120 million, and the loss of revenues will increase
from US$17 billion to US$32 billion.
Figure 4. The Estimated Effect on the International Traffic and Revenues by Region for 2020
Source: ICAO estimates, 2020.
It is anticipated that Latin America and the Caribbean will reduce their capacity from 35
percent to 65 percent, passengers are estimated to drop from 50 million to 90 million, and
revenues are estimated to decline from $10 billion to $18 billion. While Europe's airline
capacity is projected to decline by 419 to 731 million, and revenues are estimated to go down
by $57 billion to $101 billion. It is expected that the airline capacity in Africa will decrease by
34 million to 61 million travelers, and revenues will drop by $7 billion to $13 billion. The Middle
East airline’s capacity is estimated to decline by 37% to make up 70%, as a result, passengers
will drop by 66 million to 119 million people, and the revenues’ loss will range from $12 billion
to $22 billion. Finally, the airline capacity of Asia and the Pacific will be reduced by 39% to
reach 715, the number of passengers will decrease from 238 million to 420 million people and
the revenues will decrease by $50 billion to account for $88 billion.
5.2. The Expected Global Impact on Aviation, Tourism, Trade, and Economy
- International air passenger traffic might deal with an average decline in the
international passengers from 44% to 80% in 2020 compared with 2019 (ICAO, 2020).
- Airports may experience an expected loss of two-fifths of passengers carried and 45%
or more than $76 billion of airport revenues in 2020 (ICAO, 2020).
- Tourism may face a decrease in international tourism industry receipts between about
$300 billion and $450 billion in 2020, nearly 1/3 of the $1.5 trillion created in 2019, with travel
restrictions of 96 percent of world destinations (ICAO, 2020).
- Trade may have a decrease in the amount of global trade in goods by 13 % to 32% in 2020
compared to the previous year (WHO, 2020).
- Global economy may have to cope with a predicted 3 percent fall in the global GDP in
2020, much greater than in the financial crisis of 2008-2009 (IMF, 2020).
- Travel industry losses: 31% drop is expected throughout 2020, with a 75% decrease in
revenues in the coming months and ongoing losses hitting $455 billion for the rest of the year.
- GDP losses: losses from the travel industry will have a cumulative impact on GDP of $450
billion in 2020. The US economy is expected to face a recession based on a projected decline
in travel alone. The recession will likely last for at least three quarters.
- Tax losses: $55 billion reduction in taxes will be recognized as a result of reductions in
travel in 2020.
- Employment losses: The United States economy is expected to cut 4.6 million jobs as a
consequence of a fall in travel in 2020. The rate of unemployment will naturally increase by
3.5% in the following months. Over the coming months, travel-related job losses alone could
drive the unemployment rate up to 3.6 percent, as shown in Figure 5.
-500
-1000
-1500
-2000
Thousands
-2500
-3000
-3500
-4000
-4500
-5000
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
As seen in the figure above, job losses in the tourism industry will increase but will continue
with 1.6 million jobs already lost in December for the rest of the year. At the lowest point this
year, 4.6 million people will lose their employment as a result of a downturn in tourism,
including 3.6 million jobs directly in the travel industry (Oxford Economics, 2020).
The travel industry will take a long time to recover or return to its previous levels after the
Covid-19 pandemic; however, the recovery will be in stages. The domestic and regional travels
are expected to see a comeback before the international travel takes place. According to a
survey undertaken by the Global Business Travel Association of its member organizations,
businesses are twice as likely to have avoided international travel as domestic travel has been
avoided since July 2020. In the case of domestic travel, trips which may take place in personal
or rented vehicles may replace short regional flights before the convenience of businesses to
send employees by aircraft rises (Curley et al., 2020).
International travel would take longer to recover due to the uncertainty of government
restrictions, statutory quarantines, and high likelihood of fast-changing policies. In Asia, some
governments (e.g. Malaysia and Singapore) investigate the establishment of business
corridors to support economic growth under strict guidelines authorizing exemptions from
quarantine measures, (Curley et al., 2020).
The COVID-19 epidemic has had and will continue to have a significant effect on the aviation
industry in Europe and abroad. The condition is deteriorating every day. In the next few weeks,
traffic is expected to drop further. The European Commission will propose tailored regulations
to partially exempt airlines from their airport slot use restrictions, under the EU law in order
to help mitigate the effects of this pandemic.
Green recovery for the airport sector can only occur as airlines start resuming their services.
Nonetheless, in order to do so, nations would first need to remove travel bans and border
controls. China claims to be managing the COVID-19 pandemic and opening up its airspace,
only to enforce additional limits on foreign flights shortly after that to deter imported
incidents. This is possible that domestic air traffic will be the first to restart if a country thinks
that its internal situation is relatively stable.
To bring the international air traffic back on its feet there must be confidence that the
pandemic is under global control and that traffic is secure. Until an appropriate solution is
available, any recovery is required to proceed at a calculated rate.
Besides, applying safety measures and hygiene will be a lifestyle that the whole globe had to
apply in order to retain the industry. In order to minimize transmission of diseases beyond
COVID-19, airports will seek automated, hands-free, self-processing options for passengers
during the flight. Some Common User Self Service (CUSS) market-based approaches now
exploit touchless biometrics, such as iris scanning and face recognition. COVID-19 may well be
a mechanism that promotes the widespread acceptance of touchless technology. Countries
need to apply an immunity passport showing the vaccination from COVID-19 similar to the
current measure that is applied in different countries across the globe.
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