Covid-19 has not only devastated the world but also impacted the aviation industry badly. When the world is re-opening with an extensive vaccination program, so do the airlines. However, the business analysts have stated that the business traffic of the aviation industry won’t come back to normal any sooner. Besides, the airlines are adjusting to the new post-covid realities and framing new strategies to retain the lost business. We will discuss the longer-term effects on the aviation industry and the reasons that support this prediction.
Covid-19 Detrimental Effects on Aviation Industry
In 2020, the total harvest of the industry was $328 billion, about 40% of the previous year’s revenue. The net revenue of the year 2020 was the same as that in the year 2000. These figures tell the story that the pandemic has pushed the aviation industry two decades back. The aftermath will remain the same until 2024. Not only the financial figures but the impeding factors evoked by the pandemic will also hamper the growth for a few more upcoming years. These factors may include:
- Safety and hygiene standards have become more stringent, and airlines need to comply with them.
- A major decrease in business travel due to remote working after the pandemic.
- Lesser corporate trips will be undertaken in the upcoming years.
- Carriers who are highly dependent on the business class flyers will be severely affected.
Future Trends and Impeding Factors
The aviation industry is trying to cope with the devastating effects of Covid-19, and the business does not seem to get on track anytime soon. The industry has to deal with the new realities and challenges to bring the best out of this adverse situation.
1: Shrinking Numbers of Business Trips
The number of the business trips is showing no sign of improvement, and the improvement will be as rare as hen’s teeth. Even by 2024, the total recovery will only contain 80% of the pre-pandemic levels. The new world now has more flexible working arrangements and remote work options, alleviating the number of corporate trips. However, leisure trips will tend to balance out the scale by outpacing the recovery of business travel. Business-class travelers yield a major portion of the benefits, especially in long-haul flights. However, this profit-making pool has alleviated due to pandemic effects.
2: Striking Debt-Levels Evoking Rise In Ticket Prices
To cope with the pandemic losses, many big and small airlines have had to borrow great sums of money. This was achieved in the form of state-provided aids, bond issuance, and credit lines. The industry collectively collected a debt of more than $180, which was more than half of the year’s total revenue. Furthermore, the debts are still increasing, and it will take time to get rid of these debts for the airlines as they will need to wait for some more time to retain the pre-pandemic business. Higher financing costs have made the scenario even worse. It will apparently cause a rise in the tickets prices.
3: Greater Performance Disparity among Airlines
After Covid-19, some airlines have restructured themselves to yield greater efficiency. On the other hand, there are many airlines that are muddling around, stricken with their irreparable losses. Airlines that are failing to transform proactively are putting themselves at risk of losing the long-term value creation opportunities for business. Some airlines are making extra efforts to improve the traveler’s experience along with the improved facilities and safety standards. On the other hand, some of them are still struggling to overcome their financial losses. In such a scenario, you can experience a greater performance disparity among the airlines.
4: Oversupplied Aircraft Markets
Before rolling out of the Covi-19, the aviation industry was hopeful for continual growth. Aircraft’s original equipment manufacturers were producing the supplies at a greater pace. However, when the supply superseded the demand after the inception of Covid-19, the market glutted with aircraft availability. Moreover, many carriers have returned newer aircraft to lessors when exiting the long-haul market. These events cause a great fall in the leases of the used-aircrafts, and they are anticipated to remain lower in the upcoming few years. Additionally, new aircraft are likely to be available at great discounts.
5: Temporarily Undersupplied Air Freights
Low cargo rates and the unprofitability of the cargo industry have caused numerous airlines to abandon or reduce their dedicated cargo freighter fleets over the last ten years. During COVID-19, however, cargo has proven to be a lifeline for the aviation industry. Prior to the pandemic, shipping accounted for around 12% of the sector’s entire income; that figure increased last year. According to data from the Airline Analyst, only 21 airlines of the world that declared their financial results for the third quarter of 2020 have recorded positive operating profits.
The aviation industry is trying hard to deal with the losses caused due to the pandemic. On the other hand, the new variants of covid-19 are coming every now and then. The appearance of the omicron version, just as the coronavirus appeared to be fading from view, has put a halt to much of the global return to work. In such a scenario, the industry has to wait for a few more years to thrive, like pre-pandemic days.