The doomsday scenario for civil aviation occurred in Feb-March 2020 when it was seen that many countries had to go into lockdown. The spread of the Covid-19 virus became almost uncontrolled and the only way to prevent a nation from being overwhelmed by it appeared to be stopping its people from going out, and not allowing other citizens to come into the country. The disease has restricted person-to-person contact and hence affected the production, distribution and consumption of goods and services in every part of the world. The wheels of the economy have slowed down suddenly and humans find that it is better to stay at home, away from others until some way of preventing the disease is found.
The civil aviation business, both international and domestic, which was on an upward trajectory for more than a decade, has suddenly found itself staring at an uncertain environment, in the air as well as on the ground. On the one hand, the customer base has almost vanished and on the other hand, airline companies are looking at huge surpluses in seat capacity and crews. All of them are faced with red ink on their balance sheets, losses totaling billions of dollars and customers who now do not want to travel. It’s not that there have not been similar crises that the business faced in the past, but none of these affected the entire aviation environment in one go. If we take the examples of the fuel price hike, and the sudden increase in risks of hijacking, they caused the aircraft industry to concentrate on fuel efficiency rather than higher speeds, and everyone concerned to become more security-conscious. Covid-19 might cause airliners to be totally redesigned, and airports to ensure the minimum of personal contact.
Covid Worse Than World Trade Centre Attacks
With social distancing and disease prevention becoming the new norm, airports and airliners are suddenly seeming to be dangerous places to be in for long hours. This scenario is common to all forms of public transport, but surface based modes can more easily come up with alternatives. This can be seen by the preference of travelers to use taxis and private cars for travelling long distances rather than airplanes and trains or buses, ignoring the prolonged discomfort and loss of time. The whole idea of travel is being redefined so as stick to essential trips and to avoid journeys that could carry a greater risk of infection. Compared to the effect of Covid 19, even the attacks on the World Trade Centre in New York on Sep 9, 2001 had affected aviation on a lesser scale.
One hope that everyone in the world has now, is the production of an effective vaccine that can provide protection to the public. Even if it is produced soon, it would take a long time for the disease to be eradicated totally. Meanwhile the costs of vaccinating billions of people and also controlling the spread of the disease have to be counted in terms of money as well as time.
Likely Short Term and Long Term Scenarios
Let us examine the likely scenarios that could affect the civil aviation business in the short term and long term. In the short term we have already experienced a drastic reduction in air traffic, due to lockdowns and restrictions imposed on airliners and airports. The need to use face covering, paying for empty seats on airliners, and the lack of in-flight service would definitely discourage any traveler. Added to this is the increased cost of flying that will show up as higher fares. Travelers who have become used to shopping for cheap flights would now resist the idea of travelling for leisure. Screening and sanitisation on arrival at airports has increased the gap between reporting time and departures for passengers, and taking a flight has now become a test of endurance rather than a pleasant getaway.
In the long term, passengers would get used to these requirements, and no doubt airports and airlines would go out of their way to devise means to minimise the hardship. But the return to normalcy (or passenger traffic of 2019) would take a long time. Everything hinges on the reduction of risk due to infection. After the two-month long lockdown on domestic flights in India, the aviation scenario has shown steady improvement, but it is no longer attractive for family trips. The limited numbers of flights being allowed on each route, the quarantine requirements and outright bans imposed by some states have greatly reduced the numbers of passengers. As an aside, it won’t take long for terrorists to take advantage of the changed situation, in terms of adding new unconventional weapons to their arsenal, or evading detection. Therefore Covid-19 would have created more risk factors than just one. One of the points that can take a much longer time is the large-scale modification of aircraft to suit social distancing norms. Up until now airlines were keen to pack as many passengers as possible into an aeroplane, but now they would have to stick to specifications that minimise the risk of infection between passengers. This step would reduce the number of passengers, or increase aircraft volume and weight, either of which translate into increased cost per seat-km.
Effects on Airlines
Many studies over the past few months have shown that airlines have taken heavy losses because of Covid-19. Many smaller regional carriers just folded up, leaving investors with huge losses. Larger airlines have tried to trim their fleets as well as human resources, but they are saddled with fixed costs that cannot be pruned easily. They hope that passenger traffic would revive by the end of 2020, and they would then make up their losses. Whatever their individual forecast, it has to be tempered by the fact that the major markets for travel, i.e. the US, Europe, and Asia-Pacific have been the worst hit by the virus. Regional airlines like Compass airlines of the US, Flybe of the UK and international airlines like South African, Air Mauritius and Virgin Australia have declared insolvency. Many Indian carriers were already struggling to stay airborne. They have also been badly hit. The figures below are from an ICAO publication dated 20 July. The baseline is a projection of annual growth without the occurrence of Covid 19:
As tabulated by the ICAO in July 2020, the diagram shows that international passenger traffic is not likely to increase substantially in the short term. The yellow figures indicate the best-case scenario, which shows a reduction of almost 1.22 billion passengers worldwide, and the worst case scenario (red triangles) shows almost 1.43 billion passengers less. As for the losses, the amount could range between 218 to 254 billion dollars! The estimates in terms of percentages are detailed in the ICAO report as indicated below:
During 2019, Indian carriers were already struggling to minimise their losses. They have also been badly hit. Air India had been unable to make up its losses even before the Covid-19 crisis. However, the restrictions on international airlines, and the need to fly “Vande Bharat” missions for Indian citizens stranded abroad, gave the national airline a monopoly for a short time, helping to reduce the losses a bit. Indigo Airlines had just introduced flights to Europe last year but these had to be stopped before the April-June holiday season. There is expected to be a drop of 47% in passenger numbers for India in 2020. The total losses expected by Indian carriers for the year 2020 were USD 11.2 billion as per an estimate by IATA in May. By the end of June, Indigo airlines was expected to incur a loss of Rs 2670 crores (about USD 356 million) and Spicejet airlines a loss of Rs 1000 crores (about USD 133 million) for the QE Jun 2020 alone.
The limited resurgence in passenger traffic that has been noticed in some countries has encouraged airlines to hope that they will recover soon, but it could also result in a second wave of infections. The first wave was caused primarily by travellers flying all over the world from China, but then they did not have the benefit of awareness about likely infections. Whatever be the prognosis, it is quite apparent that there would be a significant reduction in international as well as domestic air traffic that will affect profitability in the airline industry for the next few years.
Effects on Employees
Perhaps the major casualty of the drop in the world economy due to the pandemic will be the employees of service industries. Provision of services is a major component of world economies at present, compared to its minor role in the economies of yesteryear. Even in a developing country like India the contribution of services in GDP is more than 50%. In the US it is about 70% and in China about 50%. While many online services have been flourishing in the Covid- 19 environment, the same is not true for the air transport industry. This industry requires the actual movement of people to continue flourishing. The movement of cargo by air can be revived, but the same cannot be said for the movement of passengers. Thus the employees of such (non-online) service industries find themselves in dire straits. They have been laid-off in huge numbers, sent on enforced leave and are left jobless all of a sudden.
Since the airlines employ trained and qualified crew, besides commercial, operational and engineering staff, the Covid-19 crisis has resulted in all of them being badly affected. It would not be very easy to re-employ them later, because many of them would need additional training and qualification after prolonged grounding. A look at job losses in the industry shows that about 29 million job losses were predicted in April. This figure is likely to increase as the pandemic rages on worldwide. The resulting losses in employment might not have a harsh effect in the short term, but in the long term there would be no option for the retrenched staff but to look for different jobs. These would be difficult to find, and market forces will definitely react to the over-supply of skilled manpower.
Air India has declared that no employee would be sacked, but at the same time some have been told to take five years of “unpaid leave”. Indigo Airlines, the biggest airline in India, has announced that it would layoff 10% of its staff of about 24,000. (Times of India news). Losses of jobs in India (aviation and related sectors) based on a three month lockdown, and resumption of normal flights after that, were estimated to be 2.9 million, but this figure is likely to increase as the recovery has been slower.
Effects on the Aircraft Manufacturing Industry
The world airliner industry is at present dominated by the Boeing Co of the U.S. and the Airbus consortium in Europe. Companies in China, Brazil and the rest of the world have very little market share. Both the major aircraft manufacturers are looking at severe cutbacks in airliner production, due to the huge reduction in air traffic. Unlike military aircraft, airliners are a “bread and butter” business for both Boeing and Airbus (revenues of 80%+ from non-military aircraft). Continued stoppage or reduction in demand will severely affect their profitability, because of the huge investments they have made in establishing production lines. Just the grounding of Boeing 737 MAX has been enough to put the brakes on Boeing, while Airbus will no doubt feel the effects of zero demand for its huge A380 airliner. Many airlines are scrambling to delay deliveries of new aircraft while the manufacturers of aero engines, components and spares will be affected by the sudden drop in demand.
Consequent to the losses suffered by the commercial aircraft industry, there would be a large number of job losses in both the major companies as well as the associated component manufacturers. Only a small percentage of the work force can be redeployed for military aircraft divisions, as the slice of this market is too small compared to the airliner market. Many of the components are manufactured in other less developed countries, and they would be more vulnerable to the looming spectre of unemployment. Estimates by the New York Times indicate that the losses in jobs would be 15000 to 16000 for each of the two major manufacturers. United Technologies, an aero engine manufacturer, is said to be looking at 3000 layoffs.
Effects on the Tourism industry
Air travel, especially in the last three decades that encouraged competition, has greatly facilitated international tourist traffic, while the growth of tourist traffic has further accelerated the growth of airlines. The relationship between the two has been symbiotic. Tourism, both international and domestic, has been the main driver for passenger-km figures in the past twenty years. Global expansion of businesses has definitely increased air travel requirements, but not to the extent that tourism has. While many multinational corporations are harnessing the power of the internet to manage their global and local businesses and reducing travel to the minimum, tourism has been cut down drastically because of the Covid-19 pandemic. On the darker side, airlines had mostly profited from last minute sales of high-priced tickets to business people, and that important source of money might have been lost forever. As per a forecast by Bloomberg: “this crisis will obliterate much of the corporate flying they’ve relied on for decades to prop up profits.”
In addition to the losses faced by airlines and aircraft manufacturers, the downstream industries like hospitality and sightseeing have also taken a major hit. Presently tourism accounts for 10% of the world’s GDP and it is expected that international tourism demand will go down by one fourth leading to 50 million jobs lost worldwide (as per the World Travel & Tourism Council). While hotels have more leeway in accommodating other categories of people (e.g. some hotels have been converted into quarantine or isolation centres), airlines and travel companies have no such avenues for diversification.
Effects on Crew Training
In the immediate future there seems to be little chance of a revival of the airline industry to its pre-Covid days, so all the employees including the highest paid category- the pilots- have little chance of going back to full time employment. In the cost-cutting measures that airlines have been forced to adopt, many pilots have been told to take pay cuts, laid off, or sent on long leave. Many governments have prohibited airlines from suddenly laying off their employees, but in case the recovery from the pandemic takes too much time, the airlines would themselves go bankrupt. The effect of these steps has been immediately felt on the training of new pilots, both at the ab-initio level and at the airline level. Given that the cost of becoming a fully trained first officer could be more than USD 120,000, it is not difficult to imagine the plight of newly trained pilots who are faced with no jobs and huge loans to be repaid.
Pilots are trained for a specific type of aircraft, and if the airlines themselves have no plans to resume flying, all the training that pilots do is wasted. Safety requirements dictate that they undergo refresher training if the grounding exceeds a few months, and if that gap extends too long, it is a question of renewal of flying licences. For the younger sets of crew it is possible to take up another job temporarily, but for those above the age of 40, it would be very difficult to find alternative employment in another profession. The cabin crew have much shorter training and it is at less cost, but they get much lower pay, so even they would have a problem when they are too old to switch to another profession. The engineering, operations and commercial staff would be similarly affected.
Prospects for the Future
ICAO has classified the chances of recovery for the aviation industry in three models: the V-shaped curve, the U-shaped curve and the L-shaped curve. These are listed in the decreasing degree of recovery. While the V-shaped recovery (smooth and steep climb back to the original revenues) is almost out of the question, There are chances that the recovery might start after a period of flattening out (U-shaped curve), but will take a long time to reach the original revenue. This could the “best case” scenario. Other less optimistic scenarios show an L-shaped or W-shaped curve, where the recovery is slow and revenues does not reach pre-Covid levels.
The whole process hinges on gaining customer confidence and acceptance of the “new normal”. Just as the travelling public initially reacts negatively to any change or additional burden (such as airport security) it is hoped that they will eventually accept the changes due to Covid as the “new normal” in due course of time. With the growth of social media and the internet all over the world, airlines can definitely rise to the challenge and re-shape public opinion towards this goal. On the medical side, there would be a period when travelling will not be advisable until an effective vaccine is found. Just as travelling to Africa or certain other parts of the world requires passengers to be vaccinated, this condition will be enforced for all travelers by many governments, when the vaccine for Covid-19 is developed. Senior citizens, who form the bulk of leisure travelers, could be discouraged more easily, but they also might have the time and resources to overcome the hesitation in taking international flights.
The development and common usage of a vaccine could take a few years, during which there is likely to be a depressed market for aviation. Meanwhile, we can expect some airlines to resume services on a smaller scale. The choices for aircraft manufacturers are much more difficult: whether they should persist with the present designs of high capacity airliners or switch to medium capacity long range jets; whether they should concentrate more on cargo or passenger aircraft; whether they need to re-design their aircraft completely with emphasis on social distancing; and so on. The airlines of each country and their regulators would have the last word as far as design changes are concerned. Employees are, however, generally going to be the last ones to know whether their jobs would be lost forever or not, and when they can hope to return to work.
The Covid-19 pandemic is taking its toll on all businesses, but the aviation and hospitality industries seem to be the worst hit. While the manufacturing sector could theoretically survive with a switch to online marketing and sales, the personal service industries will not be able to recover soon. Airlines typically need a long lead time to increase or decrease their capacities, and 50% reduction in business even over six months will hit them hard. The uncertainty about the future can be quite a challenge. The loss of employment opportunities will affect all categories of employees in the aviation sector, including the aircraft manufacturing industry.
There is no easy way out for this sector, and in the short term it has to pin its hopes on a quick recovery of passenger traffic for air travel to come anywhere near the pre-Covid level. In the long term, travel for business might be reduced for good, while leisure travel might not pick up for a fairly long time, so the cumulative losses might be too much to bear. Governments are presently spending whatever they can on health and anti-Covid operations, and most countries would be hard pressed to meet demands from a non-priority sector like aviation. It, therefore, looks like a bleak future is in store for this sector.
Author: Air Cmde RH Karve, Retd was an accomplished fighter pilot in The Indian Air Force. The views expressed are the author’s own.
Lead Picture Credit: timesnownews.com