Global Analysis of COVID 19 Pandemic on the Aviation Industry
COVID 19 PandemicAs we all know that the world has been hit with a severe crisis amidst the Pandemic outbreak of Corona Virus (COVID-19) emerging from Wuhan, China in late December 2019. This global outbreak rapidly increased due to its high infectious rate and started taking over countries like Iran, Italy, Pakistan and swiftly shutting down the entire USA and Europe alongside 195 other countries. To contain this virus from spreading countries started enforcing lockdown and shutting their respective Airspace, halting flight operations across the globe.
This pandemic has not only damaged the Aviation sector but also textile, agriculture, construction industries. It won’t be wrong to declare that we are now in the Global Financial Recession. We also have seen such an epidemic before in the history of mankind, Severe Acute Respiratory Syndrome (SARS) in 2003 and Middle East Respiratory Syndrome (MERS) or camel flu in 2012. Both these epidemics had actually world taken aback by the consequences and pushing the world in financial crisis.
In this blog, we will not just be sharing a financial analysis on the Aviation industry based on the article published by Financial Times (Heading: Corona Virus Pushes Aviation Sector into ‘Crisis Zone’) but also a comparative study on the damage done on Aviation Industry SARS vs. COVID-19. We will share our analysis against every news of the Financial Times for a better understanding of the current scenario.
- According to the Financial Times, Airbus is reviewing its 2020 delivery targets.
Analysis: Airbus is a company that manufactures aircraft, just like Honda/Toyota are companies that manufacture cars. There we several orders placed to Airbus by airlines or carriers before the year 2020 and were expecting its deliveries in the year 2020. But, Airbus is actually reviewing the orders whether there is a delay or any deferment.
- Passenger demand has plunged and hence slashing the number of flight
Analysis: Due to the lockdown in almost all the countries, the demand for passengers to travel has reduced and this has caused a reduction in the number of flights. This is only for the time till the flight operations are suspended and not fully restored. Governments are now planning to restore the flight operations with all the precautionary measures in place, i.e., masks and sanitizers for all the passengers during the flight.
- Lucrative transatlantic routes have stopped
Analysis: Transatlantic routed earned well for airlines and due to these routes being stopped keeping in view the COVID-19 pandemic outbreak. This has caused airliners a short-term loss but as soon as these routes are restored, this revenue will be regained.
- Current data shows a 2.8 percent fall in global aircraft capacity this year, as per Ascend, aviation data consultancy.
Analysis: Of course, as per the domino effect after shutting down the flight operations, it was expected to witness such a fall in global aircraft capacity. International Air Transport Association (IATA), a trade association, expected a growth of 4.7 percent in 2020; they forecasted this in late 2019.
- Airbus has not decided to cut its delivery targets. Several Airlines are trying to defer deliveries.
Analysis: The good news is that Airbus is not seeking to cut a delivery target which is obviously a good sign. Rest, airlines are asked to defer (delay) the deliveries but not cancel them.
- Some airliners were also seeking a temporary holiday from lease payments, industry insiders say.
Analysis: The term ‘temporary’ plays a key role here. It is to be understood the many aircraft are leased (either dry-lease or wet-lease) and are seeking a temporary holiday from this, it’s due to immediate impact. But keeping a view of a long term business strategy of the aviation industry, it will be settle; not know but surely it will.
- According to Brian Pearce, Chief Economist at IATA, this looks more like the global financial crisis where airline revenues fell by 16 percent in 2009. But, we are not there yet; provided on the success of the government to contain this outbreak.
Analysis: This news from Brian Pearce is positive for the aviation industry as it says that the condition is not as bad as it was in the global financial crisis in 2009 provided governments contain this outbreak efficiently. See, how important it is for us to maintain strict lockdown to contribute to the economy.
Concluding by mentioning that we have seen an epidemic like SARS before in 2003 and experience had shown that demand recovered quickly within 6 to 7 months. Aviation is a mode of transport and this can never be out of demand, even though, it might see ups and downs but it will keep running.