The State of the Commercial Airline Industry

By |2020-10-16T10:29:18-04:00October 15th, 2020|News & Media|

Remember when we used to simply seek out a location across the globe and then fly to it?

Oh, how quickly and frightfully things have changed.

Less than only half a year ago, the aerospace industry was churning out commercial aircrafts at unprecedented rates for and there was fear among experts that there wouldn’t be enough pilots or mechanics to handle what seemed like an endless demand for air travel.

Until, you-know-what.

Today, COVID-19’s rapid worldwide spread has devastated the airline industry, essentially bringing the entirety of global air traffic to a complete standstill. Historically, the airline industry has shown it is resilient in the face of a crisis. In recent history, the industry has proved it can bounce back from tragedy, such as the attack of 9/11, SARS, and the 2008 financial collapse, but COVID-19 has been a full-tilt global crisis of unparalleled magnitude in our lifetimes.

While some countries have begun to ease domestic lockdowns, many places around the world have increased travel restrictions while international travel to and from the United States has remained tightly constricted. Globally, roughly 60% of aircrafts are grounded.

According to a July report from the International Air Transport Association (IATA), global passenger numbers have declined by a staggering 55% compared to 2019. The IATA predicts that air travel isn’t expected to return to pre-COVID-19 traffic levels until 2024.

Airline traffic — measured in RPK (revenue passenger kilometers) — fell 86.5% compared to one year ago, a number that only “slightly improved” from the 91% contraction reported by the IATA in May.

The agency says a more “pessimistic recovery outlook” is based on these recent trends:

  • Slow virus containment in the US and developing economies: Although developed economies outside of the US have been “largely successful” in containing the spread of the virus, says the IATA, new outbreaks have occurred in these economies and in China. The report says there is “little sign” of virus containment in many important emerging economies, which represents around 40% of global air travel markets. Their continued closure, particularly to international travel, is what the IATA calls a “significant drag on recovery.”
  • Reduced corporate travel: The IATA says corporate travel budgets are expected to be “very constrained” as companies continue to be under financial pressure. The survey says video conferences have made significant impacts as a substitute for in-person meetings and therefore reduces the overall necessity for corporate travel.
  • Weak consumer confidence: As well as the risk of catching the virus, demand for VFR (visiting friends and relatives) and leisure travel is “weak,” in the face of concerns over job security and rising unemployment, says the IATA. The survey says 55% of respondents don’t plan on traveling at all in 2020.

“Passenger traffic hit bottom in April, but the strength of the upturn has been very weak. What improvement we have seen has been domestic flying. International markets remain largely closed,” said Alexandre de Juniac, IATA’s Director General and CEO. “Consumer confidence is depressed and not helped by the UK’s weekend decision to impose a blanket quarantine on all travelers returning from Spain. And in many parts of the world infections are still rising. All of this points to a longer recovery period and more pain for the industry and the global economy.”

The struggle is real

With passenger business essentially disappearing ( I think we can all attest to that), airlines — the airline industry’s primary customers — are in big trouble. There were just over 900 airline carriers operating around the world before COVID-19, a number that is expected to hover close to 600 throughout the next three years, according to Forbes, the American business magazine. In order to offset the massive collapse of revenue, airlines are scrambling for quick fixes to cut operating costs by taking aircrafts completely out of service.

Forbes anticipates that by the end of 2020, close to 18,000 planes will be stashed in storage, possibly never to return to the skies.

From a manufacturing standpoint, the production of large-style planes (that predominately serve international travel) will begin to shrink and the rise of narrow-bodied, single-aisled planes will become more prominent.

Is this the ‘new normal’?

It goes without saying, but the longer the restrictions last, the more airlines will run out of liquidity. Temporary behavioral changes taken by different industries throughout the pandemic might soon become permanent. The reduction of business travel as a result of an increase in digital communication, may quickly (if not already) become the new norm.

Between potentially lengthy travel restriction durations and repeated COVID-19 outbreaks, experts predict that severely reduced global air traffic volumes could settle in to a low level, resulting in the oft-mentioned ‘new normal.’ Such abysmal levels could be the new standard, an effect that has never before occurred in the history of commercial aviation.

The numbers

In terms of actual numbers, an August report from The Business Research Company says the global airline market size declined from $342.2 billion in 2019 to $296.1 billion here in 2020. The report says airlines are best suited to promote social distancing measures and sanitization guidelines in attempts to lure back fliers.

Passengers themselves have shown a willingness to play a role in ensuring safe flying going forward. 43% of air travelers said they’d be willing to undergo temperature checks before boarding, 42% of them would wear masks during flights, and 40% would check-in online to minimize person-to-person interactions.

So far, airlines have cut jobs amounting to between 10 to 20 percent of their workforces in response to the pandemic.

The future of the skies

Going forward, the management consulting company, Roland Berger, expects the airline industry to have no choice but to “maintain investments in technology” to make aviation more environmentally sustainable. According to the company, the “demand for sustainability” will not disappear within the sector because more people will want the improved air quality the world is enjoying in a reduced flying era.

Roland Berger also sees the need for continued investments in the increased automation of aircraft however spending in the research and development sector will slow as the industry’s priority switches to getting back into the air.

Roland Berger noted it does not expect to see the next single-aisle airliner until the mid-2030s, citing statements from Airbus who implied its next major new airline product could be a carbon-free aircraft around 2035. Roland Berger also anticipates a trend that for airline companies to keep production closer to home in a post-COVID-19 world, while reversing (or at least slowing) the shift to increased globalization of the supply chain over the past couple of decades.

As if the word ‘unprecedented’ hasn’t been tossed around enough in recent months, whichever route is chosen by the global airline industry, COVID-19 will definitely be a catalyst that has never before seen within the history of commercial aviation.

By |2020-10-16T10:29:18-04:00October 15th, 2020|News & Media|