The ongoing COVID-19 pandemic has brought aviation to a virtual halt.
Across all regions, the loss in traffic is expected to be two billion passengers at the global level in the second quarter of 2020 and more than 4.6 billion passengers for 2020.
Considering that airport revenues are largely a function of traffic, the estimated decline in total airport revenues on a global scale amounted to more than $39 billion (figures in US Dollars) in the second quarter and more than $97 billion for 2020.
Path to recovery
The air transport industry felt a triple shock in that administrative travel restrictions were superimposed on a steep global economic downturn and exacerbated by significant behavioural shifts. As reported in Forbes magazine, a consumer confidence survey conducted by IATA found that only 14% of passengers said they would fly right away. The prospective recovery will therefore depend to a great extent on sustainable and effective measures to restore confidence in air travel.
In the short term, the industry restart will be directly related to the lifting of travel restrictions. National governments will likely progress gradually from permitting non-essential domestic travel and reviewing advice against international travel towards coordinated reciprocal arrangements to reassure smooth flow of passengers in both directions, as illustrated below.
In addition to this, consumer confidence will need to be re-established and fostered in terms of health and safety and confidence in travel bookings.
In the absence of a standardized approach, we are beginning to see new mitigation measures being introduced in airports and on-board aircraft with respect to cleanliness, hygiene and social distancing, as well as health screening procedures on departure and arrival.
This process is likely to continue and, for this to be most effective, a global approach should be taken. ACI World is working with the International Civil Aviation Organization (ICAO), the World Health Organization (WHO), the International Air Transport Association (IATA) and other global stakeholders to push for guidelines that will provide for a smoother recovery.
As regards travel bookings, there is a perceived risk of airline and tour operator bankruptcies, booking inflexibility and rigid flight cancellation policies, which may prolong the reticence of people to plan non-essential travel.
Similarly, falling household incomes and corporate revenues will make initial demand fragile and airlines may find it difficult to price their product at affordable levels yet recover their costs.
In the medium term, underlying economic conditions will determine air transport demand with the current consensus among economists that up to two years will be required to stabilize company and personal earnings as well as liquidity.
A strengthened macroeconomic context will largely bolster consumer confidence—to a great extent a function of employment and job security improvement coupled with government stimuli measures.
Structural changes and risks
Beyond the immediately apparent economic impacts of the COVID-19 crisis, reflected in traffic and revenue losses, there may be further structural changes in aviation which could pose a risk to the longer-term growth potential of the industry.
Airlines restructuring and consolidation: this has been a major trend observed immediately after previous major shocks to aviation, notably the September 11 attacks and the Great Recession of 2008─2009.
These developments may represent a double-edged sword, as the reduced risk of individual airline bankruptcies may be easily circumvented by supressed competition and higher airfares in the medium term which could, in turn, negatively affect passenger demand.
Aviation markets with large domestic base will likely fare better in the short term as recovery is expected to be led by domestic traffic. Larger players in the market could use this as an advantage in redevelopment of international routes by potentially crowding out weaker players and reducing competition.
This would eventually affect the airport sector, prompting stronger demand at hub airports and consolidating the position of legacy carriers in terms of market shares, routes, and slots.
As airline networks will most likely focus on the most profitable core routes, secondary destinations may be dropped. This will be a significant drawback for regional airports, impacting the overall sustainability of airport networks, reducing connectivity, and leading to fewer economic benefits.
Airline fleet restructuring: large airlines are now retiring four-engine passenger widebody aircraft—the Airbus A380 and Boeing B747 in particular—and this will lead to an immediate reduction in the demand for airport infrastructure to serve these aircraft.
With the accelerated trend towards smaller and more efficient long-haul aircraft such as Airbus A321LR and Boeing B787, several airports will find themselves overequipped (while being obligated to maintain such infrastructure), leading to higher costs which are not reflective of demand.
Shifts in consumer behaviours: this is a big concern for the industry, especially with respect to the business travel segment of passenger air services. With the continued use of virtual meeting technology, the demand for business travel could face downward pressure even as travel restrictions are eased. This could be partially offset as the real value of face-to-face business meetings is recognized.
As for leisure travel, a comparative lack of confidence in air travel as a result of the spread of COVID-19 may be partially offset by a pent-up desire to travel in some markets. The impact of enhanced health screening measures or new processes and procedures introduced in the wake of the pandemic on the ease-of-travel is also difficult to determine at this stage.
Environmental impacts: it is likely environmental pressures and carbon commitments will not ease, but rather accelerate. While the crisis will accelerate the retirement of older, noisier, and less efficient aircraft, the acquisition of new fleets or investment in sustainable technologies and procedures may slow down due to financial difficulties.
In the long-term the sector is expected to maintain and even increase its climate change commitments. Environmental sustainability will also play a role in ensuring environment-conscious customers will continue to fly.
Finally, the crisis may exacerbate the fundamental issues related to development, allocation, and utilization of airport capacity and airport pricing. The traditional airport pricing mechanisms and regulatory frameworks, such as the RAB-WACC building block approach, for instance, proved itself unworkable under the current circumstances. In like manner, the worldwide guidelines for slot allocation, which are based on a fixed calendar of activities, lack necessary flexibility to adjust quickly under the current uncertainty.
Technical challenges in recovery forecasting
In addition to the structural changes and risks, the industry is facing technical challenges which will pose uncertainty through and beyond the crisis.
Effective decision-making will depend on a good understanding of what the path to recovery will be. Traffic forecasts will be essential for defining staffing and operational levels, capital investment requirements, and core business decisions on airport charges.
Predicting recovery with high levels of uncertainty and ambiguity may require airports to create entirely new forecasting frameworks that will be flexible enough to incorporate new inputs as better information becomes available.
Such forecasting frameworks, as a bare minimum, should consider the:
- scope and geography of travel restrictions and the timeline for their removal
- recovery timeline and profile
- factors of local, regional, and global economic growth
- behavioural factors, such as reduced willingness to travel and the impact of a perception that is both safe and sustainable to fly, and
- the airline and aviation context, including bankruptcies, new aviation-related procedures, and oil prices trends, among others.
Benefits of aviation and UN Sustainable Development Goals at risk
The latest edition of the Air Transport Action Group (ATAG) Aviation Benefits Beyond Borders report, shows the critical role that aviation plays in sustainable development.
Aviation has a role to play in 15 of the 17 United Nations’ Sustainable Development Goals. Airports, more specifically, have been major supporters of Goals 8, 9 and 10 concerning work and economic growth, industry, innovation and infrastructure, and reduced inequalities.
Aviation additionally supports other goals, such as reducing poverty, facilitating access to quality education, promoting gender equality, building sustainable cities and communities, and partnering for the goals with other industries.
With the industry grounded and airports sitting empty and bereft of activity at the moment, there is a risk that the contribution to achieving these goals through a thriving aviation sector will be set back. Indeed, the world was already falling behind in efforts to achieve them.
Efficient transportation services are considered key drivers of economic development, but the current circumstances largely undermine the ability of aviation to further contribute, as the industry itself has entered, temporarily at least, survival mode.
Coordinated recovery led by international institutions
The response to the COVID-19 crisis has differed across the world.
While some parts of the world showed the capacity to control and minimize the outbreak in a few months, it could take longer in other countries, due to differing approaches to governance, varying economic capacities, and contrasting cultural patterns.
As a result, the pace of recovery may be uneven.
Coordination, therefore, between states and led by international organizations is essential for the effective global recovery of aviation. At the individual State level, this needs synchronized policy and decision-making between various government agencies, including public health agencies and ministries of transportation.
At the global level, coordination is two-fold: it requires reciprocal agreements to reopen commercial air services, on a bilateral or multilateral bases, and the standardization of procedures to facilitate air services in both directions.
International institutions have an important role to play in leading recovery. The two specialized agencies of the UN —ICAO and the WHO are expected to continue working closely with industry trade groups representing the major stakeholders—ACI, CANSO, IATA, TIACA—on aviation-specific guidelines with the objective of ensuring appropriate planning and coordinated recovery procedures.
In April, ICAO Council established the COVID-19 Aviation Recovery Taskforce in response to the need for wide-ranging government and industry coordination to reconnect the world once the outbreak is brought under control. The taskforce is set to identify and recommend strategic priorities and policies for States and major industry players in working towards immediate solutions coupled with those that address the long-term structural challenges and risks of recovery.
In a similar way, ACI World, along with the major trade associations, are looking forward to aligning themselves on key principles, policies, and procedures—the common denominators on the road to recovery.
The industry is stronger together and by coming together it will lay the foundations of recovery to ensure that the aviation industry can deliver the economic and social benefits to the local, national, and global communities that it serves.
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