Aerospace in the Post COVID-19 Era

Article by: Asst. Prof. Suwan Juntiwasarakij, Ph.D.

Unprecedentedly, the COVID-19 pandemic has plunged the global airline industry into a crisis as airline booking plummets in response to regulation and business restrictions on travel increase. Safeguarding consumer and workforce health is priority number one among businesses and governments. Toward that aim, continued reduction in air travel will most likely (and necessarily) persist for a prolonged period.

It is not overstating that airlines have been devastated by the COVID-19 pandemic. In 2020, industry revenues totaled $328 billion, approximately 40 percent of the previous year. The sector is expected to be smaller for years to come. McKinsey projects traffic will not return to 2019 level before 2024.

The severity of the COVID-19 impact on air travel is clearly shown by tracking global revenue passenger kilometers (RPKs), which fell by 65.6 percent in the Jan-Nov 2020 period compared to 2019 figures. In the six months immediately following the September 11 terrorist attack on New York, which is considered to be the most severe aviation crisis prior to 2020, RPKs declined by just 12 percent.

Leisure trips will fuel the recovery. Business travel will take longer to recover. In this regard, McKinsey estimated it will only likely to recover to approximately 80 percent of pre-pandemic levels by 2024. In the previous crisis, leisure trips or visits to friends and relatives tended to rebound first, as was the case in the United Kingdom following 9/11 and the global crisis. Therefore, the rise in leisure trips will outpace the recovery of business travel.

Many airlines have had to borrow huge sums of money to satay afloat and cope with high daily cash burn rates. Tapping into state-provided aid, credit lines, and bond issuances, the industry collectively amassed more than $180 billion worth of debt in 2020, a figure equivalent to more than half than half of total annual revenues in 2019.

TAKE-HOME MESSAGE

The impact of the COVID-19 pandemic is far from over. There is some relief to be found in various parts of the world now that vaccinations have begun, but the road to recovery for air traffic will take several years. The shape of the post-COVID-19 airline sector is becoming clearer and holds lessons for airlines today. Many carriers burdened by debt have depleted their cash reserves. However, travel will become more efficient, and people are craving traveling again for holidays. Taking steps now will help airlines thrive in this transformed sector.