With travel restrictions and lockdowns, it is undeniable that the aviation industry was affected by the COVID-19 pandemic. Is it on its way to a full recovery or still feeling the long-term effects of the virus?
The Immediate Impact
We all remember the mid-April 2020 frustration of seeing mind-blowingly cheap flights available from the confinement of our homes. But as low the prices could be, we were simply unable (and unwilling) to book those much-needed holidays.
Source: Yu Chun Christopher Wong
The pandemic hit airlines and the industry in general very hard. For over two years, safety measures and hindrances for travel have caused significant losses in the industry.
With the global economy slowing 3.3%, international air passenger traffic decreased 60%, general airport revenues suffered similar losses (66%). In total, industry revenues totalled at about $328 billion, which amounts to approximately 40% of the previous years.
While leisure trips were significantly impacted, business flights nevertheless suffered losses too, with working from home appearing more and more attractive, especially for larger households.
Will the Industry Recover?
Unlike the 2008 crash, the COVID-19 crisis significantly altered consumer behaviour, since the issue is no longer economic and impacts more than spending power.
Changes in hygiene standards and digitalization will transform the industry, like the requirement to wear masks in airports and aircrafts, as well as mobile apps and QR codes to validate vaccination statuses and flight tickets.
The consensus is that leisure trips will recover first, just like trips in the US after 9/11. The prediction is that holidays and visiting relatives will only recover to around 80% of pre-pandemic levels by 2024.
In flights, leisure passengers fill up most of the seats, therefore helping cover a large portion of costs. On the other hand, business trips will take longer to pick back up again.
When comparing business trip recoveries after 9/11 who took four years to return to pre-crisis levels, the future does not seem too bright. Further, business trips had not fully recovered from 2008 financial crisis levels when the pandemic arrived.
This will cause issues for the industry: while it is true that leisure trips fill up most airplanes, the regularity of business trips make them essential to cover airline expenses, especially on long haul London-New York type flights, where the majority of profits are earned from smaller groups of business passengers.
Airlines and governments have made important efforts in order to accommodate and optimize their costs. While prices are very likely to rise up again, significant aid has been given to airlines in order to cope with COVID-19.
In Europe, Air Baltic, Lufthansa and Air Portugal all received increase state aid and reintroduction of government shareholdings.
However, some airlines have responded differently than others: this partly linked with state-aid campaigns which is very two-sided: airlines been helped by governments may have a lesser motivation to change pricing strategies and operations, but the ones which were not given support might use higher prices to get the tip of the iceberg out.
Nevertheless, the fight will be ruthless: growing competition on comfort/cost is likely to appear advantageous for the consumer as well as the likely reduction of price difference between point-to-point and layover flights.
This will be made possible through the monthly lease rates of aircrafts significantly decreasing: the prime example of this is the Boeing 777 aeroplane falling from $1.2million in 2019 to $800,000 in 2020.
Source: Matheus Obst
Marketing-wise, companies have been more digitally present, should it be through prospects of increasing investments in IT and digitalisation, or presence on social media.
Airlines like Ryanair have significantly improved their online platforms and engagement with their hilarious Gen-Z comments on Tiktok, following trends and following influencers.
Strategies may differ depending on the airline branding (like British Airways or EasyJet), but overall, advertising a younger audience seems to be a general goal for many companies.
The aviation industry will continue to suffer, even with restrictions and global paranoia relaxing as COVID-19 fades away.
Efforts from the offer and the demand are paramount to the healthy survival of the billion-making industry.
