We all know that COVID-19 is taking a significant human and economic toll. In economic terms, I’d predict there is no industry more severely affected than aviation. China, the original epicentre, was the first to ban certain domestic and international travel to prevent the spread of the virus. The financial implications on the global industry were relatively limited, due to the monopoly of state-backed Chinese airlines in that market. With the virus’ spread to the other big aviation markets in Europe and then North America, the situation has really hit home for all.
The US restriction on European flights, for example, equates to around US$20bn in transatlantic passenger revenue annually. National air traffic navigation service providers covering the North Atlantic corridor are preparing for a drop in total traffic of approximately 85 percent. Internationally, travel bans as of late March could represent closer to 98 percent of global passenger revenue – with a three month blanket ban equivalent to over US$250bn.
Can the aviation industry bounce back?
Previous epidemics such as SARS also caused a sharp decline in air travel demand, but that followed a v-shaped drop with a quick bounce back. The International Air Transport Association (IATA) predicts the effects of COVID-19 to be much more far-reaching with a slower recovery, as there will inevitably be an economic recession in its wake. Personally, I think there will likely be the pent-up demand for a bounce back (once governments and the public feel they’ve contained things, of course). What is less clear is how rapidly the supply side can recover – with multiple operators realistically dropping out of the game, lessors having to work through major redeployment of assets, and those operators that continue with state bailouts needing years to regain their independence.