COVID-19: A bolt from the blue
The unexpected COVID-19 outbreak has not only led to severe loss of lives around the world but caused major losses to crucial sectors, including aerospace. It would need considerable efforts and time for the industry to survive and recover.
After the outbreak of the COVID-19 pandemic, the global aviation industry is facing the worst crisis since the Wright Brothers invented the aircraft. With a majority of the commercial aircraft grounded, the industry is staring at an unprecedented situation. The revenue of airlines has plummeted and staff are sitting idle, along with taking pay cuts. The future itself poses mighty challenges to the sector.
After COVID-19 was reported in China, it was the airlines sector in Asia-Pacific that initially bore the brunt of the pandemic. “It’s an unprecedented crisis that has led to almost a stop in air traffic. It’s happened before, probably only in wartime, when we have seen something similar. That was a long time ago,” said International Air Transport Association (IATA) director general Alexandre de Juniac. The global aviation landscape is being changed, probably forever, by the COVID-19 pandemic.
“For airlines, its apocalypse now,” said de Juniac on the financial crisis confronting the association’s 290 member airlines. With 260 of its member carriers on the financial brink or losing money before COVID-19 was reported, and with more than 80 per cent of commercial passenger services grounded afterwards, the prospects for the world’s airlines could be catastrophic.
During the first three months of the crisis, the losses were US Dollars 252 billion. IATA does not expect airlines to return to their position of year-end 2019 anytime soon. Full recovery won’t take place until 2021. Fixed and semi-fixed costs amount to nearly 50 per cent of an airline’s costs. “We expect semi-fixed costs, including crew costs, to be reduced by a third. Airlines are cutting where they can, while trying to preserve their workforce and businesses for recovery,” IATA said.
Apart from airlines, airports are also suffering badly as their customers disappear. Along with air navigation service providers, they are losing billions of dollars after fees were suspended to ease the pain for airlines.
Aircraft companies too are experiencing disruption in production and slowing demand as workers go home, passengers stop traveling, and customers defer delivery of new aircraft, points out consulting firm Deloitte. Airbus, Boeing and Embraer are getting ready to handle requests from airlines to cancel or defer deliveries of aircraft that no longer are required, at least for some time.
Meanwhile, millions of aviation industry workers and employees at support service companies and in the travel sector have been given no-pay leave, stood down or made redundant. However, at airlines, recurring training programmes for staff such as cockpit and cabin crew must continue so they can be ready for a rapid return to work when the recovery starts. Similarly, engineers in the MRO (Maintenance, Repair and Overhaul) sector must be paid regularly to maintain the thousands of aircraft grounded across the region to ensure airline fleets can be safely returned to service when called up to fly.
At the same time, the one sector in the industry experiencing a revival in its business, after several
years of poor demand, is air freight. All-cargo aircraft are being kept busy delivering medical supplies to affected communities around the world. Airline data provider OAG, in a report, has explained the extent of the collapse and the difficulty of getting back to normal. It reported that in the last week of March alone, airlines removed just over 20 million scheduled seats from schedules worldwide. In percentage terms it was the single largest cut in capacity recorded by OAG at a global level. According to IATA, there is clearly a substantial risk of bankruptcies among airlines but the extent of losses depended on the strategies of various governments.