Introduction
The recent COVID-19 pandemic has affected every business and industry in its way. While some businesses strived in a new environment, airlines have suffered many financial losses due to restricted traveling. As commercial flights became obsolete in the era of lockdowns and closed borders, airlines struggled to stay on the market. The aviation industry experiences financial issues due to the lockdown and suspending flights. As the customers’ demand decreased, the airlines started to rely on governmental support and operational changes in revenue management. Airlines’ recovery is a long and non-linear process involving multiple factors and changes in customer demands.
Aviation Issues
Aviation experiences many issues including the consequences of the COVID-19 pandemics. For example, governments introduce taxes to increase their revenues from air transport (ICAO, 2016). They justify this decision with increasing environmental concerns. However, these taxes become a burden for aviation, significantly aggravating financial issues for air transport. ICAO’s limitations on aircraft fuel efficiency, emissions, and noise management deteriorate even more with a flourishing pandemic.
While some airlines managed to stay afloat longer than others with the pandemics’ occurrence, many still fell to function in new market conditions. Governments urged citizens to cancel all flights to stay protected. Countries were closing their borders and airports were suspending flights (Gossling et al., 2020). No wonder aviation could not function correctly under such restrictions. Gossling et al. (2020) highlight that FlyBe, the British airline, declared bankruptcy on 5 March 2020. Scandinavian Airlines, Singapore Airlines, and Virgin have turned to their states in seeking financial aid during March 2020. International Civil Aviation Organization (2022) estimated that number of passengers declined by 60 percent in 2020 compared to 2019. This drastic decrease in the number of passengers has contributed to financial burdens which airlines had to overcome.
Airline Recovery
As airlines remain one of the most influenced industries amid lockdowns, there are different estimates as to when they will be able to recover. The link between recovery and infection rate is harder to predict with time, as there are more infected people. However, McKinsey & Company has stated that aviation will reach the pre-pandemic profit levels at least in 2024 (Bouwer et al., 2021). In comparison, some firms are less optimistic, estimating airlines to recover in 2025 (Weston et al., 2022). Although estimates are directed toward different periods, it is evident that recovery is a challenging and lengthy process. Despite these estimates, some airlines, such as Emirates, have claimed that they will return to pre-pandemic operations much sooner (Khan, 2022). Therefore, they hope to solve this problem in a short time with minimal costs.
Government Bailouts
One of the most prominent ways to help recovery is to receive government aid. This solution includes “(i) loans and loan guarantees, (ii) equity acquisitions, (iii) hybrids (a mix of debt and equity financing), (iv) wage subsidies” (Lee, 2021). Many airlines, such as TAP Air Portugal, Lufthansa Group, and Air Baltic in Europe, decided to take bail from their governments (Bouwer et al., 2021). This decision helped them to start recovery with external support.
For example, Emirates Airlines has received 3.1 billion dollars of aid from the government (Arabian Business, 2021). Some experts did not believe in Emirates’ recovery post-pandemic, as the flying Company did not have a domestic market to make up for the losses on the international market Government’s help has contributed to hasty recovery, with Emirates estimated to recover by 2023 (Khan, 2022). The aid from the government and its intervention became convenient for many airlines struggling through the COVID-19 slump. However, it causes significant changes in the airline industry in the future. Lee (2021) claims that receiving bailouts from the state can make international competition less dynamic and alter the industry. Thus, the competition among airlines will be affected by government aid post-pandemic, which can haul the competition in the long term.
Reconsidering Travel Strategies
Many industries are reconceptualizing to fit the new post-pandemic normal, which can be one of the solutions for the airline industry. Experts indicate that airlines should rely on leisure travel and visits to family members (Bouwer et al., 2021). For Air Canada, this means considering making these flights more comfortable and safer to promote airlines in the long term. This airline decided that rethinking previous aspects of the airline’s functioning, particularly in revenue management, is crucial to recovery (Deloitte, 2022). Air Canada started forecasting customer demand and reduced costs by retiring 79 unnecessary aircraft. Furthermore, it implemented a cost-effective strategy to consolidate terminals, furlough staff, and close concessions. Air Canada asked for tax relief and focused on generating revenue after cutting all the expenses. Thus, their main focus is to reduce all possible costs and focus only on flights that bring profit to recover after COVID-19.
Conclusion
The post-pandemic world is complex and unpredictable, especially for industries. Not every growth and decline rate correlates with infection rates anymore, and multiple factors play a role in patterns now. COVID-19 pandemic has heavily affected airlines, especially the international airline industry. This report highlights issues faced by airlines and provides an analysis of standard solutions. Many airlines rely on short-term solutions like government bailout, whereas long-term solutions involving a change in the travel strategies can alter the aviation industry. Nevertheless, airlines aim to be more flexible towards customer adjustments and to operate under stressful situations.
References
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Bouwer, J., Saxon S., & Wittkamp N. (2021). Back to the future? Airline sector poised for change post-COVID-19. McKinsey & Company.
Deloitte. (2022). Aviation’s recovery flight plan.
Gossling, S., Scott, D., & Hall, C. (2020). Pandemics, tourism and global change: a rapid assessment of COVID-19. Journal of Sustainable Tourism, 29(1), 1-20.
International Civil Aviation Organization. (2022). Effects of novel coronavirus (COVID-19) on civil Aviation: Economic impact analysis.
International Civil Aviation Organization (ICAO). (2016). ICAO standards and policies related to environmental protection.
Khan, S. (2022). Emirates aims to return to 100% of pre-pandemic operations and network capacity in 2023. The National News.
Lee, J. (2021). Government bailouts of airlines in the COVID-19 crisis: Improving transparency in international air transport. Journal of International Economic Law, 24, 703-723.
Weston, J., Schulte A., Gerow D., Kurganov Y., & Khomenko R. (2022). Air travel forecast: When will airlines recover from Covid-19? Bain & Company.