The International Air Transport Association’s (IATA) global passenger traffic data for February 2020 reflects that passenger demand fell by 14.1%, when compared to February 2019. The United Nation’s International Civil Aviation Organization (ICAO) forecasts that the direct impact of the COVID-19 outbreak is expected to be greater than that caused by SARS in 2003 due to higher scale of flight cancellations and bigger economic size/air travel market of the Asia Pacific region. As governments worldwide look to suppress the transmission of coronavirus with the closure of borders, it presents a grim outlook for the global aviation sector. At a time during which people are avoiding travel, it has become nearly impossible for the airlines to run businesses that operate with the sole purpose of connecting the world.
The aviation sector has always struggled to make significant profits – hyper competition, susceptibility to geopolitical shocks, low margins and a high level of capital intensity make the industry one of the most challenging to play in. An industry where fixed costs are high and profit margins are slim, cash flow is the fuel and if that stops, airlines die. The airlines are distinctive in the sense that they collect money beforehand and the service is offered at a later date which essentially means that an airline sells for cash-flow and flies for profit or loss.
With forward bookings already down by 80% and international capacity down by 70%, IATA forecasts the global demand to drop by 50% ahead and yields by 25%. Thus, airlines are compelled to look at provisional measures to produce cash, pin faith on their balance sheet robustness or ensure that the cash flow impact is alleviated via other preventive interventions such as capacity cutting which is the last resort for an airline on the road to stay sustainable.
With unprecedented aftermaths, many airlines have grounded almost all of the planes in their fleet while some have permanently retired a few of the wide body aircrafts. As of 13 April 2020, 47 commercial airlines had temporarily suspended operations and the number is increasing with each passing day. Emirates, a super connector Gulf airline that operates with the world’s largest fleets of Airbus A380s’ and Boeing 777s’ with over 1800 flights per week catering to 140+ destinations in over 80 countries from its global hub in Dubai has closed down passenger operation after the UAE Government decided to suspend all inbound and outbound passenger flights.
India, which is currently the fastest growing aviation market with 650 aircrafts, has grounded the entire fleet for commercial operations after the Indian Government announced a 21 day complete lockdown on 24th March 2020. The preventive measures have lead the international air passenger traffic falling to near zero while the domestic traffic fall to 30%, which is sharply accelerating towards 75%. Aviation consultancy firm CAPA estimates that despite the fall in crude oil prices, the current lockdown in India could lead to a 9% loss in passenger volumes and $3.6 billion loss in passenger base revenues in the first quarter of fiscal year 2021. The pandemic has led to cancellation of over 500 weekly flights between India and Dubai, a lucrative route which recorded 11 million passengers in 2019 remains to be the top international destination for Indians and is one of the busiest air traffic routes. The latest IATA figures voice that UAE has 23.8 million fewer passengers resulting in $5.36 billion revenue loss, risking 217,570 jobs, while Qatar has 3.6 million fewer passengers resulting in $1.32 billion revenue loss. Jordan has 2.8 million fewer passengers resulting in $0.5 billion revenue loss, risking 26,400 jobs.