Implications of Covid-19 on Aviation Industry-
Implications of Covid-19 on Aviation Industry-
As the Indian government put a lockdown as on 25th March 2020, India’s top six airports including the two biggest hubs of New Delhi and Mumbai, are now home to about 80% of the grounded civilian aircraft. This initiative was taken in consideration of the wide spread of Covid-19. All in all there are a total of 650 planes operating under Indian carriers. Parking of these planes is not an issue as the area of all airports, including the airports falling under government (AAI) can together facilitate the parking of many more number of planes. This was confirmed by a senior official of AAI. Airport officials said that Delhi airport itself has parking bays for about 196 aircraft and Mumbai has place for about 100 aircraft. Due to Covid-19 aviation sector has faced a huge crash. If this situation continues for a long time, many company might even go bankrupt. There are about $200 billion in loan to avoid bankruptcies. There has been a cash burn of $61 billion by the companies. Year 2020 will lead to a 44% drop in the aviation sector’s total revenue. Currently 70-90% of air traffic is still. Almost 75 million jobs are at risk. Air cargo traffic tends to be more sensitive to economic growth than passenger demand and also a lead indicator. Already showing negative growth in 2019, cargo contributed only 12% of world airline revenue last year.
However, given air cargo's usual added sensitivity to economic downturns, it is ironic that it is currently proving more robust than passenger traffic. Crucial for keeping supply chains open, particularly for food, pharmaceuticals and other essential sectors, air freight is not subject to the same COVID-19-related restrictions as passengers. Freighters in service are relatively stable compared with passenger aircraft, particularly among wide bodies. However, passenger belly space is a massive contributor to cargo capacity. Reduced passenger networks mean that cargo capacity has fallen heavily year-on-year in all regions, but less so than passenger capacity. According to IATA analysis published on 31-Mar-2020, airline industry revenue for 2Q2020 is expected to fall by 68% year-on-year. This is less than the anticipated 71% drop in RPKs, thanks in part to cargo revenue, but not by much. Cargo revenue certainly helps, but is not enough.
Lufthansa was the first company to announce measure to fight the pandemic. Lufthansa airlines will no longer will be transporting live animals in the recent scenarios of coronavirus pandemic. This decision was imposed on 17th March 2020 and until 4th May 2020 (Until now). The main reason is that the probability of short-term flight plan change and delay in transportation is high, due to which animal welfare is taken into account by initiating this step. The airlines have made their customers aware of the situation and the decision taken. They humbly request their passengers to make some other arrangement for the same until 4th May 2020. They will offer again the transportation of live animals (AVI) from 4th May 2020 (as of now). This transportation will happen to and from Frankfurt (FRA). However there will be no transit shipment and all the animal transportation that requires a personal escort will be put to hold until further notice. Flight which directly made movement to and from India have been discontinued until any further announcement. Till the end of April regions like Damman (DMM) and Riyadh (RUH) will also not be served. Services will be provided to the subcontinent, to be precise in the areas such as Hong Kong (HKG) and Ho Chi Minh City (SGN) but in rotations. Due to which areas like Chennai (MAA) and Bengaluru (BLR) will be served two times in a week. The rotation followed by freighter flights having destination of MAA and SGN will be as following (two times in a week)
Frankfurt (FRA) – Chennai (MAA) – Bangkok (BKK) – Ho Chi Minh City (SGN) – Frankfurt (FRA)
Lufthansa Cargo has joined paths with Austrian Airways and have taken this decision to eliminate the scarcity of air freighters between Europe and Asia. The group decided after the holy festival Easter is celebrated, 35 weekly flights of Lufthansa passenger aircraft will be added only for cargo transport. We can increase the average capacity by 30 tons in each practice by loading the cargo in the cabin space as well. To increase the possible cargo volume, especially for the transportation of comparatively light goods such as protective masks, initially 4 Lufthansa aircrafts’ cabin interior parts will be removed.
Avition Industry after Covid-19:-
1. Massive consolidation
One of the most likely consequences, inherent in the massive indebtedness of airlines and the profitability of air transport, is the bankruptcy of many companies. Massive consolidation will follow. However, one may wonder about the US market, which already has only four airlines: three traditional airlines (American Airlines, United, Delta) which account for +/- 53% of the US domestic market and 48% of all national and international traffic. One low-cost airline (Southwest Airlines, 15% of the domestic market, 11% of the overall market). This extreme situation is the result of a consolidation process which began 40 years ago with Jimmy Carter’s Deregulation Act of 1978. How, therefore, could we go further than that in the United States? Of the 3 traditional airlines, Delta is the most profitable (14.07% against 9.9% for United and 6.3% for American Airlines). In the end, it is American Airlines which is the least profitable because its debt is massive ($34 billion). It is, therefore, the number one candidate for bankruptcy, a situation it had already experienced in 2011. We can, therefore, expect to see only 2+1 airlines remaining in the United States. In Europe, only the large national airlines will survive thanks to temporary nationalisations or massive cash injections. But for the smaller companies (especially those that have been absorbed by the Lufthansa group), we can legitimately wonder. If they survive (which I believe they will), it will only be at the cost of significant restructuring plans.
2. Low demand
The psychological after-effects caused by confinement and Covid19 will lead consumers to modify their behaviour, particularly concerning mobility. Planes, which are confined spaces, will be abandoned in favour of private means of transport. Aircraft occupancy rates will therefore fall, leading airlines to reduce traffic and eliminate direct routes.
3. Enhanced security measures
Passengers will demand new measures to ensure their health safety inside the aircraft cabin. This could take the form of pre-boarding checks, including systematic temperature checks. But it is also conceivable that more widespread monitoring could be introduced, in the form of electronic bracelets to detect variations in vital signs. Systems for massive remote temperature monitoring are currently being tested or already developed. Baidu, for example, has developed a method for scanning the temperature of 200 people per minute. Airports lend themselves well to individualized checks (think, for instance, of checks on entry to the United States) and, following the example of what was done in Hong Kong with the compulsory bracelet, it is conceivable that this information will eventually be associated with the passenger’s profile. Look, for example, at what Etihad announced to introduce.
4. Strengthening the role of hubs
The hubs will become even more important because passengers will have to be concentrated to ensure sufficient aircraft load factor. This metric will perhaps become the most important of all. Regional or smaller airports will see a decrease in traffic. In hubs, the reduction of direct traffic will lead to longer waits and higher concentrations of waiting passengers. Space arrangements will have to be made to separate and protect passengers from each other. The VIP lounges (Business Lounges) will be the first places to benefit from these facilities to preserve the customers who bring in the most money for the airlines. Specific boarding procedures will be developed further to separate this clientele from the rest of the passengers.
5. New growth cycle for Ryanair and new fee-based services
Low-cost airlines (Ryanair in the lead) could take advantage of this change to negotiate harder for their establishment in second-class airports and build the foundations for a future growth cycle. Remember that Ryanair is the leading European airline (152.4m passengers in 2019) and that the increase in its traffic is based on the constant opening of new destinations. The coronavirus crisis could, therefore, be an unprecedented opportunity for the Irish company (after a period of a sharp decline in its traffic, of course). Its low prices would continue to attract customers, and it is a safe bet that the overflowing imagination of its boss could lead to some innovations to guarantee the health safety of passengers on board. I will bet on the wearing of mandatory masks and the billing of these masks if you have forgotten them. Ryanair stewards will offer new products: gloves, disinfectant gel, and various accessories to guarantee your safety at your destination.
6. The end of giant planes
Like Lufthansa, which is removing six Airbus A380s from its fleet, giant aircraft will be used less and less. As airlines need more flexibility, they will opt above all for medium-capacity aircraft whose profitability is achieved with fewer passengers. Manufacturers such as Embraer and Bombardier could see their order books fill up faster than those of Airbus and Boeing. Beyond the problems of the 737Max, the two aerospace giants will see their production rates melt like snow, with rapid repercussions on the entire supplier ecosystem. In an extreme scenario, Brexit could provide an excellent excuse to eliminate any UK contribution to Airbus construction and bring production back to continental Europe. The consequences for Emirates, which has the largest fleet of A380s (123 aircraft on order), also need to be considered. Its boss, Tim Clark, may well regret having said that Emirates was the only company that knew how to use this giant aircraft. In any case, Emirates is looking for billions of dollars in loans to save itself.
7. The end of 1st class
The demand for improved travel conditions, without additional passengers, could boost business aviation. Lufthansa already offers such a service through NetJets, but may be tempted to invest in this niche and end its first-class offer.
It is estimated that the total cost of Covid-19 will be 252 billion dollars. Although the oil prices have fallen significantly (-$13/barrel Brent) since the beginning of the year. This could cut costs up to $28 billion on the 2020 fuel bill (on top of those savings which would be achieved as a result of reduced operations) which would provide some relief but would not significantly cushion the devastating impact that COVID-19 is having on demand. But another problem that the aviation industry faces are the parking fees. Parking fees will also be one of the major factors leading to bankruptcies. The government is yet to speak on this matter.
Srishti Malkotia [BBA Aviation] Manager Aviation AirCrews Aviation Pvt Ltd firstname.lastname@example.org www.AircrewsAviation.com