The Collapse of the Aviation Industry Through Covid-19: Losses and the Future

Since the beginning of the Covid-19 pandemic, the aviation industry has largely suffered due to government-imposed restrictions and a lack of consumer interest to fly abroad. This has caused an abundance of problems for large competitive airlines as well as airports; profits plummeted and many businesses were forced to implement immediate changes to business operations. Governments worldwide have attempted to support airlines through the pandemic, and a reported $161.9 billion of government aid was provided in the form of wage subsidies, corporate taxation and other means. This aid may have saved many airlines from going into administration and also protected millions of jobs in the industry.

Despite this help, there exists significant evidence which shows that the industry is still struggling. With no certainty as to when the pandemic will end, these businesses will likely continue to struggle for the foreseeable future. To understand just how badly the industry has been affected, it is important to compare figures from pre-pandemic years to those in 2020/2021. It is no surprise that the national lockdown in the UK acted as a catalyst for consumer spending to fall, but when compared to those from other years, transparency is provided to show just how badly the industry has been impacted.

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The predicted profit losses

At the beginning of the pandemic, an estimated revenue loss of $370 billion was expected in 2020 for the airline industry worldwide. This caused significant panic within the market and forced airlines to do the unexpected. Even amongst the market leaders, without changes to operations, this predicted revenue loss would cause a significant impact on the success of airlines. Examples of these urgent changes are seen by companies such as EasyJet, who in March 2020 announced that it had grounded an entire fleet of planes due to travel restrictions imposed by Covid-19. This removed significant operating costs, and alongside plans to join the furlough scheme set up by the UK Government, enabled EasyJet to reduce overall losses and survive throughout these unprecedented times.

The International Air Transport Association predicted that airlines will lose around $39 billion in 2021, and with the year already halfway through, this number has already risen to $47.7 billion. This means many competitive airlines are losing a significant part of their profit, and are being forced to restructure and change their operations to accommodate. To put this loss into perspective, in 2019, the US airline industry generated a total operating profit of $247.64 billion, and with the prediction of losses to likely increase by the end of 2021, this would mean almost 20% of operating profit is being lost. Even more shockingly, collectively, the forecasted losses are likely to be five times more than losses accumulated during the 2008-2009 recession.

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The lasting effects

Those businesses unable to make significant changes to their business operations faced more than just lost revenue. Market share played a key role in the survival of companies as, expectedly, those with greater previous profits had the means to combat excess losses. One airline that was not able to do this is Flybe, who in March 2020 went into administration after struggling to raise funds. This was due to a steep fall in bookings from the beginning of Covid-19. Despite facing other problems throughout prior months before the pandemic, the Government restrictions were ultimately too problematic for the UK airline. As a result, more than 2,000 jobs were lost, which proved detrimental to many individuals at only the beginning of lockdown.

Even those airlines that survived the first lockdown are expected to continue to struggle for the foreseeable future. With stringent safety and hygiene standards alongside Covid-19 vaccine passports and national lockdowns rising again, it is hard to see how airlines will cope with the shifting market. Despite these challenges, the lasting impact that Covid-19 will have on consumer choices may cause even the largest airlines to suffer incurable losses. In a recent evaluation, it was found that business travel will take longer to recover than leisure flights, and even then it is only expected to recover by 80% by 2024. Business travellers only account for 12% of airline’s passengers, however, contribute to as much as 75% of their profits. Without this making a quick return, profits could be restricted further.

It is also important to consider consumer spending as airlines will be actively relying on consumers to re-boost their profits. Barclays has recently reported that the aviation industry was the hardest hit market in 2020 and 2021, with spending on airlines down by 81.6% and 87.2% respectively. If this does not begin to rise, more losses will be created.

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What is to come for the aviation industry?

With national lockdowns still present in 2021, it is hard to predict how much longer the aviation industry will struggle to produce high-profit margins. Currently, almost all airlines are reliant on government advice, such as the green, amber and red list of countries that individuals can enter. With this changing frequently, businesses must continue to be flexible with where they offer flights and the prices they are charging consumers. Without doing so, it could mean these short-term losses turn into long-term complications further down the line.