Airline industry poised to change following
It’s hard to quantify just how COVID-19 has affected airlines. In 2020, the industry’s revenues were $328 billion. That’s approximately 40 percent less than the prior year’s. If you look at it in terms of nominal, it’s exactly the same as 2000. The industry is predicted to shrink for the future years; we believe that traffic will not reach levels of 2019 until 2024.
While financial woes are not the only issue, however, the longer-term consequences of the pandemic on aviation are becoming apparent. There are some obvious effects: health and safety standards will be stricter, and the digitalization process will continue to change the way we travel. Mobile apps are used to save travelers’ certificate of vaccination and the COVID-19 results.
The other effects are more severe. Contrary to the 2008 economic crisis that was only economic and led to a decrease in spending power, COVID-19 altered consumer behavior and the entire airline industry–in a way that is irreversible.
This article will examine five fundamental changes in the aviation industry that resulted out of the cholera pandemic. In each one of the changes, we issue an invitation to take action. By addressing these shifts with a decisive response, the carriers will be able to look beyond the pandemic to adapt to the eventual realities of COVID-19.
Business travel is expected to take longer to recover from, and even if it does, we believe that it could only return to about 80 percent preandemic levels in 2024. remote work, as well as other flex work options, are expected to continue in some form post-pandemic, and individuals will be less likely to take business trips.
In the past, vacations or trips to family and friends tended to recover first, which was the situation with the United Kingdom following 9/11 and the global financial crisis (Exhibit 1.). It was not just that business travel took four years to get back to pre-crisis levels following the terrorist attacks at the World Trade Center, but they weren’t yet able to return to pre-crisis levels before COVID-19 began to spread in the year 2020. So, we anticipate that, as the disease is cured, the growth in leisure travel will be more rapid than the growth of business travel.
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Certain airlines are heavily dependent on business travelers, both those who travel in business class as well as those who reserve seats in economy class just prior to their travel. While leisure travelers fill the majority of seating on planes and to cover a significant portion of fixed expenses but their total financial contribution in terms of net marginal value are minimal, if not negative. The majority of the earnings during long-haul flights is generated by a tiny segment of passengers with high yields, typically on business trips. But the pool of profit-generating passengers has diminished due to the epidemic.