What are the Impact of Covid-19 on airline industry

30 Apr 2020  Read 482 Views

If you are packing your bags and planning your itineraries to set foot on a new country then, I am afraid as now is not a good time.  Because the airline industry is out-of-order until the “Covid-19 chaos” has been put to an end. On an average day more 100,000 flights spread their wings across the skies. But the pandemic has forced them to stay on the ground. Since the early march countries like US, UK, India implemented lockdown throughout the country and restricted entry or exit of any civilians. As a result of the lockdown, the airline industry around the world witnessed a sharp fall in demand. 

Worse than a nightmare

The airline industry was prone to a series of problems in the past. To name a few, the 9/11 attack, SARS and so on. But, the pandemic attacked it at an unprecedented magnitude. In short, the industry is hit by a huge iceberg at an unexpected time.  A few major damages caused to the industry are as follows, 

  • As per the estimates of IATA, if the situation continues then the industry may face a loss of about $113 billion. The airfares of major flyers fell more than 35% succeeding the lockdown. Even domestic travel is banned in most places. Hence, the revenue of the industry is hugely impacted. Though the flights are not operated there are a series of other costs which are to be met, such as maintenance costs.  And the cash reserves are also being exhausted at a faster pace. Hence, the various airlines are searching for sources to fund their operations. The Indian aviation sector is no better. According to reports, the Indian aviation industry may lose $3-4 billion by June.

 

  • Extreme cost-cutting measures are also followed by them. As a part of it, they laid off thousands of employees. More than 5 lakh jobs are threatened due to this. For instance, Air Deccan and Air Canada sent most of its employees home without any pay to meet their livelihood for the next few months or guarantee of a job in future, though they claim it to be a temporary situation.

 

  • The airline industry is also a major contributor to the GDP of most developed and developing countries. Approximately $72 billion of the GDP is generated from airlines and related sectors. As the industry is already bleeding, this part of the GDP will also be affected

 

  • As mentioned earlier, the operating cost and other costs are already squeezing the sector. Hence, a lot of airlines will file for bankruptcy in the near future. For instance, the Lufthansa Group has already started steps towards it. 

 

  • Acquisition and expansion activities which were planned prior to the spread has also been impacted. As of India, companies like Indigo were on the road of expanding their current business by 30%. But Covid-19 will put all those activities to serious doubt. 

 

Will the industry change the tides? 

The aviation industry is too big to fail. Hence, Governments are taking steps to rescue them. The FED came up with $58 billion bill in order to support the sinking aviation sector. They also offered various tax reliefs to them. South Korea sanctioned a loan of $254 billion to offset the losses of the low-cost carriers and the German Government has backed the Lufthansa group. Indian based airlines are also looking forward to a similar relief. 

Even if the lockdown or the curfew has been lifted, getting the consumer sentiments back on track will be a huge problem for these airlines. They are driven by fear and unpredictability, thus keeping most of them from travelling. Also, the airlines will have to implement new rules and measures in order to keep the spread in-tact.  For instance, they may incur additional operating costs such as cleaning the cabins after each flight, maintain social distancing on the board, etc. 

Currently, most of the top airlines are working with the government in transporting medical supplies and civilians. Airbus transports masks and other medical equipment from china. Qatar Airways, Air India is also on the list. 

“The higher the growth, the higher the fall”.

The airline industry saw phenomenal growth in the last 20 years. However, all that has been destroyed in just a couple of months. They will have to rebuild their kingdom once again.  But this time let’s hope that the sector is strong enough to stand another pandemic or crisis if at all. 

About the Author: Varishika Dinesh | 84 Post(s)

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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