How travel restrictions and traveller trepidation are affecting airlines, aircraft makers, suppliers and others – and what they’re doing about it.
The sprawling air travel industry was on a growth trajectory prior to COVID-19. Over 100,000 commercial flights a day took off last year, transporting 4.5 billion passengers. The Air Transport Action Group says that these trips supported 10 million jobs, including 6 million airport staff, 2.7 million airline workers, and 1.2 million in aircraft manufacturing. They also helped bring in revenues of $170 billion for airports and $838 billion for airlines. The aerospace industry had about $600 billion in overall sales, with Airbus and Boeing accounting for $100 billion. Including travel firms such as Expedia and Trip.com, the industry earned some $1.3 trillion in annual revenues.
That was then, and this is now. With ticket sales taking a nosedive and air-transport revenues expected to fall by 50% this year, airlines are forced to come up with survival strategies. People are still flying, mostly domestic in bigger markets, but business travel is anaemic and wide-body jets for long-haul flights sit empty. Aerospace executives are wary, and airlines are jettisoning their jets. Aviation research firm IBA expects 800 planes worldwide will be retired early.
Rather than ramping up production as planned, aircraft makers are having to reverse course. Airbus and Boeing have each cut back production of wide-body planes. Along with Embraer and Bombardier, they will sell far fewer planes than planned. Consulting firm Oliver Wyman estimates that by 2030 the global fleet will be 12% smaller than if growth had continued. By The Economist’s calculation, this amounts to 4,700 fewer planes.
Orders will not evaporate entirely, however, as airlines and leasing firms are required to accept aircraft on order, though deliveries are being deferred. This means aircraft makers will have to carry inventory, but the artificially high production will help sustain the supply chain – a vast web including manufacturers of engines, parts, specialised materials and many others.
It is also business as unusual at the world’s airports, which earn about 60% of their revenues from airlines and passengers, and the rest from amenities like parking and retail. The Airport Restaurant & Retail Association predicts that airport shops and restaurants in the U.S. will lose $3.4 billion through the end of 2021. Standard & Poor’s downgraded the debt of four European airports in July, and expects big cuts to capital spending by European airports in 2020-2023.
This does not mean that airlines, aircraft makers, airports and suppliers have lost the will to survive. There are opportunities to be found within the crisis. Restructuring and becoming leaner could be beneficial to firms in the long run. Those that fail will leave gaps in the market. Carriers can take advantage of more affordable aircraft and more available talent in order to gain market share. And as others alter their financial structures, there could be a growth spurt in leasing.
One major upside could be the environmental benefits of less air travel. There are fewer planes in the sky right now, and looking to the future, the industry is reconsidering its environmental impact. Airlines that have the will and the means could make their fleets greener. CEO Warren East of Rolls-Royce, one of the world’s top aircraft engine suppliers, suggests that the “pre-COVID call for sustainability will come back stronger than ever”. Airbus CEO Guillaume Faury said his company remains committed to a goal of zero emissions. Its American counterpart, Boeing, will have to follow its leads to compete.
