COVID-19 Considerations of IATA for Air Travel

Not so long ago, International Air Transport Association (“IATA”) stipulated that “Over the next two decades, the demand for air transport is expected to double.” in IATA 2019 Annual Report. However, indeed COVID-19 outbreak has turned the tables, and left the aviation industry to a rapid collapse. Following the pandemic’s inevitable worldwide spread, the growing anxiety of the passengers and restrictions on air travel have paved the way for dark days. Drawing attention to actual impacts of COVID-19, IATA as a trade association representing 290 airlines equivalent to 82% of the world aviation industry published sector focused statistics from a collaborative perspective including financial and operational dynamics. As per the latest monthly Air Passenger Market Analysis Report, in March 2020 the global passenger volumes dropped to the levels last scaled in 2006. In further, the statistics indicated that worldwide flights reduced by 80% in early days of April. According to the latest Economic Impact Report of IATA, the aviation industry might experience loss up to 314 billion USD corresponding to 55% of passenger revenues for the year 2020 due to travel bans and global recession driven by the COVID-19 outbreak. The forecasts of IATA do not promise an encouraging scene, since the recession is expected to be deeper. The response to recover the damages and to carry on performances may not be as rapid as aimed even after the COVID-19 impact abolishes. Herein it will be represented the key aspects of the IATA reports and forecasts in case the restrictions on air travel lift.

Decrease in Passenger Confidence

IATA remarks the passenger’s confidence as a definite contributing factor to aviation. Admittedly, the passengers ought to gain their confidence to rely on air travel once again. Without achieving such environment for passengers, the airline companies will be unlikely to recover and survive the COVID-19 crisis. Likewise, as stated by IATA “consumer confidence and regaining the trust of travelers will be integral to the timing and speed of industry recovery”. The survey conducted in 11 countries including Australia, Canada, France, Germany, India, Japan, Singapore, United Arab Emirates, United Kingdom(“UK”), Unites States(“US”) by IATA represents that the passengers are less reluctant to travel right away without waiting for the future developments. Moreover, passengers are more cautious about traveling as proven by the increasing number of the passengers decided not to travel for foreseeable future. As per the statistics, 40% of the passengers will wait at least six months to start traveling. Therefore, ensuring confidence of passengers is vital for airline companies to save themselves from any financial struggle or even bankruptcy. To this end, bankruptcy is unfortunately not a far future for the airline companies since it is experienced by many during the outbreak. For instance, Flybe Airlines cited as the Europe's biggest regional airline company operating 40% of the UK’s domestic flights was the first one to surrender to COVID-19 which declared its bankruptcy İn March 2020. Such financial collapse was followed by Trans States Airlines (US), Compass Airlines (US) and Virgin Australia (Australia).

The Impacts of Social Distancing on the Future of Air Travel

In the report dated May 8, 2020, IATA underlines the current and upcoming negative impacts of strict social distancing measures implied by the governments on the airlines. This report centralizes on the thesis that “social distancing would make most airlines financially unviable”. At this juncture, it is put forward that due to the social distancing measures imposed by the governments in many countries, airlines would likely to leave empty seats between passengers in the aircraft. Such forced implementations may reshape the understanding of the seat load factor in aviation industry so that the seat capacity could be cut down. Subject to the type and seat configuration of an aircraft, IATA foresees that this decrease may be up to 33%-50% of the available seat capacity. Eventually, in consideration of an entire fleet, the percentage draws even more depressing picture with bookable seat capacity reaching solely 62% of normal capacity. Owing that the load factor which refers to the proportion of filled seats on an aircraft is the building block of airlines, and affects directly the financial performance of those concerned, IATA asserts with the numbers indicated that less will survive such measures enforced.

The Position of Domestic Flights

In some of the countries affected by the pandemic such as China where domestic flight bans have started to be removed, the drop is clear compared to the past demand of passengers in terms of domestic flight statistics. Although a rise is seen with the fall in the number of COVID-19 cases in China, recovery will require time relying on the fact that the numbers are not at the level desired by the airlines. To evidence the overall damage of the pandemic on the recent world domestic market, IATA set forth that the domestic flights have plummeted by 70% as of April 21, 2020.  By virtue of the statistics, it is likely that even the domestic flights will have difficulties to reach out the levels hit prior to the pandemic since the relief would be uneasy and require patience and time.

Forecasts on Air Travel in case Restrictions Lift

It is questioned whether the elimination of the restrictions in borders would create a decrease or urge in the costs of air travel. IATA has set a light on the dilemma by highlighting the driving causes of low and high costs. IATA in its report called Cost of Air Travel Once Restrictions Start to Lift dated May 5, 2020 compares the elements impinging on the cost of air travel. As regards to this report, the influencers of higher costs are indicated as social distancing requirements, sanitization liabilities, infrastructure charges whereas the lower costs are weak demand, low fuel prices and excess in capacity of the aircrafts. As clarified above in the passenger confidence section, the demand is now and expected to be low for the first upcoming months, in doing so more aircrafts would be kept in storage day by day. As being far away from operated the aircrafts create an explicit excess in capacity which leads an ultimate overcapacity globally as per the relevant report. Additionally, in terms of fuel prices, IATA pinpoints that since limited air travel is permitted, less aircraft is in request of fuel purchasing so that with the oversupply in fuel brings the related costs down eventually. Above all, as targeted previously, social distancing measures restraining the costs furthest. According to estimations made by IATA in this respect, the flight rates would directly and adversely be affected by such measures as cleared out that “Fares 43-54% higher to get breakeven if 62% seats limit Unit costs would rise sharply with fewer seats. Zero profits assumed.” 

Author: Ezgi Aysima Kır