ICAO: Aviation Industry in 2020

As of 6 April 2020, 96% of all world destinations have implemented travel restrictions. About 90 destinations were completely or partially closed for tourists, while another 44 destinations were reportedly closing their borders.

Apart from that, many airlines are now capping their aircraft occupancy amid the pandemic. New seating patterns have been designed with the middle seat left empty. To ensure social distancing for passengers, some airlines such as Delta are blocking certain window and aisle seats from being booked. This has further reduced capacity.

The International Civil Aviation Organization (ICAO) has built a scenario to help gauge potential economic implications of the Covid-19 pandemic. Scenarios are not forecast. Given rapidly changing circumstances, these are merely indicative of possible paths or consequential outcomes out of many.

Considering shapes of economic recession and recovery, ICAO has developed four different recovery paths (“Nike swoosh”, “W”, “U” and “L”) under two indicative scenarios: -

Baseline (counterfactual, no COVID-19 pandemic) –      Originally planned or business as usual: trend line growth from 2019 level Scenario 1 –      Path 1 (“Nike swoosh”-shaped): Smooth capacity recovery to 80% of Baseline level by December with pent-up demand –      Path 1a (W-shaped): Capacity to start with smooth recovery but then turn back down due to over-capacity Scenario 2 –      Path 2 (U-shaped): Slow progression of capacity recovery to 60%, picking up more demand in 4Q –      Path 2a (L-shaped): Recovery to 40% at diminishing speed due to respite and continuous demand slump Reference (V-shaped, based on the latest airlines schedules) –      Currently planned: Weekly changes (some airlines have not yet filed 4Q schedules)

Seat Capacity Change Compared to Baseline

Prior to the outbreak, airlines had planned to increase seat capacity in 2020 by 3.5%, compared to 2019. However according to ICAO’s estimation, seating capacity could drop 40% to 53% below the Baseline level. Biggest capacity reduction is expected to be in the Middle East.

World Total Passenger Numbers Compared to Baseline & 2019

Under the Baseline scenario, passenger demand could have increased 187 million for 2020 as compared to 2019, given the originally planned seat capacity. ICAO projected that passenger demand could instead reduce from the Baseline by 2,247 million to 2,915 million, or 2,061 million to 2,728 million below the 2019 level. The most substantial demand reduction is expected to be in the Asia/Pacific.

Passenger Revenues Compared to Baseline

Without Covid-19, airlines’ gross passenger operating revenues could have increased USD 22 billion for 2020, compared to 2019. However according to the latest estimates, airlines’ revenue could instead slip USD 297 billion to 384 billion below the Baseline. Approximately 60% of revenue loss would be recorded by Asia/Pacific and Europe.

Recession shape can always change given the uncertain outlook. How long will the pandemic last? How severe it could affect the economy? How confident are travellers to travel with airlines? How would business structure and consumer behaviours change?

IATA said (on 3rd June) that the unprecedented low traffic in April may have been the bottom, as flights rose 30% in May from April, though still 73% below 1st Jan. Meanwhile, business confidence has turned up in key economies – PMI indices in China, US, Germany and Japan are rising. Global travel bookings have also shown some improvement throughout May. All these are good signs for the aviation sector as well as for the tourism industry.

Hopefully we have passed the inflexion point!

Reference:

1.      Effects of Novel Coronavirus (COVID‐19) on Civil Aviation: Economic Impact Analysis, 1 June 2020, ICAO

2.       Covid-19: Air Travel Reaching a Turning Point, 3 June 2020, IATA