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Analysis

Aviation Troubles Could Affect Other Economic Activities

By Alicia Arizpe | Tue, 12/08/2020 - 10:36

The damage to the aviation industry could have deep repercussions throughout many economic sectors and for many individuals. About 4.8 million jobs are at risk just in the aviation industry, warned IATA and the Transport Workers’ Federation (ITF), but damage to the sector could spill over other industries.

While the aviation industry represents 11.3 million jobs, the sector also generates 18.1 million indirect jobs and 13.5 million induced ones, explains the association Aviation Benefits Without Borders. Air travel is also essential to tourism, a sector on which 44.8 million jobs depend. The aviation industry represents about US$3.5 trillion of the world’s GDP. The sector is also key to trade, transporting about a third of the world’s trade even though it only represents about 1 percent of trade by volume. Just in 2019, air cargo globally was valued at US$6.5 trillion.

A year ago, the aviation industry seemed unstoppable. 2019 closed with a 4.2 percent growth in passenger traffic, a small slowdown from 2018’s 7.3 percent growth rate. The sector had grown at a steady pace from 2008’s economic recession and was expected to continue doing so for years to come. To reflect growth expectations, airlines and lessors placed orders for 768 Airbus aircraft, putting its backlog at 7,482 airplanes and leading the company to ramp up production of its best-selling airplanes. Boeing, on the other hand, had a more troubling year after the 243 orders it received were overshadowed by the 330 cancellations of the troubled 737 Max. Nonetheless, the US planemaker also closed 2019 with a 5,406-strong backlog, reflecting the aviation industry’s growth expectations.

This steadily growing industry, however, was thrown into disarray only three months into 2020. As the COVID-19 outbreak spread across continents, governments began closing their borders and urged their citizens to shelter in place. While safety policies varied from country to country, several underwent lockdowns or restrictions of several non-essential activities. Together with fear of the virus, these measures led to the slowdown of numerous economic sectors, including manufacturing, retail, hospitality, tourism and aviation, among many others. These circumstances led the world to the worst economic recession since World War II, according to the World Bank.

Damage to the aviation industry was deep. Industry associations were quick to name COVID-19 the worst crisis in the history of the sector. In March, a forecast from the International Air Transport Association (IATA), a global organization representing 290 airlines, estimated that the sector would see a US$113 billion loss in revenue against 2019’s US$838 billion gain. While this figure was seen at the time as a steep loss, it would pale in comparison to estimates made during the following months. Widespread lockdowns, closed borders, passenger’s fears and the global crisis, led IATA to reevaluate its forecast continuously as the situation evolved. During its most recent forecast, IATA estimated that the sector would see its revenue for 2020 cut by US$510 billion, while airlines would see US$118.5 billion evaporate during the year. “The history books will record 2020 as the industry’s worst financial year, bar none,” said Alexandre de Juniac, Director General and CEO of IATA.

While all regions across the globe have been impacted by a contraction in demand, Latin America stands out due to the number of airline bankruptcies. Latin America’s two largest airlines, Avianca and LATAM Airlines, filed for Chapter 11 bankruptcy protection within weeks of each other. While Avianca had a troubled 2019 that was worsened by COVID-19, LATAM Airlines had reported a stable financial position prior to the announcement of bankruptcy filing. A few months later, Mexico’s flagship airline Aeroméxico followed suit, quoting the drought in demand caused by the COVID-19 outbreak.

Were the region’s airlines to fall into bankruptcy, the repercussions might go beyond mobility and connectivity. Just in Latin America, the aviation industry represents about 722,000 direct jobs but supports almost 7 million more indirect jobs and 3.5 percent of the region’s GDP, according to Aviation Benefits Without Borders. Furthermore, every person working in the aviation or in aviation-supported tourism supported 9.6 other jobs, explains the association. “The aviation sector also facilitates a substantial amount of tourism in Latin America and the Caribbean. This stimulates still more economic activity, as tourists spend their money with restaurants, hotels, retailers, tour operators and other providers of consumer goods and services,” indicates a report from the association.

All countries in Latin America have been deeply affected by the outbreak. Mexico was projected to lose US$5.3 billion, putting 534,000 jobs at risk, explained Luis Noriega, President of CANAERO. Back in April, when COVID-19 cases started to shot up, Mexican airlines reported double-digit losses in traffic. During that month, Aeroméxico’s demand fell by 93.3 percent, Viva Aerobus’ by 85.7 percent and Volaris’ by 81.8 percent. However, the sector has bounced back to some extent as local airlines have gradually seen their demand increase throughout the following months. In its latest traffic reports, Mexico’s flagship airline Aeroméxico highlighted a 22.9 percent increase in demand during October 2020 in comparison to the previous month. Mexico’s ultra-low-cost airline Volaris also reported that its demand for October was 13.3 percent higher than in September 2020. Both airlines also reported they would increase their capacity and routes during the following months.

The industry, however, is still not out of the woods as airlines might face a harsh winter. “Historically, cash generated during the peak summer season helps to support airlines through the leaner winter months. Unfortunately, this year’s disastrous spring and summer provided no cushion. In fact, airlines burned cash throughout the period. And with no timetable for governments to reopen borders without travel-killing quarantines, we cannot rely on a year-end holiday season bounce to provide a bit of extra cash to tide us over until the spring,” said Alexandre de Juniac, Director General and CEO of IATA. These circumstances are forcing airlines to remain flexible until the situation stabilizes to quickly address sudden shifts in demand. “Due to the uncertainty caused by the pandemic, we are adjusting our operations each month as information becomes available. Before the outbreak, we would announce our flight plans every six months but now we are estimating flight plans only for some months as demand is fluctuating significantly,” said Felipe Bonifatti, Senior Director and Head of Sales Mexico, Central America and the Caribbean of Lufthansa.

To entice potential passengers to travel during these difficult times while prioritizing their safety, IATA and Airports Council International (ACI) issued the “Safely Restarting Aviation - ACI and IATA Joint Approach.” This paper introduces a series of steps throughout the passenger’s entire journey to minimize the risk of COVID-19 transmission at airports and in aircraft. This report lists a series of recommendations that begin before the passenger arrives to the airport, including travelers filling up internet forms that facilitate contact tracing. At the terminal, only passengers should be allowed inside to reduce crowds. Also, social-distancing measures should be enforced at airports. Other measures include the use of personal protective equipment, COVID-19 testing, self-bag drop, constant disinfection of premises and immunity passports.

Airlines and airports have been implementing several strategies to regain passenger confidence. “Our aircraft are equipped with HEPA air filters, which eliminate 99,98 percent of all bacteria and virus in the air, which is also filtered out and replenished every three to four minutes. Moreover, aircraft have a vertical air flow, from top to bottom, similar to a surgery room, which also prevents crossed air flows within the cabin,” said Bonifatti. “The risk of catching COVID-19 on a plane is minimal due to the way the air circulates and is filtered.”

Alicia Arizpe Alicia Arizpe Senior Writer