Air Travel and Tourism in turmoil- the effects of SARS COV 2 in 2020

Just Imagine

Imagine that you are a CEO of a very successful business that has operations across the globe, has well trained staff, and is constantly growing year on year. Sounds great doesn’t it?

Now imagine that in less than a month you previously successful business is in shambles- your customers have disappeared, your business cannot operate anymore and your staff is not allowed to go to work by the government. Sounds like a recipe for disaster doesn’t it?

Well this is exactly what happened to the travel and tourism industries, which have been hit hard by the world’s first global pandemic of the 2020s- the one caused by the SARS COV 2 virus.

Before the pandemic

Air travel and tourism are too intricately linked industries, which is no surprise given that the explosion of population growth, and the increase in spending power, especially in Asian countries. This has enabled air travel to increase its’ share of travel from 46% in 2000 to 58% in 2018 thus making air travel the highest growing type of transportation worldwide.

The air travel industry is a very profitable business, proved by the profits it generates. Just in 2018 they reached as high as $38.4 billion in net profit; this marked the 10th consecutive year when airlines were profitable. The latest projection published by the International Air Transport Association(IATA) in December 2019(prior to SARS COV 2) projected that employment would reach 3 million people globally, thereby signaling the strong growth the aviation industry had experienced over a number of years. Just before the virus air travel was one of the fastest growing areas of travel, projected to reach 8.2 billion air travelers by 2037 with the majority coming from the Asia-Pacific region. The optimistic projections a few years ago were that airplanes would top 39,000 aircraft with close to half of them going to the Asian market, which was growing at incredible speed. This was especially evident in the budget air travel segment, which was booming in Asia and Europe. Projections for 2035 were that close to an additional 2.1 million personnel would be needed to operate the new airplanes and routes with 617,000 pilots needed.  

Similarly, tourism was a very dynamic and growing industry over the last decade. Based on data from the World Tourism Organization (UNWTO) the tourism industry experienced a remarkable growth from 674 million since 1999 to 1.5 billion international tourist arrival recorded in 2019. In fact, tourism has been growing on average 5% for close to a decade. The majority of travels were to Europe-742 million (51%), followed by Asia-364 million (25%) and the Americas-200 million (15%). This phenomenal expansion was fueled by travelers from China, who accounted for 1/10 of all international travels and fueled by the increased spending by the Chinese middle class, which has outpaced the United States of America ever since 2012. Just in 2019 international tourism exports were worth $1.7 trillion. Leisure travel has led this explosion in growth and accounted for 56% of all trips.

However, the SARS COV 2 virus changed all that in an instant.

The virus strikes

The virus- SARS COV 2, which was first reported in China at the end of December quickly spread across the globe and has had a tremendous impact on every single economy and country.

Unfortunately, this impact was felt immediately by two very large and internationally connected industries, namely aviation and tourism industry.

IATA estimates that airlines had burned close to $61 billion in reserves. Airlines were immediately impacted as global air travel ground to a standstill. In some countries, like the USA, air travel is down by close to 96% and airlines have been forced to ground huge numbers of their planes.  The situation is so dire that more than 16,000 airplanes have been grounded, which has meant that vast amounts of runaways and highways were packed. As an example KLM was forced to ground more than 200 aircraft at Schiphol Airport.

The major issue is not even the fact that the planes are grounded but also that they need constant maintenance to protect them from humidity, birds and other adverse conditions. The grounding of such vast numbers of planes is enormous and runs into the billions of dollars.  In addition, to that a lot of them have huge operating costs as servicing an airplane is an expensive affair. Not only that but the huge amounts of cancelled flights, customers requesting refunds and inability to operate in any viable scenario meant that have zero revenue and only costs and that has pushed them into a very tight corner, which was something not imaginable just a few months ago.

Not only that but major airlines have been forced to undertake unprecedented measures such as requesting government loans and bailouts that would seem them weather the current crisis.

Air France-KLM received close to €10 billion from both the French and Dutch governments; In the USA airlines have received close to $50 billion. Germany’s Lufthansa managed to get a rescue package of around $10 billion. A similar scenario is being followed by all of the major airlines across the globe. However, even these bailouts won’t be enough to negate all of the negative effects and airlines have already announced severe job reduction programs- British Airways announced job cuts of 12,000; Ryan Air- 3000; Lufthansa announced that as high 10,000 job roles might be lost; This is extremely bad news for qualified personnel such as pilots and flight attendants and projections are that close to 40% of all pilots in Europe would be affected.          

For the tourism sector the situation has become very dire as well. Countries across the globe have implemented firm lockdown measures thereby forcing millions of people to cancel their holidays on an unprecedented scale. Companies firmly aligned with that segment have been hit incredibly hard.  TUI, one of Europe’s largest travel firms, have announced that they might have to cut 8,000 jobs as losses in the first three months of 2020 are close to €740 million, even though one of the measures that were implemented were voluntary reductions in their salary. The German government was even forced to provide them with financing of about €1.8 billion. Another major travel company-Booking.com posted losses of close to $699 million in Q1 of 2020 and was forced to see $4 billion in loan financing from investors.  Expedia Group, another heavily impacted travel company, was forced to raise $3.2 billion and announced cuts of close to 3,000 employees.

The pandemic has affected the above industries without warning, quickly and with no end in sight.

Could there be any viable way out of the crisis?

Way out of the crisis

Before any normalization of life and travel can begin the virus has to be brought under control and within manageable levels but also confidence has to be restored to the public. Systemic changes need to be made both in how air travel is organized-from the airports to the air-crafts themselves as well as the normal operations of wide-ranging industries connected to tourism and travel. Currently, airlines are experimenting with new ways of positioning passengers as well as requiring them to wear masks during the duration of their trip, whilst airports implement temperature testing stations to ensure that people who are indeed sick are not allowed to travel. In addition, to the above robust health prevention measures need to be implemented to reduce the number of infections, ensure the public of their safety and develop viable scenarios of operation under crisis conditions. Only then could some sort of compromise might be reached where people could travel on an international scale once more. If anything the current pandemic has shown that more measures need to be taken to address future pandemics by creating more viable logistic & supply channels, creating better detection measures, and devising crisis response plans.

Conclusion

The current situation has shown that even thriving businesses like air travel and tourism could be brought to their knees in no time at all during a global pandemic. What the crisis has shown is that governments were willing and acting most often to accommodate these dire consequences and rescue businesses that otherwise would have defaulted with severe social and economic consequences. However, given that we are still in a state of managing rather than controlling the virus more robust measures need to be implemented and new additional features have to be implemented before things return to a new normal, thereby re-building the public’s confidence but also the safety and security of airlines and tourism.