The Survival Quest of Aviation Industry in Quandary While Implementing Physical Distancing Norms

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The Survival Quest of Aviation Industry in Quandary While Implementing Physical Distancing Norms

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 The Survival Quest of Aviation Industry in Quandary While Implementing Physical Distancing Norms

The crisis caused by the Covid-19 outbreak is completely unprecedented, unseen, and different from any other crisis the world has ever seen. The impact of this ongoing catastrophe is yet to be quantified, and nothing much can be said about when this disaster would stop. The meltdown caused by the deadly pandemic has wreaked the business fortunes of the air carriers & manufacturers by severely impacting them financially and disrupting their operations, as these challenges were never experienced before.

What will happen to the airlines once the crisis is behind us: social distancing?

The modern airline industry is dependent on the number of flight hours, and the number of passengers, and these factors is directly proportional to the business scenario in order to be profitable.

The world is under lockdown and would be back on track in phases only. Domestic travel might resume in some countries, but international travel might take six to eight months or even longer as international travel is likely to be kept restricted by many nations for a prolonged period.

With limited routes, the flight hours would decrease, consequently leading to a drop in profits for many airlines. Hence, some airlines are likely to go bankrupt, and consolidation would be the likely scenario to survive.

Recently, Easyjet Plc charted out plans for returning to the air by observing social distancing, after the coronavirus travel restrictions are eased. Easyjet Plc plans to implement social distancing in its flight seating arrangement by keeping the middle seats empty. The company believes that by this way it would be easier for the flight management to implement the plan due to a weaker demand when flights resume as there would be a lesser throughput.

However, if implemented, this strategy would lead to losses as the game is all about reducing costs and churning more revenue per seat. Moreover, 33 per cent of the seating capacity would not be utilised, and the ticket prices would go up by nearly fifty per cent as per IATA. Many procedures at the airport would also need overhauling such as security checkpoints and boarding. This might lead to increment in costs and would mean that flying would again be counted as a luxury.

In addition, the airline companies might have to keep provisions for health screening for the coronavirus and might need to get equipped for protective equipment like masks and hand sanitisers. Apart from this, the aircraft would need to get sanitised properly after each journey. All these factors would contribute to the complexities of the business and result in reducing the flight hours and profitability.

Present scenario of the Aviation sector

The aviation sector is one of the hardest-hit sectors amid the catastrophe caused by the novel coronavirus. The deadly virus has already claimed more than 150 thousand lives worldwide. As of today, the world is working hard to find a cure for the deadly pandemic. The nations have closed their borders, enforced lockdowns and asked people to observe social distancing.

Therefore, the planes are grounded, according to IATA (International Air Transport Association), the economic impacts of this deadly virus could result in loss of passenger revenue of up to $314 billion along with 25 million jobs at stake and a cash burn of $61 billion in the second quarter of the fiscal year 2020, while incurring a quarterly net loss of $39 billion. There is a serious danger of failure for different airlines, the most recent had been the Virgin Australia, which has reportedly collapsed into administration.

IATA has called upon governments for immediate relief measures such as financial assistance to help airline cope with working capital requirements along with flexibility in disbursement and repayment terms with respect to loans and corporate bonds for fundraising. IATA has also recommended relief in tax assessments for this financial year. According to IMF, the world output would turn negative in 2020 to minus 3 per cent from 2.9 per cent in 2019 amid the coronavirus crisis. All these forecasts make the governments’ stimulus critical.

Moreover, the airlines across the world are lobbying with their respective governments for support or special package. The airlines in the United Kingdom are though told by the government to raise funds from existing investors. Easyjet Plc has however managed to get a loan of £600 million from the Bank of England and UK treasury.

IATA has laid emphasis on some key points that can precisely help the aviation sector. It has asked the authorities to make regulations a bit flexible such as offering cash vouchers instead of refunds against flight cancellation and waiver on slots. IATA has also requested to reduce parking charges and taxes. Further, the aviation body has also urged the governments for capital infusion in order to save the industry. These key steps would probably help in preserving cash by the air carriers. In addition, the airlines are facing parking problems, with most of the fleets grounded by the airlines, parking has emerged as another significant issue.

Existing business model

From the deregulation in the last few decades, low-cost airlines have transformed the airline industry. The dynamics of the sector have been completely changed. EasyJet and Ryanair pioneered this concept in 1995 in Europe.

This concept came into existence when mini-mills replaced conventional methods in the steel industry. Similarly, the conventional grocery stores faced stiff competition from the superstores. The established entities often find it difficult to match the cost structures. Hence, the pricing is affected, resulting in loss of market share and profitability.

As the airline industry evolved, the regular carriers were not able to finetune their business models. The low-cost airlines were able to reduce their cost structures by various strategies. The new age air carriers used a single type of aircraft across the fleet, which resulted in high utilisation and cost efficiencies. These air carriers used secondary airports to operate with lesser turnaround times. With the passage of time and development, new routes were identified, which resulted in higher frequencies and flight hours. The tickets sold by airlines were made easily available with travel agents and websites. Hence, with a greater number of flight hours, the new-age carriers were able to generate more revenue per seat and offer competitive pricing over conventional carriers.

The way forward

The long-distance flights (international) should be given priorities by the governments once travel restrictions are eased. Secondly, airport worldwide would require a complete overhaul in terms of new health measures. Health screening should be done in all the countries by introducing uniform health measures. There are a few busiest airports in the world, some of which might require redesigning to ensure social distancing is properly implemented. These measures would certainly help in gaining consumer confidence back. Another important factor to consider is the grounded fleets. Which might require maintenance and testing before getting back into the air. Last but not the least the governments would have to play a vital role in keeping the airline industry up and running, as they are not only a vital part of the economy but also a big employment generator.

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