Preface:

This article was published in Martinview in Apr.15th. IATA starts its analyzing on how Aviation Industry was influenced by the Pandemic once it has embarked. Reading through the reports in time sequence, we can find a great increment on the impact IATA forecasts.

Yesterday (Apr.14), another “Update Impact Assessment” was carried out, indicating a more-than-ever estimated loss: 314 Billion USD, a 55% YoY decrease. In Mar.30’s report, the number was 252 Billion USD. The correction was based on the recession global economy is facing, more travel restriction, and confidence loss. From this cascade of report, some trends could be seen:

Air China A330 B-6102 Taxiing through grounded aircrafts, in Beijing Capital Int’l Airport

Capacity toboggans, some region grounded almost completely.

Source: IATA Economics analysis based on data provided under licence by FlightRadar 24. All rights reserved.

According to IATA and FlightRadar24’s statistics, use Jan.1 as base date, a toboggan was experienced globally. Except Asia Pacific, all other regions’ capacity drops more than half starting from Mar.11. In Asia Pacific, the decline occurred a month earlier, than getting to a plateau of 60%. After Mar.11, another wave of decline for Asia Pacific come, yet on a slower pace.

 The different pattern in Asia Pacific is due to Chinese market. As the biggest player in the market, China has done brilliant actions to control the spread of virus. With a control on capacity and heart of unity, those actions are of great effect. After Mar.11, as the virus began to spread worldwide, travel restrictions on boarders force the capacity drops. In Europe, Latin America, Middle East and Africa market, Aviation is almost grounded completely. The highest number among them is no larger than 15%.

Glance at future trends, IATA stresses domestic market will be completely recovered in the third quarter, the time for global market will postpone due to reasons above. But it is possible that Chinese domestic market gets its recovery in a faster pace. In the second month of March, the capacity has shown a YoY increment. Thanks for the lower of travel restriction among Provinces, some air routes are getting vigorous. Take Shanghai – Guangzhou for an example, some narrow body aircrafts get a nice attendance, but still far from full capacity.

Positive numbers on some load factors. Source: Jipiaobao

Business Cycle drag the recovery back

Source: IATA Economics using data and forecast from Oxford Economics and IATA

As a “Black Swan” in 2020, the Pandemic hits economy as hard as it has done to the aviation. The world economy drops into recession signaled by steep decline in oil price and stock market. For the demand of aviation, there are Leisure Traveller, who fly for fun on a tight budget, and Business Traveller, who fly for work on a big budget. Both types of demand decreased. For business travellers, the recession will lower their budget and frequency, which leads to a lower class, and sharp decline in revenue. For leisure travellers, the recession will adjust their future expectation, which ultimately leads to a decline of travel budget. According to IATA, solely due to the recession, an 8% decline of Revenue Passenger Kilometer (RPK) will be seen. This adds insult to injury, makes the road to recovery even harder.

In order to protect customer’s rights, FAA and EU prohibited airlines to use EMD for repay. The ultimate function of EMD is to provide a buffer zone, giving airlines a chance to use future revenue pay for current cash repay. The ban of that make the situation worse. Now, a great deal of airlines must find other way to deal with cash shortage.

Governments employs a bundle of policies to keep airlines survive. The logic behind that is due to the special features of airlines. More than a business, airlines provide a type of basic service, which is crucial for every nation. In America, all airlines have received subsidy for a total amount of 10 Billion USD. According to carnoc.com, TAP airlines will be nationalized, to go through the disaster. In China, CAAC deduct the parking fee, landing fee and cancelled the “Civil Aviation Develop Fee” to help. The cancellation of “Civil Aviation Develop Fee” should be of great help, for a great bulk of cost could be saved. In 2018, China Southern and China Eastern payed 2.94 Billion, 2.235 Billion for that, equals to 65% and 58% of total profit.

3. Cargo Market Shows Opposite Trends, Bull Market on its way.

SF Airlines 767-300BCF B-20AV 2020.3 in Beijing Capital Int’l Airport

Although the pessimistic atmosphere saturated the industry, Chinese Cargo Market was experiencing a Bull time. The market shows a 28.4% YoY increment, with 253 Kiloton transported. It mainly attributed to two reasons: increase in demand and less substitute effect. The demand was created due to the more-than-ever needs for online shopping transportation. Usually, most passenger flight will use their secondary cabin for cargo service, but due to the high cancellation rate, less capacity was viable, thus decrease the substitution effect.

Among them, SF Airlines takes the advantage of its Hub system, provides high speed transportation service, expands its air route web. Before the pandemic, most SF’s fleet can only off block during “Red-Eye” hours, then blocked 15-20 hours a day. But attributed to the cancelation of passenger flight in the market, now daytime slots are available, which definitely increases off-block time drastically. With new waves of flights being created, SF’s Hub is getting more efficient and more profitable.


Reference:
Pearce, Brain. (2020. Apr.14th). Updated Impact Assessment. IATA Economics.
https://www.iata.org/en/iata-repository/publications/economic-reports/covid-fourth-impact-assessment/

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