Introduction
One of the major global crises of recent years is the recession caused by the COVID-19 pandemic. One of the areas most tangibly affected in the aftermath of the pandemic crisis is the airline market. Airlines and the broader aviation industry have suffered significant financial losses due to the pandemic. This is mainly due to the restrictions imposed by most countries on flights. The near-complete halt in tourism slowed the spread of COVID-19, but at the same time, it hurt the airline market.
Relevant Economic Factors
Economic factors that contributed to this crisis include economic recession, high unemployment rates, inflation, rising interest rates, and fluctuating exchange rates, as well as volatile commodity prices such as oil, steel, and gold. Field labor operations and maintenance costs have declined, and hedging strategies have been adjusted during the COVID-19 pandemic (Fontanet-Perez et al., 2022). Based on accurate statistics, the industry should be considered mainly from three aspects: inflation, interest rates, and commodities.
Inflation
The whole aviation value chain, particularly airlines, has suffered financially due to inflation. Even companies that had historically been dependable value generators, including factories and airports, have not been immune to the pandemic’s economic effects. Costs for companies have risen, leading to higher ticket prices and increased airfare-interest costs, which forces customers to seek better alternatives and reduces the revenues of airlines.
Interest Rates
Before the financial crisis, persistently low interest rates had an impact on the cost of leasing airplanes. The cost of higher interest rates does more than just increase the cost of borrowing; it also affects the overall economy. This limited access to capital markets and put downward pressure on aircraft prices.
Commodity
Prices for jet fuel have also contributed to the complication of the situation for airlines in connection with COVID-19. Although the price fell sharply at the beginning of the pandemic due to low demand, it returned to its previous levels faster than the airlines had time to recover. The new global energy crisis has further complicated the recovery from the COVID crisis.
Individuals Impacted by Crisis
The crisis has impacted numerous stakeholders involved in the aviation industry. The number of air passengers and income from corporate clients who used air transportation services decreased. Thus, the crisis affected management, employees, the board of directors, shareholders, as well as customers, creditors, the government, and suppliers. The crisis has affected almost all countries, especially those deeply integrated into global trade relations.
The crisis has impacted almost the entire airline sector in the country and worldwide, particularly those deeply integrated into global trade relations. The air traffic sector supports 65.5 million jobs nationwide and directly employs 3.5 million people, primarily from suburban and urban areas. The area is diverse, and people of different races, nationalities, religions, cultures, and genders work there. Passenger transport employees have been the most severely affected (Cai et al., 2022). Demographically, the recession led to an unusually high and rapid rise in unemployment.
Business Report
Before the crisis, the sector generated significant profit levels. Approximately 60% of international passenger travel and over 30% of world trade were conducted by air before the financial crisis (Cai et al., 2022, p. 2186).
Worst Point of Crisis
The travel prohibition laws immediately led to a free fall in the airline business, which is approximately 65% below the expected overall performance. With an average cancellation rate of 0% in early May, Delta reduced its scheduled flights by 80% in the second quarter of 2020 (Cai et al., 2022). Over the same time period, Southwest postponed flights an average of 1,450 times. The most popular airline in the country, American Airlines, canceled flights on average 320 times daily (Cai et al., 2022).
Two Years Post-Crisis
Recovery from the crisis is still ongoing; however, by the second quarter of 2021, airline revenues had almost recovered to the level of the first quarter of 2019. The easing of measures and restrictions related to COVID-19 allows companies to recover quickly; however, a sharp increase in demand is also associated with some risks and complications.
Discussion
The sector’s key losses were associated with restrictions, as well as with the independent unwillingness of people to use airline services unless there was an urgent need. As soon as restrictions eased, the market began to recover quickly. Still, the process slowed down due to the current energy crisis and inflation. The rapidly increasing demand for services has also created several difficulties, primarily related to labor shortages.
The estimated long-term losses are 3% of global GDP (Fontanet-Perez et al., 2022, p. 656). During the crisis, there were significant cuts in the sector. As the sectors recover from the economic impact of COVID, attention is increasingly turning to the long-run impact. The labor market metamorphosis, a new energy crisis, and policy errors are causing lasting harm in the airline sector, stemming from the COVID crisis.
Conclusion
For airlines and the more prominent aviation and tourism industries, dealing with the crisis is nothing new. The industry will survive the COVID-19 issue just as it has previously survived diseases, economic downturns, safety mishaps, and other crippling occurrences. Airlines must implement a series of reforms in response to this unprecedented pandemic.
References
Cai, T., Hu, Y., & Li, X. (2022). American airline industry under the COVID-19 pandemic – Using Delta as a typical case. 2022 7th International Conference on Financial Innovation and Economic Development, 2186-2192. Atlantis Press.
Fontanet-Pérez, P., Vázquez, X. H., & Carou, D. (2022). The impact of the COVID-19 crisis on the US airline market: Are current business models equipped for upcoming changes in the air transport sector? Case Studies on Transport Policy, 10(1), 647-656. Web.
