Covid-19: An unprecedented crisis for aviation

The number of coronavirus cases has overwhelmed health systems around the world. Even the richest and most prepared countries have struggled.

In the most vulnerable countries, millions of people have not had access to critical life-saving supplies, such as test kits, face masks and respirators.

The Covid-19 pandemic hit many industries hard. Lots of people lost their jobs or were forced to reduce their employment radically throughout 2020. As a result, 131 million more people globally were classified as poor, meaning that they lived on $2 or less daily. Share prices have dropped nearly across the board due to the coronavirus pandemic.

As a result of persistent Covid-19 shocks, passenger aviation is expected to lose roughly $314bn in 2020.

Even though some countries have started to recover as the spread of coronavirus is being contained, the desired level of recovery may take at least several quarters or years. The change of airlines’ capacity will most likely remain at least 10 percent below the 2019 levels, according to OAG.

The longer recovery periods are attributed to several factors, including the Covid-19 economic recession, confidence of people to travel, and stringent travel restrictions. Therefore, some institutions forecast the aviation industry to recover at a much slower pace than what was expected.

In 2020, due to the coronavirus pandemic, the number of scheduled passengers boarded by the global airline industry dropped to only 1.8 billion people. This represents a 60 percent loss in global air passenger traffic, according to IATA.

The airline passenger revenue loss was estimated at around $314bn in 2020. In the absence of government aid, airline groups cannot accommodate a recessionary shock of the magnitude and persistence of the Covid-19 pandemic. Therefore, numerous airline groups requested large government fiscal aid packagese to survive the coronavirus crisis.

Governments around the world intervened in the economy through various types of governmental aids to support airlines and avoid any major bankruptcy filing in the aviation industry. As of the end of September 2020, aid issued directly to airlines amounted to close to $100bn in response to the coronavirus shock.

In 2021, European airports are estimated to have lost $37.5bn in revenue due to the coronavirus outbreak after losing $44.3bn in 2020.

The impact of the Covid-19 crisis removed more than 6.1 billion passengers for the whole of 2020 compared to the projected baseline (pre-Covid-19 forecast for 2020), representing a decline of 64.6 percent of global passenger traffic.

The impact of the pandemic is forecasted to remove an additional 4.7 billion passengers by year-end 2021 compared to the projected baseline (pre-Covid-19 forecast for 2021), representing a decline of 47.5 percent in global passenger traffic, according to Airports Council International.

In the next Reinsurance Month weekly edition I will focus on how connected risk links the aviation sector with other verticals such as travel and tourism, hotels, manufacturing, aluminium and the surprisingly large inflight technology business.