By: Air Traveller PH Staff
Back in 2003 when the SARS outbreak happened, the airline industry was greatly affected as travel demand severely dropped. The SARS epidemic caused the airline industry $7 billion in revenue back in 2003. Today, the Coronavirus (COVID-19) is predicted to have a far greater impact particularly on the airline industry. For the local aviation industry, the impact of the COVID-19 will be greater.
While 2003 saw lower demand in air travel but did result to lay offs and job cuts in the airline, the COVID-19 may bring an even worse situation to the aviation industry. The airlines are bracing to face a for worse situation than the 2003 SARS epidemic that heavily affected Asian carriers.
The demand for air travel and growth of the airline industry had significantly rose from 2003 all the way to today. Spurred by a bigger middle-class sector and emerging markets, many full service carriers (FSC) have increased capacity and more low cost carriers (LCC) have sprouted.
The Asia-Pacific region have been at the forefront of this growth lead by a huge increase in demand from China. From 2003 to today, there had been a 4% increase in the world annual traffic.
The growth in demand plus cost of fuel on the rise, airlines placed orders for more fuel efficient and more modern aircraft to replace old ones. In fact, 40% of the future aircraft deliveries are said to be replacements for older and less efficient aircraft. From 2000 to today, new aircraft including replacements and increase in fleet size have grown significantly.
Most of these aircraft are of higher capacity and longer range ones such as the Airbus A321 and the 737-9 for the narrowbodies; the Boeing 787-9 and Airbus A350 for the widebodies.
To address the growing demand and the changing times, airlines have made huge investments on more aircraft which resulted to more crew, more personnel, and increase in operational capacity in order to grow its revenue.
The COVID-19 epidemic caused a sudden drop in air travel demand spurred by flight cancellations to China, restricted air travel, and government-imposed travel ban. This created a domino effect on the airline industry today which resulted to a huge over-capacity resulting to lower revenue with increasing expenses like aircraft lease, salaries, gate rentals, and other operating expenses.
In the Philippines, government-imposed travel restrictions have been issued on mainland China, Hong Kong, Macau, and South Korea. in order to stop the spread of the COVID-19. A travel restriction to Japan now also looms, all major travel markets of Philippine-based carriers, particularly for Philippine Airlines and Cebu Pacific.
Shukor Yusof, head of aviation consulting firm Endau Analytics in Malaysia said, "Airlines are more impacted today because China is the world's economic engine."
"This outbreak should be worse as travel bans have started early and it seems they will remain in force for a long period of time," said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
Just yesterday, Philippine Airlines had to slash around 300 administrative and management jobs in order to streamline its operations. The airline is also moving into digitizing its operations to make the airline more adaptable to such situations. Cebu Pacific sees a huge blow on its 2020 profits. In order to keep operations afloat, the airlines are now concentrating on increasing domestic services while adding new services to only a select international market.
As airlines were preparing for the added demand in air travel particularly in the Asia-Pacific region by adding capacity, the COVID-19 will indeed throw a bigger blow on the industry but we do not see this as the end of it all.
With all the data and forecast, we do see that the demand for air travel return once things have been placed under control. Airlines will be investing on better technology to streamline operations and to make them more adaptable to situations like an epidemic, civil unrest, increase in oil prices, terrorism, and acts of nature which may cause a drop in travel demand.
Even with a bigger blow than the SARS epidemic on the airline industry, we do see that the airlines will be able to make a faster recovery as world travel demand returns back to its projected growth.
For now, we just have to brace for worse times ahead and pray for better times soon.