Introduction
The socio-economic impact of the COVID-19 pandemic crisis has proven very important if not cataclysmic at a world level. Given that tourism is a socioeconomic phenomenon with explicit and wide geographical mobility connotations, its entire business ecosystem and related operations are profoundly affected, when it comes to health and hygiene, safety, and trust issues. Among others, aviation, a par excellence tourism sector, came to a standstill after the first outbreak of COVID-19, with demand falling sharply and the companies involved plunging into the battle for survival, using all possible means at their disposal (Papatheodorou, 2021). Some airlines have filed for bankruptcy, while the majority have turned to governments for funding to fill the gap between their high operating costs and remarkably low revenue as shown by the reports of the International Civil Aviation Organization (ICAO, 2020a) and the International Air Transport Association (IATA, 2020b). On the supply side, airlines experienced a significant reduction in terms of routes and capacity; fleet reshufflings had to take place to meet the new market environment.
Evidently, the aviation sector had to streamline operations and strictly comply with the protection measures against the spread of the pandemic, announced by the governments, while the international protocols were directly implemented by carriers and airports. Despite research showing that air transport is extremely safe in terms of hygiene and low transmission of the virus (IATA, 2020d), repeated travel instructions and the closure of borders, for both countries of origin and destination, have severely hit travel and transport in general. Furthermore, to boost demand, air carriers responded with offers and ticket discounts. Due to inelastic demand and the need for cash flow, yield drop was not enough to reverse the demand trend. Booking restrictions removal, such as rebooking fees, and marketing actions of health and safety appeared to be more effective than pricing strategies alone. At the end of 2020, the future of travel was still uncertain with companies planning their operations in the short term, keeping a close eye on daily facts and figures, in an unprecedented crisis that is rapidly evolving in the present, with no historical data for future predictions with a relative certainty. This chapter aims to assess the performance of the air transport industry in the context of the pandemic and a ‘travel unfriendly’ global environment during the first three quarters (i.e., Q1, Q2, and Q3) of 2020. In parallel, market estimations and predictions are of high interest with emerging transformations of the air transport sector to become inevitable in the post-COVID-19 era.
The aim of this paper is to illustrate the emerging transformations in the air transport sector towards recovery from the pandemic crisis of COVID-19. Therefore, data collection from official air transport bodies and organisations, as well as market positions on the transformation of the industry during its anticipation for the next day should be collected and evaluated to draw the path towards the process of air transport’s recovery. The theoretical contribution of the paper concerns the reasons why commercial (marketing and revenue management) and operational digital transformation of travel industry is more imperative than ever before, while practical implications refer to the ways that companies involved should digitalise their services to achieve an integrated system of travelling in the post-COVID-19 world. Undoubtedly, contactless travel and health certifications may consist of the driving force behind building passengers’ trust and reengagement.
Implications of COVID-19 for aviation and tourism
As argued by the Air Transport Action Group (ATAG, 2020a), air transport is an essential component of the economy, accounting for 4.1% of gross domestic product (GDP), creating 87.7 million jobs with $3.5 trillion in global economic impact – including direct, indirect, induced, and catalytic effects on tourism. According to IATA (2019), more than 4.4 billion passengers used an airplane in 2018. 2020 started with very favourable forecasts regarding tourism and air transport demand. The companies involved were planning their commercial strategies in anticipation of a highly successful year in terms of occupancies and revenues. At the end of January 2020, the World Health Organization (WHO) declared the outbreak of a global health emergency; from then onwards and in a matter of weeks, Europe was shaken by the pandemic, with negative case records in Italy and Spain, among others, forcing governments to close borders and ban travel, trade, and education. By the end of March, most of EU countries had applied relevant measures and lockdowns against the virus spread. Immediately, the demand for travel collapsed and airlines stranded most of their fleet, while their operations were limited to necessary connections and transport of medical supplies. According to Maneenop and Kotcharin (2020) when it comes to the aviation industry, the number of flights and passengers has returned to numbers that existed decades ago. With respect to the demand elasticity, the level of fares is usually regarded as the most obvious determinant of air travel (Li, 2008); nonetheless, COVID-19 resulted in an inelastic demand, since reduced fares and offers did not trigger any relevant increase. In particular, the COVID-19 health crisis has led to new protective measures of hygiene and a corresponding change in the behaviour and expectations of tourists. Government interventions through restrictions and border closures have been a major factor in reducing the demand for air travel. According to the United Nations World Tourism Organization (UNWTO, 2020a, 2020b) in May 2020, 100% of destinations had travel restrictions, while in September 2020, the respective number was 50% but with significantly enhanced safety measures.
An International Civil Aviation Organization’s (2020b) report on international passenger traffic indicated a decrease of 88.3% year-on-year in August 2020 (which is typically a month of high season in the Northern Hemisphere due to summer holidays), while an increase of +3.6% was recorded compared to the previous month. The same report indicates that international demand for long-haul air travel remained globally limited to less than 10% compared to 2019 levels, while in Europe, some increases were noted in intra-regional travel which recovered to around 20% of the previous year’s demand. A similar trend of international passenger traffic is apparent in international tourist arrivals which have remained stagnant. In addition to health and safety issues, decreased demand has also been caused by the lack or decline in income, thus triggering a new wave of staycation as first experienced during the great economic recession in 2008–2009 (Papatheodorou, Rossello, & Xiao, 2010). Due to the lock down, many hours of work have been lost, resulting in high unemployment and loss of income according to the International Labour Organization (ILO, 2020). Many governments have provided benefits, but from a policymaking viewpoint, priorities relate to covering basic needs first before spending money on leisure and recreation. Passenger demand in September 2020 remained extremely low. Total demand (measured in revenue passenger kilometres) decreased by 72.8% compared to September 2019, capacity by 63%, while occupancy rate fell 21.8 percentage points to 60.1% (IATA, 2020c). The International Civil Aviation Organization (2020a) expects an overall reduction between 60% and 62% in air passenger traffic and a GDP contraction between 4.4% and 5.2% for the entire year 2020 compared to 2019. The Air Transport Action Group (2020b) reports a catastrophic impact in aviation employment prospects, with jobs potentially falling to 41.7 million (- 52.5%).
As a result of the misfortunes mentioned earlier, several air transport companies have reached the brink of bankruptcy or have already gone bankrupt. According to the WTTC (2020a), as of 22 June 2020, 117 airlines had filed for bankruptcy since the beginning of the year, while forecasts indicate losses exceeding $84.3 billion for the full year 2020. Travel restrictions imposed by countries, low self-confidence of travellers and the increased spread of the pandemic (first and second wave), indicate the low prospects of the aviation industry for rapid recovery. According to the UNWTO (2020c), international travel exhibited a 70% reduction, resulting in 700 million fewer international tourist arrivals and a loss of $ 730 billion in tourism revenue for the first eight months of 2020, compared to 2019. COVID-19 tests the business resilience of airlines as uncertainty, low demand, and lack of liquidity prevail (Naftemporiki, 2020) with the challenges for airlines to be many. Admittedly, according to IATA (2020 e), the main priority, in this time of very inadequate demand, is cost reduction. Unfortunately, cost reduction strategies will not be easy to introduce; to survive, airlines will have to adjust costs to revenue; this seems to be a challenge and a difficult task as this crisis is expected to last (even to a lesser extent) in 2021 and possibly also in 2022. The cost structure of aviation is a major issue that air carriers need to address for the industry to recover faster.
More specifically, cost reduction strategies relate predominantly to fleet and infrastructure rationalisation and reduction of labour and fuel costs. The IATA (2020b) indicates oil as the highest cost, with its prices, in late 2020, to remain (fortunately for airlines) at low levels due to oversupply by oil companies. Reducing the airline fleet will also lead to a reduction in related costs. State aid is also expected to somewhat alleviate the pain of airlines. Labour costs are also likely to decrease as fewer people are needed and/or paid less. Airport charges due to reduced flights will also be reduced. Of course, all these are temporary measures until supply returns to 2019 levels and to do so demand would have to properly recover. Direct costs account for 45–60% of the total cost of Full-Service Network Carriers (i.e., traditional airlines such as Lufthansa in Europe and American Airlines in the USA) and 60–80% of Low Fare Airlines (e.g., Ryanair and easyJet in Europe and Southwest and JetBlue in the USA). These costs concern the flight operation of companies such as pilots’ salaries and off-site expenses, aircraft fuel, airport charges, and aircraft rental (short term mainly) when needed (Profyllidis, 2010). Indirect operating costs such as ground staff fees, ground handling, cabin staff, and in-flight catering are proportionately higher for air carriers when operating routes. By reducing their schedules and/or staff, therefore, airlines are trying to minimise direct and some indirect costs, as demand for travel has dropped dramatically. Table 1.1 summarises indicative actions taken by air carriers and respective governments to address the financial difficulties posed by the COVID-19 pandemic.
Table 1.1 Actions taken by air carriers and respective governments to address the financial difficulties posed by COVID-19 | Airline | Actions taken |
|
| Aegean Airlines (Greece) | Government support package of 120 million euros together with a 60 million euros injection of capital from existing shareholders |
| Air France — KLM (France and the Netherlands) | Government support package 10.4 billion euros (7 billion from France and 3.4 billion euros from the Netherlands) |
| British Airways (UK) | Withdrawal of Boeing 747 from the flight schedule |
| Cathay Pacific (Hong Kong SAR) | Compulsory staff furlough |
| Delta Airlines (USA) | Reduction of flight schedules by 75% compared to 2019 |
| Emirates (UAE) | Personnel dismissal |
| Lufthansa (Germany) | Government approves 9 billion euros support package |
| Qantas (Australia) | Withdrawal of Boeing 747 from the flight schedule |
| USA Air Carriers | Government support conditional on no staff layoffs |
| Virgin Atlantic (UK) | Withdrawal of Boeing 747 from the flight schedule |
The demand for winter 2020–2021 has also been significantly affected by the pandemic. Many cancellations are expected to take place until March 2021 (European Commission, 2020). Furthermore, it is essential to underline the target groups of passengers. Business travel is expected to remain at least 25% below pre-pandemic levels by 2021, as companies make travel cuts using teleconferencing, when it comes to meetings, conferences, and workshops. At this point, it is worth mentioning that many businesspeople travel by air. In addition, due to the rapid spread of COVID-19, leisure travel will remain at low levels until the rate of the virus transmission is reduced and the confidence of travellers is somehow restored (Wyman, 2020).
