Aviation Industry

R E P O R T

T H E A V I A T I O N I N D U S T R Y

Tourism is a big part of the aviation industry's revenue. While the travel policies restrict tourism, the impact is massive on this industry.

The lifeblood of the airport industry is aviation traffic. Aeronautical and non-aeronautical services account for more than 95 percent of the revenue generated by airports.

Passenger-related charges from passengers and aircraft-related costs from aircraft operators account for nearly all aeronautical income, which are a direct function of traffic.

As traffic falls, the capacity of airports to collect these fees decreases accordingly. The current crisis provides an unprecedented challenge for the airport industry ' s financial survival, with minimal flexibility in operational expenses and primarily fixed capital costs.

The COVID-19 crisis, according to the Air Transport Action Group (ATAG), a global association that represents all sectors of the aviation industry, will result in the loss of 46 million aviation-supported jobs (-52.5 percent) and a reduction of $1.8 trillion USD in aviation-supported economic activity (-51.5 percent) by September 2020. (Aviation: Benefits Beyond Borders, ATAG 2020).

Although preliminary evidence suggests that unit revenues may increase or decrease based on a mix of airportspecific factors, the current study assumes constant airport revenues on a per-passenger basis.

A higher share of passenger-related activities, such as retail or food and beverage concessions, leads to a steeper fall in commercial revenues, while a higher reliance on real estate income and rentals acts as a cushion in times of crisis.

Although air transport accounts for a modest percentage of GDP, it is inextricably related to the activity of other industries, particularly airports and aircraft manufacture - jointly referred to as the " aviation industry " below. Many other economic activities are made possible by the aviation sector.

The severe decline in demand for passenger air transportation (and freight, to a lesser extent) as a result of the COVID-19 epidemic and containment efforts is jeopardizing the survival of many enterprises in the air transport sector and the rest of the aviation industry, putting many jobs at risk.

While the aviation industry has long been a focus of government policy, the COVID-19 issue has resulted in a fresh round of loans, loan guarantees, wage subsidies, and equity infusions, raising questions about competition and the efficient use of public funds. Government policies should focus sector-wide initiatives and competition to ensure the aviation industry ' s long-term viability. They must, in particular:

Strike a balance between the necessity for assistance and the potential for competitive distortion.

Maintain corporate dynamics while allowing for leave. Because demand may be structurally different and possibly lower than before the crisis, governments should encourage restructuring and avoid supporting non-viable businesses while assisting displaced workers.

Encourage investments in the green transition to improve the aviation industry ' s longterm resilience.

Concerns about sustainability should be addressed across the whole aviation value chain, including aircraft manufacturers and airports..

Worldwide revenue with passengers in air traffic from 2005 to 2022(in billion U.S. dollars)

Now that vaccines have begun, there is some relief in some regions of the world, but the road to recovery for air travel will take several years. People are longing to travel again for vacations as travel becomes greener and more efficient. Airlines will be able to thrive in this altered industry if they take action now.

Geri Zhuang (CSO of Philippine Airlines)

Philippine Airlines is definitely affected by the outbreak. All airlines have influence. First of all, our flights have been grounded because of travel restrictions in various countries. Including not being allowed to enter, foreigners are not allowed to enter. A rule like that certainly reduces the number of people who can travel. We would certainly have fewer flights, and with fewer flights, the planes would have to be parked. But the cost of the plane is still to be paid as usual, the rental of the plane, the parking of the plane, it is to pay for all aspects of the cost. If it doesn 't fly, it has no revenue, and if it doesn 't have revenue, it' s losing money.

Now most airlines are recovering, but they are not as big as before. For example, we used to run every day, now we run every week. But this of course also has the regulation with the national policy. And China ' s regulations stipulate that each foreign airline can only fly one line, and then one flight per week. For example, we used to have Beijing, Shanghai and Guangzhou, which are all allowed to fly. Now you can only fly one line and then you can only fly one line every week. So by comparison, if there were 35 flights every day in every city, now there ' s only one.

Ticket Price

Is there any change in the price of the ticket? Air ticket prices have definitely gone up. But the specific price should also depend on the specific situation, for example, in the early stage, when the demand is greater than the supply, it can sell very high, but now, after all, the flight personnel can fly so much. In China, those overseas students can not study, working people can not work, so they will try to come back, or some even work also also lost, can only come back.

If there are a lot of people, for example, our foreign airlines are not allowed to fly, and only Chinese airlines are allowed to fly, then the demand cannot be met, so the price will definitely be very expensive. And it has a load factor requirement for this time of day, in case of an epidemic. It' s called distancing. With fewer seats, the price must go up. A lot of outside air ticket prices are actually made by external personnel, our own air tickets are sold behind closed doors, not through external channels, so internal personnel have this pricing power. But outsiders are speculating on the price, and the price will be speculating on it.

But now, foreign airlines have started to resume flights, although there are not many, but also a volume of one flight every week. But if you ' re in the United States, there ' s a lot of demand. Specifically, let' s look at the region. In terms of Southeast Asia, it seems to me that there are more of us in the Philippines and Indonesia than in other Southeast Asia because there is little demand for return trips. Because there are actually quite a number of Chinese workers in the Philippines, many of them had to stay there before. Moreover, the flights in the Philippines have not been resumed until about July recently, and there is a lot of backlog in front, so the demand must be very large.

There must be some good and some bad about it. In fact, ten or twenty years ago, air tickets were also hard to get. At that time you still need to get a letter of recommendation to get this ticket. But as more people take flights, prices will surely come down. But with so few flights now available, the price has gradually returned to where it was before. This is for most areas that have a return trip. For example, for flights in Taiwan, although there are political factors, it takes 14 days to fly in and 14 days to go back. Not many people will be willing to come, so their passenger load factor will be relatively poor.

After all our flights were grounded, due to national policies or regulations or the epidemic, we changed our original passenger flights to cargo flights. Demand for the goods came up quickly, because China had been exporting a lot of masks, protective suits, and testing equipment, all shipped from China to other parts of the world. We have also shipped by air not only to the Philippines, but also to London and recently to Australia. For freight, there is no limit, because there is no risk of human infection. So we made a lot of cargo planes. Although the aircraft has a captain, the risk of infection is greatly reduced by having a much smaller crew, perhaps one. Basically, all the airlines have changed to freight, because China does export a lot of these products.

In fact, the airline was also very dangerous, not very easy to operate. Because but it' s true that no one expected this epidemic to spread to such a large extent that everywhere was grounded. If it' s just one part of China where flights are stopped, it' s probably only 10 percent, so it' s ok. But now it' s everywhere, us, Europe, even domestic flights (because of lockdown policy). That means airlines have no revenue at all except for cargo planes.

So for as long as we haven 't converted passenger planes to

freighters, we

' re losing money. So we have to adjust immediately later. But the gap is hard to fill at a later stage. Because the cargo plane will only contribute a fraction of its previous revenue. Our headquarters also held several meetings to ask everyone to apply for unpaid leave, which can reduce our company ' s expenditure. For example, a company may ask its employees to take 10 unpaid days off, even though they are not paid for those 10 days, but they are not required to work.

I' ve heard of layoffs at other companies, but we haven 't had any layoffs other than this unpaid leave. In general, the situation is similar across the industry, the bigger the company, the harder it is to support, depending on how long the company ' s money will last. In contrast, Air China will do slightly better than foreign airlines because they are state-owned and therefore have state support.