The airline industry is notoriously cyclical. It goes through periods of growth followed by dips, many of which coincide with global economic or geopolitical shocks. The resilience displayed by the industry in recovering from these shocks and adapting business models to meet changing market conditions has been quite remarkable over the years.
“It’s a very cyclical sector,” says Joe O’Mara, head of aviation finance with KPMG in Ireland. “It has also suffered from severe external macro shocks like the 1979 oil shock, the first Gulf War, 9/11, the global financial crash. One that’s probably worth noting is Sars in 2002 and 2003 but that was more confined to Asia. When you look back over the last 40 years, the industry has averaged 4.5 per cent growth per annum. Each shock put a stall on that growth and confidence. The beauty of it is that it always come back. It tends to take four years to come back to where it was.”
Dr Marina Efthymiou is assistant professor in aviation management and programme director of the MSc in management (aviation leadership) at DCU. She puts the previous Sars epidemic in context. “The Sars outbreak in 2002 and 2003 only lasted about five months with 770 deaths and 8,000 cases worldwide. That resulted in a loss of about €16.9 billion to the industry. It took nine months for traffic to build up to previous levels after that.”
Scale of Covid
Covid has been on a different scale entirely. The industry experienced a $371 billion loss in gross passenger revenue in 2020 alone. That was followed by losses of between $305 and $342 billion during the 2021 closedowns.
Not surprisingly, Efthymiou believes it will take at least five years for the industry to recover this time.
That’s actually in line with most previous crises, according to the 2015 International Air Transport Association (IATA) Global Air Passenger Markets: Riding out Periods of Turbulence report which found it usually takes at least five years for the industry to recover after a short-term upheaval. The report looked at the impact over time and found that 72 per cent persisted one year after the event, falling to half after two years, and to one-fifth after five.
By far, the biggest single event to hit the industry prior to Covid was 9/11. US passenger numbers fell by over 30 per cent while the industry there cut jobs by more than 10 per cent. The knock-on impact on aircraft sales brought opportunities for some airlines, however, with Ryanair famously achieving a 53 per cent discount on an order for 100 Boeing 737s.
Passenger traffic
That dwarfed the impact of the first Gulf War in 1991 when airline passenger traffic declined by 8 per cent in the quarter immediately following the ground war, but the overall impact for the year was a 2.2 per cent reduction, according to Generation DataBank.
The 1979 oil shock produced a relatively mild fall in passenger numbers at less than 1 per cent, according to IATA. However, this was also the longest-lasting downturn, with the global recession of the early 1980s being held responsible for the industry failing to recover until 1987.
O’Mara believes the industry’s resilience is likely to assert itself once again, noting that the IATA is forecasting a return to 2019 passenger numbers by 2023 or 2024. “If you go back to the global financial crisis there was a huge erosion of wealth and businesses weren’t spending. In 9/11 there was the fear of flying factor. The oil price went up as a result of the Gulf War. This is different. Where people are free to fly without restrictions demand is coming back very quickly. The pent-up demand is clear. The EU vaccine passport is helping, and the US and Chinese domestic markets have been coming back strongly,” he says.
“If you look at other parts of the world, particularly Asia, with a slow vaccine rollout, it is hard to see recovery there this year. There doesn’t seem to be a reluctance to fly. And look at the Irish economy where most sectors are humming along nicely. There hasn’t been a global erosion of wealth. That element to it gives cause for hope, but it will be 2023 or 2024 before we get back to 2019 levels. Will it permanently impact business travel? I’m sceptical about that. I think businesses will want to meet customers again – and we’re all a bit sick of Zoom and Teams.”