By Aditya Burra
Since the onset of the pandemic, the airline industry has been forced, in essence, to shut down most of its operations. Domestic air traffic around the world has slumped 70% since early January, and international seat capacity has dropped by almost 80% from a year ago. While domestic flights are opening up quicker than international routes, weak consumer confidence and fear of the disease will undermine a quick recovery, according to Brian Pearce, IATA’s chief economist.
Airlines generally use decades’ worth of data to build models of consumer density on a weekly basis, adjusting flight schedules based on the season, working conditions, and types of passengers. For example, the week between Christmas and New Year is typically the least busy for business travelers but is also an active period for festive travelers. Airlines typically prioritize destinations that are holiday spots over centers for business transactions, expecting and favoring one kind of passenger over another. This finely honed mechanism, built on large swathes of data has been completely thrown off-axis by the coronavirus crisis.
In the first half of the year, airlines let the computers continue to do the work of pricing for them. The principle on which these computers work is to fill up the last seat in the airplane just as the plane is ready to take off, to maximise revenues. Equating supply and demand based on history, computers reduce prices if enough people aren’t buying tickets, to bolster demand and fill up seats.
However, with the absolute uncertainty surrounding the virus, people just aren’t ready to travel if they can avoid it, so prices now have less to do with airline tickets than at any point in aviation history. Compared to previous shocks, such as 9/11 and the 2008 recession, where it took the airline industry between 2 to 3 years to return to pre-crisis levels, experts predict a 5-year time-period for travel to return to normal. A healthcare issue like the pandemic last occurred in 1918, when the industry was at its infancy.
Around the world, airlines are cutting between 70-99% of their flights, citing extremely low levels of demand and regulatory issues due to the lockdown. While the operating guidelines of airlines will revolve around distancing and ensuring safety for consumers, the shock of 2020 is unlike any other seen before. Travel and tourism account for 10.3% of global GDP, making this sector larger than agriculture. Last year, it accounted for the creation of one in four new jobs. We are still very much amid the coronavirus pandemic, so it is impossible to predict how or when travel might resume. This also depends on how comfortable people will feel traveling around the world, much less at levels seen before the pandemic.