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Analysis of the UK Aviation Sector during Covid-19

The COVID-19 pandemic has hit the British Economy terribly, affecting millions of lives in the county. This impact is not only confined to a selected few, but almost every industry in some way or the other due to the interconnected business nature of today’s Industries; i.e. one particular industry has a widespread domino effect on the others causing a global economic slowdown.

Majority of the countries worldwide including the UK have entered into a phase of recession. The UK gross domestic product (GDP) has estimated to have fallen by a record 20.4% in the second Quarter (April to June) of 2020. Marking this the second consecutive quarterly decline after it fell by 2.2% in Quarter 1 (January to March) 2020.

The pandemic has led to the breakdown of many businesses worldwide, increasing unemployment, job insecurity, widespread poverty and seems all progress made till today has become worthless and crippled down to the baseline again.

One such Industry that has taken a major hit into the spine is the Aviation Sector. With travel restrictions all around, both Domestic and International flights have either been grounded or instructed to operate at reduced capacity. Considering the safety measures, thousands of pilots, crews, airport operation workers have lost their jobs. The empty British skies have stalled the aviation sector in the country, with already financially affected carriers such as Flybe, Easy Jet, Ryan Air, and other airlines are finding it difficult to remain afloat in this time.

With over 66 percent global aviation activity being plummeted, this competitive Industry will take ages to recover. The Economics of Aviation says that this particular sector involves high fixed costs such as investments, routes, slot purchases and high competition from the low-cost carriers to keep their profit margins tight. This means that there exists high volatility with respect to economic activity. Such can be seen that majority of the publicly traded airline stocks with a high Beta value, making them extremely interlinked to the market.

Even when the situation gets better and economies begin to unlock, this sector will continue to face major hits and it will take a lot of time to regain normalcy  due to the behavioural changes in the consumers. People would be less willing to spend money due to reduced incomes and savings, they would be slightly inward looking in terms of spending habits and travelling, that is usually a luxury, would be avoided. Some travel restrictions and the reluctance to travel until the pandemic ends are to remain for a longer period of time than anticipated. This would bring about a liquidity crisis and badly hit the cash flows of aviation companies all around the world, with manufacturers Boeing and Airbus indicating the looming uncertainty and predicts the worse year of Aviation is yet to come.

Optimistically, support and aid from the government with effective planning could possibly reduce the negative impact. Such as finding alternatives to the 14-day mandatory quarantine either using advanced test and track technology or reducing the quarantine period might help increase passenger traffic significantly. Uncertainties obliterate the travel enthusiasts before they can buckle up their seat belts and prepare for take-off.

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