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Travel & Tours | |
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PROSHARE | |
PROSHARE |
Wednesday, February 10, 2021 / 01:37PM / by FBNQuest
Research / Header Image Credit: The Strait Times
Aviation
is one of the industries that has suffered severely due to the consequences of
the pandemic outbreak. The expected behavioural change of passengers following
the COVID-19 crisis, travel restrictions and the ensuing economic crisis have
resulted in a dramatic decline in demand for airline services. According to the
International Air Transport Association (IATA), passenger traffic via air
transport declined by 75% y/y in August '20. In addition, the collapse in
economic activity and trade affected freight, which was lower by about 12% y/y
in the same month.
At the
beginning of the pandemic, some airports closed temporarily, but others
remained partially open to maintain some connection between communities,
repatriate citizens and allow for the continuity of vital services.
The dramatic decrease in the number of air passengers had a severe impact on industry revenues. According to Airports Council International (ACI) forecasts, the industry is likely to lose more than USD97bn in revenue in 2020. Furthermore, airports have high fixed costs, such as security, maintenance of airfields and terminals, and pre-existing contracts that must be paid regardless of the current situation.
Based on
IATA data, GDP supported by aviation in Africa could decline by as high as
USD35bn. IATA previously estimated a USD28bn decline.
The
travel and tourism segment would be the hardest hit by the domino effect of the
aviation crisis. The World Travel & Tourism Council (WTTC) projects job
losses of c.197 million globally for 2020, of which 17 million jobs (9%) would
be lost in Africa. To alleviate the losses, several governments have allocated
specific budget lines from their COVID-19 aid plans to refloat the travel and
tourism industry. In addition, a few others have found it more convenient to
exempt and/or reduce tourism related taxes.
Regarding
Nigeria, the Nigerian Civil Aviation Authority estimates that the pandemic has
cost the country's airline industry c. USD1bn. Meanwhile, IATA estimates that
the pandemic puts at least 124,000 Nigerian jobs at risk.
Based on
the national accounts, Nigeria's air transport segment contracted by -39% y/y
in Q3 compared with -57% in the previous quarter. The reopening of airports and
the reinstatement of flights, following the ease in movement restrictions in
Q3, came as a relief for many. However, this was accompanied by flight
cancellations which have also had a negative impact on the industry.
During
the end-year festivities, we noticed that the price of flights from Lagos and
Abuja to locations in the Eastern region were double the regular cost. Our
channel checks showed that some airlines were booked to capacity,
notwithstanding.
We assume
that demand was high, partly due to customers' ability to save on their travel
expenses during the year. Therefore, the end-year travel expense was
manageable, despite the general squeeze on consumer pockets due to the economic
downturn triggered by the pandemic.
In
general, the full recovery of the aviation industry will depend on governments' progress in controlling the pandemic, the efficiency in distributing vaccines
and targeted measures taken to keep the aviation and tourism industries afloat.
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