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Aviation and the Pandemic

Travel & Tours	1342 VIEWS
Travel & Tours
1342 VIEWS

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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.