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This article was first published in the July/August 2020 Ireland edition of Accounting and Business magazine.

Despite its central role in our lives, aviation has proved notoriously susceptible to economic tailspins and consumer whims over the years, with flagship carriers skidding between bankruptcy and bailout, buffeted on the crosswinds of a burgeoning budget-flight sector and environmental concerns. But in 2020, the industry has come up against its most implacable foe yet. In April, the International Air Transport Association (IATA) predicted that revenue loss in the sector this year as a result of Covid-19 would hit US$314bn, a fall of 44% on 2019.

Just a few months ago it all seemed so very different, with a decade of expansion in prospect. PwC’s 2020 aviation report, The end of the innocence?, released in January, showed the industry’s confidence resting on seemingly solid ground. In it, aviation finance expert Dick Forsberg declared: ‘Global commercial aviation has been in a positive, expansive and profitable state for a decade, experiencing a longer bull run than in almost every previous industry cycle.’

Ironically, it was this very expansion that has left the sector so vulnerable to the collapse in passenger numbers over the past few months. While the pressure to curb emissions and grow sustainably will undoubtedly remain key challenges in the years ahead, the most pressing question in 2020 is whether commercial aviation will survive at all in any form familiar to us.

A definitive answer here is impossible, according to Chris Brown, director for strategy and aviation, KPMG, who points to dozens of variables in play, including ‘whether social distancing means empty middle-seats; if quarantine periods remain in place between countries; whether airlines raise prices and fly fewer routes; or which airlines don’t make it out the other side’.

Financial crises typically ratchet up pressure for structural reforms, and Brown sees a possible watershed moment here too. Most prominently, there will be intense pressure in the EU to link any state aid for national carriers to robust climate objectives, but there are opportunities beyond this. ‘From a greenhouse gas emissions perspective, an airline cost base perspective, or a customer journey time perspective, European airspace can be less efficient than its US counterpart,’ he says.

Major reform, though, ‘would require more common standards, interoperability of systems and procedures, and ultimately the likes of France and Germany being comfortable pooling management of their airspace, as well as multiple EU states reallocating key military airspace’, he says, adding that such moves seem currently unlikely.

Irish exposure

Ireland’s central position in global aircraft leasing leaves it heavily exposed to the challenges facing the sector. Irish lessors own over 60% of the world’s leased aircraft, according to employer association Ibec, and it describes the sector as a flagship for Ireland’s capacity to be a global leader in finance.

Speaking to RTE in late May, Dómhnal Slattery, CEO of leasing company Avolon, described the current crisis as one of ‘epic proportions’, with 90% of the world’s commercial aircraft grounded, and up to 4,000 planes set for mothballing. With revenue having evaporated, 80% of airlines are seeking deferrals to leasing arrangements, he said, pointing to a future in which ‘there will be no winners, just survivors’.

Kieran O’Brien, partner for aviation advisory at KPMG, says consolidation in the leasing sector ‘would likely see some jobs at risk. But even though this cycle feels different when we’re in it, we know aviation finance is cyclical and it will bounce back.’ He adds: ‘This will also be a period of opportunity in the sector, and a lot of investors will see this as a good time to get in, which in the long term is likely to be good for Ireland, given the amount of talent and capability we have here.’

While most analysts agree that lower passenger numbers are a certainty when flying resumes, the impact on airfares is harder to predict. Slattery says they are like to rise significantly, particularly as many airlines had been operating at a loss in a deeply competitive sector. But Brown warns: ‘Given there is no shortage of aircraft, any aggressive price rises or unmet demand will invariably see new airlines emerge.’

Equally unpredictable is consumer behaviour. Brown says: ‘Before Covid-19 struck, we saw the climate agenda growing in prominence. Reduced spending power, reacclimatisation to domestic holidays and mass adaptation to remote meeting technology could collectively combine to undermine the traditional link between global GDP growth and air passenger growth.’

Against that, the phenomenon of ‘revenge travel’ (consumers making up for lost holidays), already experienced in China, may well swiftly resurrect demand when circumstances allow.

Opportunity takes off

If Covid-19 has been a great equaliser in grounding the industry, it will be no surprise that at least one airline is determined to get a jump on its rivals when restrictions lift. While Ryanair is expecting to make 3,000 pilots and cabin crew redundant on the back of heavy losses this year, CEO Michael O’Leary says he sees a ‘once-in-a-lifetime’ opportunity for the budget airline to grow strongly in 2021.

O’Leary has been critical about self-isolation rules for visitors to Ireland, keenly aware that any return to normality in the skies relies on consumer confidence and mobility on the ground. He is not alone. IATA has called on governments not to ‘make a slow recovery more difficult with quarantine measures’ and expressed the hope that, with the right approach, flights could be back to 2019 levels by the end of 2022.

There may be simply too many factors at work to say whether 2020 has delivered a killer blow to aviation or provided the stimulus for a shift in direction. However, the sector has a track record in defying the odds. The consumer thirst for travel, fed by two decades of cheap flights, is also unlikely to have been quenched by a few months of lockdown. Expect delays and turbulence certainly, but also an industry that will make every effort to take off and fly high once more.

Donal Nugent, journalist