By Dr. William Oliver Hedgepeth, Faculty Member, Transportation and Logistics Management, American Military University and Dr. Morgan Henrie, President, MH Consulting, Inc.
The coronavirus pandemic that causes the COVID-19 respiratory disease is having a major impact on the world’s airlines. The pandemic is not only affecting passenger travel, but also the transportation of goods and the continuity of the supply chain, especially in view of some countries having closed their borders.
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Prior to the pandemic, we described the industry in terms of a global economy and a shrinking world. An essential element was airline transportation. No one country stood on its own. We all shared in the international exchange of goods and services.
How transportation affects and supports the global economy is shown in a Statistica article, Air transportation – Statistics & Facts. In 2019, the airlines transported at least 4.5 billion passengers and accounted for approximately $102.4 billion in cargo revenue.
Air Travel Has Cratered Due to Travel Bans, Health Fears and Economic Collapse
With the advent of COVID-19, however, passenger air travel has cratered due to travel bans, related health fears and economic collapse. The level of cargo transportation has likewise declined, which is linked to the closure of manufacturing plants and consumer limits on spending. In response to these declines, the airline industry has curtailed or eliminated many flights.
The loss of commercial airline service prevents the movement of people, goods and services. For many locations in the world, airline service is the only way to obtain necessities such as food and fuel. In many areas, the airlines also serve as the sole means for emergency medical treatment and/or transportation.
Major Airline Impacts
U.S. airlines have been working hard to protect the jobs and safety of their employees and passengers, as well as cargo. For example, Delta Air Lines reported a loss of 72% in its FY19 domestic revenue, which equates to a transportation capacity of about 15%. Part of the global impact is due to Delta’s 15% loss of its transatlantic revenue and 6% of its Pacific region revenue. In terms of the global supply chain, there was a 20% decrease in transatlantic cargo transportation and a 65% decline in Pacific shipments.
All U.S. airlines suffered similar losses of business, revenue, and reputation. According to Market Realist, for fiscal 2020, American Airlines could report a loss of $16.9 per share compared to a profit of $4.9 per share in fiscal 2019. United Airlines could report revenue of $1.3 billion and a loss of $9.02 per share. Spirit Airlines could report revenue of $108.3 million and a loss of $2.66 per share.
Many Carriers Have Restricted Their International Flights
Additionally, airlines have experienced similar declines in cargo transportation. Airlines like Aeroflot, Air Canada, Air France, British Air, and other carriers restricted their international flights, reduced passenger flights, added extra charges for cargo transport, and generally lost revenue and reputation.
While these statistics and business losses are based primarily on this pandemic’s impact on international business, other factors have been just as important because they could have a negative effect on an airline revival after the pandemic. These factors are:
- The weather
- Natural disasters
- Security breaches
- Aircraft accidents
- Financial investment or business failures in the U.S. and other countries
- Cost of aircraft fuel
- Terrorist attacks
- New tighter government regulations on passengers and cargo movement
For years now, the U.S. airline industry especially has been going through a transition and consolidation. Long gone are Eastern Airlines, Pan American Airways, Trans World Airlines, Braniff, Continental and Northwest Airlines. The precise reasons for their collapse are not as important as knowing that, like many retail businesses, the remaining airlines are trying to remain viable in a difficult economic climate made more precarious by COVID-19.
Alaska Defines the Edge of Air Transportation
Alaska is a prime example of a location that is dependent on the airline industry. Seattle-based Alaska Airlines has been flying for nearly 90 years and prides itself on its ability to service passengers and places that rely on it especially in Alaska’s long winters.
While coastal Alaskan communities receive ocean-going barge service, most Alaska communities are in rural areas – some with fewer than one thousand residents – and can only be serviced by air. Cargo is flown into these villages and when winter arrives there are limited overland and air transport of materials to some locations.
The loss of airline service would severely affect these societies. Even if available, basic commodities such as food, fuel, power and medical services cost more than in the lower 48. These cost increases are dramatic, especially as the ability to obtain work is also restricted in areas where few local businesses are available, and villagers are not able to fly to jobs that might be available elsewhere in the state.
A delay in air mail service affects rural residents who rely upon it for medicine, basic life sustaining goods and services, bill paying and other types of written communication.
The aviation industry’s new normal has a familiar ring to it. The new normal in teleworking is also affecting the airline industry, but the flying community is expected to strongly re-emerge in 2021. The demand for air travel for vacation and business will return; It is in our way of life in this still-new century.
About the Authors
Dr. Oliver Hedgepeth is a full-time professor at American Military University (AMU). He was program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management and Government Contracting. He was Chair of the Logistics Department at the University of Alaska Anchorage. Dr. Hedgepeth was the founding Director of the Army’s Artificial Intelligence Center for Logistics from 1985 to 1990, Fort Lee, Virginia.
Dr. Morgan Henrie is President of MH Consulting, Inc., Anchorage, Alaska. MH Consulting, Inc. supports global clients in the areas of project management, engineering management, and construction management. He is also an adjunct professor and author of engineering management, knowledge management, project management, complexity systems and supply chain management topics.