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COVID-19: Galvanizing The Travel Industry For High Tide

How A Global Crisis Is Toppling A Booming Industry
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Overview

As COVID-19 continues to slam the brakes on several industries, the travel and tourism industry is looking at unprecedented levels of disruption. Restrictions on international travel and cancellations of major events have put airlines, hotels and cruise operations in a state of quandary.

A complete shutdown of operations across most parts of the globe is compelling the travel sector to seek interim relief from governments. In line with this, the U.S. government has earmarked USD 60 Billion from the USD 2 Trilion aid package for the airline industry. It remains to be seen if other players in the travel ecosystem will get the benefits they ask for from their governments.

WNS DecisionPointTM analyzed the current scenario in airline, hotel and cruise industries across the globe. Job losses will continue to climb, if the situation does not ease quickly. In this report, we forecast the scope and period of impact for these three segments.

Introduction

The spread of the Covid-19 disease globally, caused by the coronavirus, has halted travel industry operations across the globe. Demand for the three major segments of the global travel industry — airlines, hotels and cruises — has slumped to its lowest point in several years. As the virus continues to spread unabated leading to widespread sealing of international borders and closure of flight routes, organizations across airline, hotel and cruise segments face some of the toughest challenges — grappling with low customer demand, grounded fleet, employment cuts and declining revenues.

We analyze the impact of the virus outbreak across the airline, hotel and cruise segments, and forecast the extent and duration of the impact and essential steps that companies in these sectors can take to limit, if not stop, the damage incurred.

AIRLINES – HARDEST HIT SECTOR

Passenger demand dropped drastically in the first week of March 2020, forcing carriers to freeze hiring and reduce the number of flights, including on profitable transatlantic routes. According to Ascend – an aviation data consultancy – data for the first half of March 2020 show a 2.8 percent fall in global aircraft capacity.1

The graph illustrates global airline operating profits in the last six decades, with upheavals seen during major global macro events, from the oil crisis of the 1970s to the SARS epidemic of 2002-03. Global airlines suffered operating losses worth USD 5 Billion during the SARS epidemic. Analysis and forecasts from the International Civil Aviation Organization (ICAO) before the COVID-19 outbreak suggest that global airline operating profits for 2020 would have hit USD 57 Billion. As of March 2020, wherein the outbreak has spread beyond 100 countries, WNS DecisionPointTM forecasts operating profits to reduce by 50 percent of the ICAO forecast, to approximately USD 28 Billion.

As per the International Air Travel Association (IATA) estimates, the ‘extensive spread’ of the virus (spread beyond 100 countries) will reduce global passenger revenues by USD 113 Billion.

WNS DecisionPointTM calculations indicate that countries with more than 100 confirmed cases will see a steep year-on-year plunge in flight booking rates in April 2020, signaling flight booking cancellations on a global scale in the coming months.

According to analyst estimates, the short-term and long-term consequences of COVID-19 would mean reduced travel, and many airlines currently struggling will face challenges in surviving. Those that continue to operate will reduce fleet size to maintain profitability.2 Fleet sizes determine the number of seats in the market, and reducing the number of seats will increase the price per seat in the market.3 However, the extent of fleet cuts will depend on the length and depth of the crisis.

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