How Are Travel Restrictions Impacting Business Aviation?

How Are Travel Restrictions Impacting Business Aviation?

By: Tromas 10k 32k

It has become rather hard for both travel enthusiasts and the occasional travelers to grab cheap plane tickets and head towards their favorite destinations. It is right to blame this on the pandemic that has taken over the world for the past two years and continues to put terror in our hearts with every new variant. But our vacations and moods aren’t the only things being affected. Business aviation might just be one of the biggest affected businesses in the world. Due to covid-19 and increased travel restrictions, it seems that business aviation needs more than to just sell cheap flight tickets. It is no surprise that different businesses all over the world have been direly affected due to this pandemic, but it seems that this one has seen a big change. Here is how:

Trade Restrictions

There is no doubt that geographical distance has a negative impact on bilateral trade. As compared with the previous quarter, global merchandise trade decreased by 14.3% in the second quarter of this year, marking the sharpest quarter-on-quarter decline in history. Furthermore, the WTO forecasted a whopping 9.2% annual decline for the year 2020 in merchandise trade.
Focused attention on the initial breakdown of supply chains, distribution of food and medical supplies, and the breaking down of many supply chains has also reminded the world of how heavily dependent countries are on trade, and especially how heavily China contributes to the world economy. And the effect the pandemic has had on trade has therefore been a lot.

Reduction in the Influx of Business Officials

In order to operate smoothly, global supply chains rely on air cargo, and business travel is a valuable channel for the transfer of international knowledge. Large firms' headquarters are largely located in areas with non-stop intercontinental flights. With the discontinuity of many large firms, and/or the shift of work from offices to online modes, aviation has had a negative effect. Work from home has brought down business for them that was available due to official visits.
Travel restrictions that have been implemented over time have impacted trade by making it harder for foreign businesses to set up meetings in global settings. Even though a large fraction of the world's labor force is now working from home and businesses have maintained successful relationships to some extent, the aviation business has fallen off.

Drop-in Local Airline Services

Aviation is indeed a key enabler of several economic activities, so a dramatic fall in demand for airline services has resulted from a change in passenger behavior as a result of the COVID-19 crisis, travel restrictions, and the financial downturn that has followed. Passenger air travel measured by revenue passenger kilometers was down 90% year-on-year in April 2020 and continues to be down 75% in August, whilst the collapse in economic activity and trade affected freight, which was almost 30% lower in April and still about 12% lower in August.

Increase in Operating Costs

Because of the increased cost of health-related measures, operating costs have increased, that too in the short-run, for both airlines and airports, since these requirements need to be met before they can be passed on to consumers (e.g. disinfection, protective clothing, temperature checks, viral detection). Further, social distancing measures might cause a reduction in passenger load factors (the number of seats that may be occupied during a flight) by as much as 50% if implemented for air travel.

Possibility of Resurgence

A resurgence of the pandemic could be a big problem for the industry, which could also mean a new wave of restrictions imposed by governments to combat flare-ups or infection outbreaks. This is evident as we can see new surges in the global spread of the virus with every new variant that emerges, for example, the Delta variant or Omicron, the newest one.There is the possibility of new variants, that have differing protein spikes to emerge, and eventually, that leads to more restrictions.
As we have seen from the past, governments have consequently imposed new restrictions and bans every time something similar has occurred. Moreover, due to bans and countries being added to red lists, flights have been very few. There is a likelihood that production and revenue will remain below pre-crisis levels for some time, which could threaten the survival of some firms in the industry.

Government Interventions

There have been different public policy interventions in the aviation industry in the past, and most have been targeted at aircraft manufacturers. Typically, these companies are subject to learning-by-doing and significant economies of scale, which could result in underinvestment in technology, innovation, and production facilities, thus justifying public support. Aircraft manufacturers have been targeted by green industrial policies which seek to accelerate the consequent and futuristic tilt towards low-carbon aircraft. Further intervention by governments has also been in the form of schemes to inherently preserve employment.
Competition can be affected ambiguously by government interventions. For example, the failure of a few large companies could make it harder to compete while their rescue may prevent it from happening. Alternatively, equity injections can adversely affect the 'competitive neutrality of the state as well as foreign companies access to the domestic market. There could be measures to foster competitions, which should focus particularly on possibly lowering the costs of entry, for example by reserving certain airport slots.

Increase in Debts

The IATA estimates that, even if airline companies did not appear to enter the crisis with higher leverage than other sectors, their debt level could increase by as much as 28% by 2020. In the absence of any equity injection, this would significantly impact their ability to finance new investments and, for some firms, their solvency.
As a result of the spread of the Omicron variant, stocks across the sector have already fallen. With increased debts, financial burdens have increased. According to ABTA, the new requirement to conduct PCR tests on international arrivals to the UK is a "huge blow" to the industry. The Aviation industry has consequently seen negative effects. People no longer are searching for cheap plane tickets.
Reliance Travelshas broken down all the negative impacts for you! Travel companies and the aviation industry might find themselves with a huge influx though, as an aftermath of the restrictions being slowly lifted. As the world once again heads towards normal conditions, it implies that the industry might just jump back on its feet again.

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