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Mar 24

Why aviation is the sector to watch this decade

Reading Time: 4 mins

Undoubtedly, 2020 will go down in history as the most turbulent for the air transport industry. Nationwide lockdowns and government-imposed travel bans resulted in massive declines in international and business travel. While air connectivity will still be decimated by the ongoing pandemic this year, experts are seeing a slow recovery. For airlines worldwide, regaining passenger confidence has become a key factor to weather the ongoing recession.

 

2020: The Year that was for the Aviation Industry

Tagged as the worst financial year ever in the air transport industry, 2020 saw revenues dropping by 60%, from $838 billion in 2019 to $328 billion. Airlines had to cut costs in order to stay afloat during the crisis, around a billion dollars per day on average, but still racked up unheard of losses. If not for the governments’ financial support, the industry would have seen large-scale bankruptcies.

According to the International Air Transport Association (IATA), passenger numbers in 2020 plunged by 61%, about 2.7 billion lower than those recorded in 2019. Demand fell by 66%, leading to a massive drop on passenger revenue. Cargo operations fared better, with revenues increasing 15.3 billion. This made it possible for airlines to carry on with their skeleton international networks despite the dismal performance of the passenger business.

 

Aviation’s Gradual Recovery in 2021

The airline industry’s financial performance is expected to take a significant turn for the better this year. While it will take a long way to make a full recovery, the successful distribution of COVID-19 vaccine worldwide is anticipated to increase the overall revenues to $459 billion. This is a remarkable improvement, though still below the $838 billion achieved in 2019. Both passenger numbers and load factor are also predicted to recover by little steps.

The Asia Pacific is one of the regions expected to lead the recovery competition for the aviation industry. China will be at the front, as its domestic market has started to peak up late 2020. The country’s successful effort to control the virus, as well as the return of its cargo operations, will usher in the recovery of its air carriers. Currently, China’s domestic commercial services have already rebounded, thanks to the stringent lockdowns applied early last year.

Likewise, airlines in North America are anticipated to benefit from the slowly recovering market in the United States. With over 300 million Americans having been fully vaccinated by the end of the summer, commercial air demand is predicted to pick up. In comparison, European airlines will begin recovery later in 2021 after the market was hit by a second wave of the pandemic.

Australia is also anticipated to do well in terms of domestic leisure travel in 2021. Meanwhile, airlines from the Middle East are likely to depend on their growing air cargo business. As for Africa and Latin America, problems in cold chain logistics and vaccine distribution will lead air carriers in both regions to a more delayed recovery. Overall, the aviation industry is expected to return to pre-pandemic levels at the end of this year.

Another sign of the changing business conditions in the airline sector is expansion. Some air carriers are taking advantage of the gaps left by competitors due to the pandemic, making capital investments, adding routes and hiring new pilots. For instance, major American air service United Airlines is set to return to JFK International Airport for the first time in five years, ready to offer a dozen new flights to passengers.

Meanwhile, some carriers like PSA Airlines and Frontier Airlines, are hiring new pilots. There are also airlines that are making capital investments. Low-cost American carrier Jetblue has announced its plans to revamp its luxury Mint suites, allowing its transatlantic flights passengers to travel in comfort and style. All these point to the rising conviction among airlines that the worst is behind them.

 

The Future Role of Urban Air Mobility

As the aviation industry continues to evolve, the demand for new solutions for urban air mobility also grows. Experts are seeing opportunities for new types of aircraft in the skies, not only for package delivery, but passenger transport. This decade, integrating new entrants to the air transport system is not only probable, but inevitable. These technological advancements are set to make aviation one of the sectors to watch over in the next years.

The market of the electric vertical takeoff and landing (eVTOL) is projected to show significant growth, reaching $4 billion by 2030. These next-generation autonomous electric aircrafts possess a lot of potential, including fast travel, enhanced safety, reduced maintenance costs and low noise production. They could transform not only the way we commute, but also our lifestyles. Imagine a flying taxi that can cut your commute to a fraction of the normal time.

Air taxis are small commercial aircrafts designed for shorter distances. Out of the types of eVTOL, this segment is expected to grow the most. The global eVTOL’s market size is set to reach $817 million this year alone. Billions of dollars of investments are being poured to this emerging sector year by year. Both the public and private sectors have recognized the eVTOL’s potential to fundamentally change transportation in the digital age.

Currently, air mobility companies like Lilium and Astro Aerospace (OTC:ASDN) are working hard to achieve certifications for their aircrafts. Each developer has its own prototype design. It can range from single-seater drones to five-seater air taxis. For instance, Astro’s ELROY is a two-seater with adaptive flight control, 16 individual rotors and a touchscreen interface for easy destination input. Set to be launched in the next five years, eVTOLs could change business aviation forever.

 

What’s Ahead of Airlines and Aviation

While the financial impact of the pandemic has been huge to aviation, it also created opportunities. It redefined the industry and its goals, refocusing efforts towards sustainability. Emerging technologies that have been previously pushed to the sideline are now being examined to test their efficacy in solving crucial challenges brought about by COVID-19. One such technology is the Health Electronic Travel Authority.

Health ETAs, which will be used to do electronic verification of a passenger’s health status before entry to a country, will be the norm in 2022. Automation and biometrics will also become commonplace at leading airports across the globe. Each optimized traveler experience will now include facial recognition and touchless technologies. Innovation in software defined networks (SDN) will enable more flexible airport operations.

2020 may have been a year of turmoil, yet it brings the opportunity for reset and reimagination. Experts are confident that the aviation industry will emerge better than before. Developments in technology and innovation will ensure that it is taking steps in the right direction. Of course, collaboration is needed to achieve sustainable travel in the future.

 

*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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