Pandemic Impact on Aviation Industry

• March 2020 marked beginning of aviation industry collapse
• COVID-19 more devastating to aviation than any previous crisis
• Aviation inherently opposes pandemic response (brings people together vs. isolation)
• Industry experienced most severe passenger demand drop in aviation history

Initial Travel Restrictions and Airline Response

• First measure: ban travel from China
  • US barred foreigners recently in China
  • Airlines canceled flights to greater China
  • Limited financial impact initially (few foreign airlines exposed to China)
  • Chinese airlines government-owned, could absorb losses
  • Nearby Asian airlines (Scoot, Cathay Pacific, AAA) struggled
• Virus spread pattern: China → South Korea → Iran → Italy → Europe
  • Airlines canceled flights to each affected region sequentially

European Crisis Escalation

• Europe home to 3 of world's 6 largest airlines by revenue:
  • Lufthansa Group
  • Air France-KLM
  • IAG
• March 11th: US President announced complete travel ban on foreign travelers from Europe
  • Unprecedented action between culturally/economically linked regions
  • North Atlantic: 1,700+ aircraft per day cross Atlantic
  • Many wide-body jets on most profitable routes for airlines

Major Airlines Enter Crisis Mode

• All 6 world's largest airlines by revenue affected:
  • Delta, American, United (US)
  • Lufthansa Group, Air France-KLM, IAG (Europe)
• United Airlines example:
  • 60% flight capacity reduction April 2020
  • Predicted 20-30% load factor
  • Further cuts implemented subsequently
• European airlines experiencing net negative bookings (more refunds than new bookings)

Airline Operational Responses

• Complete shutdowns: Qantas, Virgin Australia, WestJet (domestic only)
• Temporary closures: LOT, Brussels Airlines, Austrian Airlines (weeks/months)
• Industry comparison: worse than 9/11 financially

Lost Leader Strategy Impact

• Airlines historically operate loss-making routes to retain corporate contracts
• Example: fly Barcelona year-round even if only 8/12 months profitable
• Strategy fails when corporate customers also stop traveling
• Quick decision to cut loss-leading long-haul flights

Specific Airline Capacity Cuts

• Lufthansa Group (7th largest by passengers):
  • Long-haul reduced to: Zurich-Newark, Frankfurt to Sao Paulo/Newark/Chicago/Montreal/Tokyo/Bangkok/Johannesburg
• American Airlines (world's largest):
  • Very long-haul network: Miami-London, Dallas-London, Dallas-Tokyo only

Financial Resilience Factors

• Airlines had higher operating margins in 2019 vs. 1999:
  • United: 6.8% (1999) → 9.9% (2019)
  • American: 6.5% (1999) → 6.6% (2019)
  • Delta: 12.7% (1999) → 14.0% (2019)
• Oil price collapse benefit:
  • Saudi Arabia-Russia price war
  • Jet fuel: $60/barrel (February) → $40/barrel (March 2020)
  • Significant discount on airlines' biggest cost

Industry Transformation Outlook

• Aviation never truly recovered from 9/11 (no return to "normal")
• Post-coronavirus industry will be "completely new and novel"
• Recovery depth depends on pandemic curve trajectory
• Outcome determined by government/organizational/individual responses to COVID-19