The impact of COVID-19 on the airline and local tourism industries

By Ervin Delas Peñas, UN SDSN Youth Philippines Volunteer | Published on August 12, 2020 11:33:50 AM

As a result of the COVID-19 pandemic, airline industries around the world are struggling to profit as demand plummets. Forbes illustrated this downpour by comparing the worldwide passenger volume of last June 24, 2020 to the same date last year: “only 494,826 passengers entered through a TSA (Transportation Security Administration) checkpoint compared to nearly 2.6 million on the same day in 2019 [which] represents a decline of about 81%”.

This also bears bad news for passengers in the future. An article published last April 27 by MSN cites a Dollar Flight Club study that suggests “future travelers should expect to see reduced travel options, fewer flight delays and cancellations, more bag fees and miscellaneous charges and fuller and more expensive flights”. This study followed a modeled comparison based on the trends of the airline industry in the aftermath of both 9/11 and the Great Recession.

South African news outlet Mail&Guardian states that experts expect air traffic to revert back to pre-COVID levels in the next three to five years. USA Today also cited the International Air Transport Association’s claim that it will take until 2024 for global air traffic to normalize to pre-pandemic figures. Australia’s flag airline carrier, Qantas, cut 6,000 jobs while it continues to stand down half of its 30,000 workforce. Last June 26, the New York post reported in an article about aviation labor unions appealing to the U.S. Congress for a $32B bailout to protect hundreds of thousands of jobs, while another article dated May 6 states that U.S. airlines are losing more than $10B per month as the pandemic rages. Moreover, the latter article states that downsizing may be imminent if the bailout is not issued as “[s]ix unions warned lawmakers that ‘mass layoffs are inevitable’ without another round of payroll aid to keep airline workers employed”.

These are some of the daunting challenges the airline industry is facing in certain parts of the world.

In the local scene, according to the Philippine Daily Inquirer, our very own Cebu Pacific laid off about “30 percent of the carrier’s 4,000 employees”. This took effect last July, following the 190 newly hired cabin crew members last March that were also terminated. On July 13, BusinessWorld stated that Cebu Pacific has decided to cut 800 more jobs effective this month of August, while AirAsia is to cut 12 percent of its workforce. In the same account, “[w]hile operations continue to resume, the current number of flights account for less than 10% of the pre-quarantine network”. ABS-CBN specifies this figure as the Cebu Pacific Vice President for Marketing and Customer Experience Candice Iyog states that the airline is just operating with 40 to 50 flights daily, a diminution of the pre-quarantine count of 450 to 500. Philippine Airlines (PAL), Cebu Pacific, and AirAsia have all experienced a lower passenger count this second quarter: from 13.5 million last year to just 800,000. On July 24, CNN Philippines cited PAL’s statement as it reflected a P9 billion loss during the first quarter.

Last May 15, the Manila Bulletin reported that the umbrella organization of local airlines, the Air Carriers Association of the Philippines (ACAP), is seeking financial assistance from the government in the form of government loans, guarantees on debt, and credit lines instead of direct cash subsidies. PAL, Cebu Pacific, AirAsia, and their respective affiliates are all part of ACAP. The Association is also seeking “the waiver of airport fees for at least a year without interest or penalties; issuance of travel vouchers in lieu of refunds for cancelled flights; and the centralization of government guidelines for the aviation sector that include local governments”. As of July 13, BusinessWorld states that the three airlines are waiting for the approval of ARISE (Accelerated Recovery and Investments Stimulus for the Economy), a bill that would allocate an estimated amount of P70 billion in assistance to the transportation sector. This stimulus package includes wage subsidies for airline employees, augmentation of airline companies’ working capital, as well as funds for the payment of fees and charges due to the different national airport authorities.

Shortly after the Enhanced Community Quarantine was implemented on March 18, 81% or 13,833 of tourism companies who employ a combined total of 222,424 employees were closed temporarily during the lockdown, while the remaining 19% or 3,328 companies with a combined 88,910 workers have flexi work arrangements. This is according to TTG Asia, a media outlet specializing in travel and trade developments in the Asia-Pacific region. Isla Lipana & Co., an auditing firm, states that the tourism industry accounted for 12.7 percent of the GDP last 2019.

Ever since March 22, the DFA has imposed a travel ban on all inbound foreigners. CNN Philippines quoted the Department of Tourism’s statement that the tourism industry has incurred a 66 percent decline in revenue in the first six months of the year due to the pandemic. In addition, the Manila Bulletin conducted an interview with Ritchie Tuano, president of the Philippine Travel Agencies Association (PTAA), who said that around 95 percent or 419 out of the 439 travel agency members have temporarily halted operations, with some considering permanent closure. Isla Lipana & Co. conducted a study among tourism businesses in the month of July. It found that “78% of the respondents say that they need up to PHP5m in additional funding to help normalize their operations” for the purposes of working capital requirements, marketing funds to rebuild their brands, and refinancing. On the other hand, “73% are planning to avail of government grants and subsidies to help revive their operations”.

While precautions to help facilitate COVID-free journeys are being implemented in airports and travels around the world, the future of the airline and tourism industry still seem bleak due to the restrictions brought by the pandemic, not to mention that both are some of the hardest hit. Bankruptcies, mass layoffs, and huge debts may be some of the aching predicaments the two industries will have to brace for in these challenging times, even as safety regulations help keep it running. For us Filipinos, the situation is only becoming more dire as cases continue to rise, and now that Modified Enhanced Community Quarantine has been imposed, recovery remains elusive.

Sources:
https://www.forbes.com/sites/mikepatton/2020/06/25/airline-industry-turbulance-continues-amid-coronavirus-pandemic-what-does-the-future-hold/#63631f2f71b1
https://www.msn.com/en-ph/travel/news/how-will-covid-19-impact-airline-travel-in-the-future/ar-BB13i67V
https://mg.co.za/coronavirus-essentials/2020-05-14-uncertain-future-for-domestic-airlines/
https://www.usatoday.com/story/travel/airline-news/2020/07/29/airline-industry-expects-rebound-coronavirus-drop-2024/5534055002/
https://www.theguardian.com/business/2020/jun/25/qantas-to-cut-6000-jobs-and-keep-15000-stood-down-in-bid-to-survive-coronavirus-downturn
https://nypost.com/2020/05/06/coronavirus-crisis-forcing-airlines-to-burn-10-billion-each-month/
https://nypost.com/2020/06/26/airline-unions-seek-another-32b-coronavirus-bailout/
https://newsinfo.inquirer.net/1296444/cebu-pacific-cuts-more-jobs
https://www.bworldonline.com/cebu-pacific-to-shrink-in-size-as-demand-remains-low/
https://news.abs-cbn.com/business/07/24/20/cebu-pacific-eyes-reopening-more-domestic-routes-says-passengers-flown-dwindled-in-q2
https://cnnphilippines.com/business/2020/7/23/Philippine-Airlines-Q1-loss-coronavirus.html
https://mb.com.ph/2020/05/15/airlines-seek-state-loan-guarantees/
https://www.bworldonline.com/struggling-airlines-still-waiting-for-govt-help/ https://www.ttgasia.com/2020/06/01/philippine-tourisms-halt-stands-as-virus-count-continues-to-soar/
https://www.dfa.gov.ph/covid-19-advisories/26402-travel-advisory-inbound-travel-restrictions-by-the-philippine-government-on-foreign-travelers
https://cnnphilippines.com/news/2020/7/22/DOT-66-pcnt-decline-tourism-industry-H1-revenue.html
https://mb.com.ph/2020/07/27/several-travel-agencies-are-closing-shop/
https://www.pwc.com/ph/en/publications/tourism-pwc-philippines/tourism-covid-19.html#recovering-from-the-pandemic

Data Churner:
Nicole Ortiz
Volunteer, Data Churner
UN SDSN Youth Philippines

Graphic by:
Jazmin Jabines
Intern
UN SDSN Youth Philippines