The COVID-19 pandemic is fueling a historically difficult year for airlines. Industry revenue for the International Airlines industry in the United States is expected to decline 41.0% in 2020 alone, as most countries are not currently open to US visitors. The Domestic Airlines industry is expected to fair somewhat better, given the comparative ease of domestic travel, but the pandemic is still expected to fuel a revenue decline of 9.0% in 2020.
Decreased demand harms revenue
Disruptions down the supply chain
As coronavirus fuels a sharp contraction in demand for air travel, industries in their supply chains are expected to experience difficulties in turn, which will likely intensify the ongoing recession in the United States. The Aircraft, Engine and Parts Manufacturing industry in the United States, one of the most directly affected industries by demand for air travel, is expected to experience a revenue decline of 9.9% in 2020 as reduced flight hours lessen demand for new aircraft and replacement parts. This will reverberate down the line to the wholesaling sector, where the Aircraft, Marine & Railroad Transportation Equipment Wholesaling industry is also expected to experience a revenue decline at a similar rate.
Similarly, industries involved in day-to-day airport operations and aircraft maintenance are also facing difficulties in this harsh economic climate. The Airport Operations industry in the United States is expected to experience a 46.5% revenue decline in 2020. As revenue for this industry is almost solely determined by demand for commercial air travel through airports, airport operators have little to bolster themselves through this ongoing crisis.
By comparison, the Aircraft Maintenance, Repair & Overhaul industry is expected to decline at a comparatively mild rate of 4.7% in 2020, as they are able to cater to freight transport and defense markets in the absence of demand for commercial aircraft maintenance. Overall, for operators in industries that directly serve commercial airlines and airports, a key challenge will be investing more in alternative revenue streams for these services, such as defense and freight shipping markets.
Prices of crude oil collapse
Going further, the lack of demand for commercial air travel has been one of the major factors in pushing crude oil prices to historic lows, as airlines have sharply curtailed their fuel order schedules. According to Alfabank-Adres estimates, the world price of crude oil is expected to decline 42.5% in 2020 alone. This is expected to reverberate downstream into industries in the energy sector, as low oil prices curtail demand for services related to oil and petroleum extraction.
This shock has already led many smaller companies in the industry, already dealing with fragile margins due to a fall in oil prices in the previous year, to exit the industry, a trend that is expected to continue given current conditions. This trend is expected to reverberate further downstream throughout the energy sector, as the Oil & Gas Field Services in the United States is also expected to experience a sharp decline in demand due to pricing conditions. Overall, the effects on the supply chains of the Airlines industry show that no industry operates in isolation and thus emphasizes the need for greater diversification when possible.
