How COVID-19 has affected the aviation industry and its approach to risk.

In this article we review the financial and operational impacts of COVID-19 on the aviation industry, emerging risk management methods to resume aviation operations and how aviation task forces are aiding those efforts. Further, we consider some of the implications for the aviation insurance industry and how wider strategic risk management practices are evolving in response.

Understanding the financial and operational impacts.

Analysis  of the global air transport industry shows that airlines are facing a loss of $84.3 billion in 2020.

The financial impact of COVID-19 has been huge to the aviation industry. The International Air Transport Association (IATA) reported passenger demand in April at its lowest plunging by 94.3%  compared to April 2019. IATA initially stated  that airline passenger revenues could drop by $314 billion in 2020 due to COVID-19, a fall of 55% compared to 2019, however further analysis  is now showing this could fall by as much as $419 billion.

Regionally speaking, Asia Pacific has seen the largest net profit impact. However, Africa is seeing the highest decrease in passenger demand with expectations for this region to experience worsening effects in the coming months. The below table summarises IATA's forecasts for regional demand, capacity and effect on net profit for 2020.

Despite the downturn, figures show that daily flight totals rose 30%  between the low point on 21 April and 27 May 2020. This is primarily in domestic operations and as a result of an already very low base (5.7% of 2019 demand). Airline operators will require a well-orchestrated recovery plan supported by external agencies to safely regain operational tempo and replenish cash reserves.

Aviation consultation and resuming operations.

The implementation of policies and practices required across many governments will take time to coordinate; however, there is considerable expertise and leadership that operators can use in support of ‘opening the skies’. The resumption of international flights will require many consultations on solutions and risk management measures in responses to COVID-19. Despite varying national policies, global cooperation within aviation has remained strong.

As government and industry restrictions on the aviation industry begin to ease, it is vital that the procedures set out by the appropriate industry bodies and authorities are adhered to consistently to control and manage risks such as the COVID-19 pandemic. In terms of the passenger journey, every element from the airports of departures and arrival, the flights themselves, and other supply chain operators need to ensure consistent effective risk management.

A large challenge for the industry will include the skilled employees needed to support operations. The pandemic resulted in global travel shutdown which left many forced to take leave and others without jobs. In the initial phases of the pandemic crisis, articles such as Financial Times ‘Let’s redeploy airline workers to help national health services’  considered the skills of some aviation employees and how they could otherwise be utilised. The industry now needs to carefully support the return to work process with consideration to how and what aviation roles will look like in the future.

In terms of practical guidance there has been considerable thought leadership. ICAO, IATA and ACI representatives contributed with the World Health Organisation initial guidelines “Operational considerations for managing COVID-19 cases or outbreak in aviation” . The article set out thoughts on how to manage suspected cases onboard an aircraft. Subsequently, many further practical guides have been published including the ICAO Council Aviation Recovery Task Force (CART) publishing ‘Take-off: Guidance for Air Travel through the COVID-19 Public Health Crisis’.

Airports need to adapt new safety and risk management measures in conjunction with operators. A joint publication with Airports Council International (ACI) and IATA was released ‘Safely Restarting Aviation – ACI and IATA joint Approach’  . This developing from the previous publication from IATA “Restarting aviation following COVID-19”  . This considered medical evidence and multi-layered approaches to support the restart of operations. Suggestions included:

. Temperature and symptom screening
. Use of masks and PPE (Personal Protective Equipment)
. Physical distancing
. Cleaning and disinfecting infrastructure
. COVID-19 testing and antibody testing
Immunity passports
. Measures to assist contact tracing
. As well as measures related to pilot and crew members and their layover experience.

Similarly, the European Union Aviation Safety Agency (EASA) published a safety directive  looking at methods of disinfection, quarantine as well as social distancing. EASA have since launched a charter to monitor COVID-19 operations in practice, announcing first joiners  in early June 2020.

Many authorities including CAAC have published guidance for operators, the CAAC releasing ‘Preventing Spread of Coronavirus Disease 2019 Guideline for Airlines’  , in which interestingly, they differentiated responses needed for international versus domestic flights through risk scoring mechanism. Depending on the risk score, different prevention and control measures are recommended.

In the US, the Safety Alert for Operators  (SAFO) published guidelines set out by the Centres for Disease Control and Prevention (CDC) and the Federal Aviation Administration (FAA) for air carriers and crewmembers in relation to COVID-19, with similar aims to reduce the exposure of crew members as well as the risk of transmission on board aircraft.

Aviation Task Forces

With numerous guidelines and roadmaps to recovery, there is a clear need for a collaborative approach to ensure a level of consistency and cooperation. The creation of task forces such as the COVID-19 Aviation Recovery Task Force (CART), but existing task forces such as The Collaborative Arrangement for the Prevention and Management of Public Health Events in Civil Aviation (CAPSCA) have been integral in coordinating the collaboration to COVID-19 within the aviation industry.

CAPSCA held an online webinar outlining the Public Health Corridor Concept, a recording of which can be found on their website. The main emphasis of this strategy involves the use of ‘clean’ crew, ‘clean’ aircraft and ‘clean’ airport facilities to minimise the risk of COVID-19 transmission whilst maintaining flight safety.

These task forces play an important role in driving a collaborative approach to COVID-19 within aviation, including facilitating the restart of aviation operations in a sustainable, safe, secure and orderly manner. A more extensive list of aviation task forces and COVID-19 mitigation measure can be found here .

Concluding thoughts

What can be learnt from the experiences so far and where is the opportunity? The aviation industry will enter into a period of rebalancing and navigating the recovery cycle will require more strategic, data-driven risk management than ever before.

Effective enterprise risk management creates opportunity; you can build business resilience by strategic risk transfer underpinned by robust data analytics. The COVID-19 pandemic has shone a light on the need for all stakeholders in the risk transfer value chain to adapt to the evolving needs of their customers – there needs to be a more correlated relationship between industry and risk transfer. Insurance brokers should be prepared to help their clients achieve this by leveraging data to maximise risk transfer efficiency and value, in turn, enabling more integrated insurance programmes that deliver both cost efficiencies and responsive protection.