The deconstruction of air transport from the range of obstacles presented by the Covid -19 spread to the depth of value that air transport presents to the global economy, will ultimately hinge on equitable and universally acceptable regulations promulgated by the States through global institutions such as ICAO, IATA and the Airports Council International (ACI) – the global association of airlines.
by Dr. Ruwantissa Abeyratne
writing from Montreal
The significant problems we face cannot be solved at the same level of thinking we were at when we created them…Albert Einstein
The World Bank, in its World Development Report of 2020 defines a Global Value Chain (GVC) as “the series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries. For example, a bike assembled in Finland with parts from Italy, Japan, and Malaysia and exported to the Arab Republic of Egypt is a GVC. By this definition, a country, sector, or firm participates in a GVC if it engages in (at least) one stage in a GVC”.
At its most fundamental level of transportation of persons and goods by air is the air transport product and as a GVC it has its various stages attenuated across countries before the product matures for delivery. Unlike a bike, the air transport product can be disaggregated into two areas: the stages where the transportation vehicle i.e. aircraft is assembled with its various components such as the engines (which may come from the United Kingdom, the United States or any other country) and the avionics come from somewhere else and the fuselage is assembled in another country, the air transport product itself in its delivery to the client (the passenger or shipper) undergoes various stages that can be deconstructed. It is the latter that this article addresses, for the reason that, unlike the former, the latter continues to be subject to a rapid change in its metamorphosis due to the acute restrictions imposed on air transport by the Covid-19 pandemic.
The perceived trepidation that air transport is viewed by many today may not be unjustified as it was the main culprit in connecting the virus with the four corners of the world. Naturally, the 4.5 billion passengers who travelled annually by air transport receded to find solace within the safety of their homes instead of exposure to the claustrophobic virus laden confines of a conduit of premature mortality presented by the aircraft, however exciting, and governments added lockdowns and 14 day quarantine periods on arriving passengers.
The figures tumbled: on 20 June 2020 at the height of the pandemic The International Civil Aviation Organization (ICAO) estimated that the possible COVID-19 impact on world scheduled passenger traffic for the full year 2020, compared to Baseline (business as usual, originally-planned), would be: –overall reduction ranging from 42% to 52% of seats offered by airlines –overall reduction of 2,344 to 2,978 million passengers – Approx. USD 308 to 391 billion potential loss of gross operating revenues of airlines . International passenger traffic for 2020, compared to Baseline – overall reduction ranging from 55% to 67% of seats offered by airlines – Overall reduction of 1,196 to 1,456 million passengers – Approx. USD 208 to 256 billion potential loss of gross operating revenues of airlines.
If this was not the ideal scenario for deconstructing the air transport product, nothing was. We had to throw out the window all the rule books that made sense in maximising revenues and connecting the world and start all over again. The three most fundamental stages of starting again were: where to fly now; what equipment to use; and what would be the pricing of the product. If the intricacies presented by the first and the second could somehow be circumvented, the third consideration of pricing proved problematic. If social distancing was necessary to coax the passenger to return, the usually healthy load factor (the number of seats occupied in the aircraft) of 72% would have to go down to 62%. To break even at this reduced load, airlines would have to increase fares generally by 40%. Even if this were to be viable, airlines would have to increase their frequencies of operations to lucrative destinations, at increased costs. This has not proved a feasible option as is reflected by the significant retrenchment of airline staff that have happened across the board.
Several airlines went bankrupt, while others looked for cash infusions by their States. Against this backdrop, The two stages of GVT left as a last resort were somewhat paradoxical in that the first was to reinvent the wheel and go back to basics where several decades ago States infused incipient national carriers with cash and other subsidies and the other was to seek solace in Artificial Intelligence (AI) which would readily give airlines the most profitable permutations and combinations of routes to operate air services with appropriate equipment provided the States - the ultimate arbiters of where airlines could carry traffic – gave them permission. AI would also alert airlines to avoid hotspots if a possible outbreak of communicable disease broke out in any spot in the world. This would indeed be a battle between Covid law (which has its own formula for multiplication of the virus) and Moore’s Law (where the computational power of a micro chip doubles every 24 months) where hopefully Moore’s Law would win.
Deconstruction necessitates going back to the origin of air transport which was a blend of competition and equality of opportunity for airlines to compete with each other. Here is where the States would come in to determine the most equitable formula for the revival of air transport in a post Covid-19 era. Understandably, this will be gradual, as the International Air Transport Association (IATA) – the global trade association of airlines – has opined that for air transport to reach 2019 levels of productivity and carriage would take another 3 years at least.
The final stage of deconstruction of air transport in the Covid-19 context would be to climb out the window where the rule books were s thrown and retrieve the ultimate Constitution of international civil aviation – The Chicago Convention of 1944 – which recognizes in its Preamble, that certain principles and arrangements should be in place so that international civil aviation may be developed in a safe and orderly manner and that international air transport services may be established based on equality of opportunity and operated soundly and economically.
The deconstruction of air transport from the range of obstacles presented by the Covid -19 spread to the depth of value that air transport presents to the global economy, will ultimately hinge on equitable and universally acceptable regulations promulgated by the States through global institutions such as ICAO, IATA and the Airports Council International (ACI) – the global association of airlines.
These three institutions have already been robust and active in addressing the effects of Covid-19 on air transport. One can only be sanguine that this process will continue.
Dr. Abeyratne is an aviation consultant in Montreal and a former senior official at ICAO. He teaches aviation law and policy at McGill University.
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