Business Pressures in The Aviation Industry

The aviation industry is undisputedly a critical influencer in global economic development through connectivity of nations and the flow of goods and services. Notwithstanding, like every other sector, the aviation industry is not immune to both internal and external pressures, which continue to threaten its efficiency and effectiveness in service delivery. Here, we will highlight various pain points impacting the industry in the past and recent years.

1. Financial Pressures

a) Operational Costs

The beautiful sight of planes flying in the sky is not always synonymous to high flying profits! Increased operational costs and multiple factors negatively affecting the flow of people and goods continue to narrow the profit margins, with some airlines sinking into untold losses amounting to millions of dollars. In 2020, Delta Air Lines, one of the leading carriers in the world, posted an annual loss of $12.4 billion. A similar case is that of the Kenya Airways, always captioned ‘The Pride of Africa’, yet remained loss-making in 2022 to the tune of $290m.

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In the face of such vulnerabilities, airlines are left at the mercies of direct government aid and bailouts, without which many airlines would fail miserably. Consequently, workers are retrenched, contracts are cancelled, suppliers are left without pay, workers go without salaries, and sometimes planes are simply grounded. Leaders in the sector are sometimes blamed for gross misconduct in financial mismanagement, leading to summary dismissal and recurrent recruitment of managerial teams, which rarely solves the financial pressures!

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Increasing inflation has continued to see many local currencies lose value against the dollar, leaving the cost of products and services on the rise, even before airlines recovered fully from the Covid-19 pandemic. While people’s incomes have remained the same and many others have lost their jobs, the cost of living has risen to alarming rates, a situation that could easily ground services or compromise quality of service delivery.

b) Infrastructure and CapEx pressures

The consistent need to upgrade airport infrastructure like lounges, terminals, hotels and runways is necessitated by the rise in the number of travelers. In a bid to remain ahead of the competition and retain reputation, airlines need to periodically upgrade and improve various amenities, including purchasing new aircrafts. These acquisition and renovation measures are certainly capital intensive, and only remain wishful thinking for companies that are struggling financial without the political goodwill of their governments.

Unfortunately, this is where the wrath of social media is felt, as users have various platforms to review airlines and airports, giving their ratings and even leaving comments. While there are many strengths of social media, this case in time can have far reaching implications on the aviation industry.

Where a component of the aviation industry has not invested heavily in state of art technology, there is the ever hovering threat of cyber-attacks, with cybercriminals making away millions of dollars through fraud websites.

2. Global Occurrences

a) Regional and global peace

Spike in jet fuel prices, driven up by the ongoing Russia-Ukraine war, remain a major economic factor in aviation. With buyers redirecting from Russia to other markets like the Middle East and North America, prices of Russian products have gone down while those in other markets have gone up. The consequent increased demand and reduced supply always results in higher prices. This further increases the operational costs and eats deeper into the profit margins.

Whenever regional and global peace is threatened, unfortunately closure of airspace remains one of the safety but also punitive measure taken into consideration. As a result, some international flights are forced to make long detours, which directly increases consumption of oil.

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On the other hand, fuel is a major expenditure in the aviation industry, representing up to 35% of the operational costs. It therefore goes without saying that an increase in fuel prices will often oblige airlines to review fares upwards, which again may interfere with the number of travelers.

While at it, no one wants to take a flight straight to a danger zone. That is to say, even if fuel prices would not spike, regional and global peace remains a critical area of consideration as people make traveling decisions.

b) Political pressures

Besides the Russia-Ukraine conflict, the America-Libya conflict is another case of political factors that impact on the aviation industry. The political situation following the ouster of Muammar Gaddafi in Libya left Tripoli, the main international airport in the country completely vandalized, destroyed and paralyzed. Planes were also not spared as they were reduced to ashes.

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This unfortunate turn of events leaves the management and leadership of the aviation industry speechless, especially given the fact that they are already struggling to establish and improve aviation infrastructure, only for what has already been achieved to be taken away from them. Huge investments take years of planning and mobilization, but sadly political actions do not always seem to take this into consideration, as war jets and missiles become the order of the day.

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According to the BBC news, all flights to and from the airport had to be suspended. One would wonder, what happened to the days of people sitting at a round table to resolve crisis, even if it means mediations, without afflicting innocent people and their businesses?

3. Traveler Burdens

a) Reduced Business Travel

It appears that gone are the days when people used to fly for business, as a matter of professional necessity. Institutions have since embraced technology significantly, and drawn the conclusion that a meeting does not need to be in-person for it to be effective. Technology has filled in the gap, and thanks to various social media apps, both audio and video calls can be made from the comfort of our offices or homes, saving companies huge sums of money that could otherwise be spent on air tickets and allowances. Various features have made it possible for presenters to do their presentations and share materials, while being thousands of miles apart.

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In the end, one would mistakenly conclude that leisure travel effectively replaced business travel. While we may wish to believe so, the inconvenience of vaccine certificates and health concerns has become the present day reality, pushing people to evaluate health risks, and determining whether they have to travel or not.

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b) Covid-19 Restrictions

No one is ever adequately prepared for global pandemics. In the case of Covid-19 pandemic, even where a traveler may have insisted on traveling, consumer tastes and preferences were left at the mercies of government interventions, with social distancing, quarantines, vaccinations, lockdowns and closure of boarders and airspaces becoming the order of the day. The aviation industry as a whole is still coming to terms with the aftermath of the Covid pandemic.

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People lost jobs as working from home became the norm, pushing some governments to offer wage subsidies, injecting capital, offering loans and deferring certain payments, as well as reduction of tax liabilities, all in a bid to cushion the industry. It is worth noting that while airlines in parts of Asia, Europe and the US received substantial support from government, there was limited support for airlines in Africa and Latin America.

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According to theEBAA’s industry on‘Navigating the Challenges of the Business aviation Market: An Update for 2023’,it remains uncertain how the aviation industry will navigate the numerous challenges of new technologies, arrival of new players, taxes, regulations and social pressure, besides those that have been discussed in this article