The impact of COVID-19 on the airport business and the path to recovery
Unprecedented impact in 2020, cautious optimism for 2021
Montreal, 14 July 2021 – Airports Council International (ACI) World has published its seventh quarterly assessment analysing the economic impact of the COVID-19 pandemic, its effects on the global airport business, and the path to recovery.
It has been more than fifteen months since the World Health Organization (WHO) declared the COVID-19 outbreak a pandemic. Since then, daily life across the globe has changed with unprecedented impacts on the global economy, trade, and mobility. Practically all aspects of economic and social activity were – and are still – disrupted.
Air transport has remained one of the hardest-hit global industries. The economic, social, and health implications for the aviation sector are far-reaching and the pandemic will affect aviation businesses, passengers, and airports for years to come. While reductions in passenger traffic have occurred as a result of past shocks (9/11, SARS, the Eyjafjallajökull eruption, for example), the prolonged, near-complete shutdown of air traffic is unprecedented since the years of World War II and has devastated travel and tourism.
Since the first vaccine dose was administered in late 2020, more than 3.35 billion doses have been administered across 180 countries. This unprecedented effort has brought more signs of recovery than even and hope of a return to some sort of normality in a near future. The International Monetary Fund (IMF) recently estimated that the global recovery is progressing broadly in line with its April projections of 6 percent growth for 2021.
However, the World Health Organization (WHO) and many country leaders are raising concerns over a “two-track pandemic” favouring wealthier nations as vaccinations in poorer countries lag. The Group of 20 finance ministers have stated in a communique (Venice, Italy, July 10th, 2021) that “new variants of the coronavirus and an uneven pace of vaccination could undermine a brightening outlook for the world economy”. As an example, the spread of the highly transmissible Delta variant was the catalyst for a third wave in the United Kingdom and forced the government to delay its full reopening plan originally slated for 21 June.
Despite those downside risks and setbacks, ACI World is optimistic for long term prospects for a return to the trajectory of growth. Critical to this will be a harmonized and risk-based approach to travel restrictions underpinned by government action to promote safe travel with a coordinated and approach to testing and vaccination.
In this context, the current document seeks to highlight some key figures in terms of the impact of the COVID-19 pandemic on airport traffic and revenues and pathways to recovery.
1. COVID-19 effect on airport traffic: unprecedented impact in 2020, delayed recovery in 2021
The devastating and unprecedented impact of the global coronavirus pandemic and the subsequent travel restrictions on airport industry and the entire air transport ecosystem are now well known. After a decade of consistent and robust growth in global passenger traffic, the ongoing COVID-19 pandemic brought airports around the world to a virtual halt in the second quarter of 2020, erasing almost overnight, more than 20 years of passenger traffic growth.
Even though most countries have now moved away from all-encompassing lockdowns and are trying to limit the infections with targeted and less disruptive restrictions, most jurisdictions have retained either partially or totally restrictive regulations pertaining to international travel including self-quarantine on arrival throughout most of the first half of 2021.
That being said, the vaccination effort of historical proportion now well underway in many countries points to positive signs of a gradual reopening of parts of the economy in countries that experience high vaccination rates.
Despite some positive signs and news, COVID-19 remains an existential crisis for airports, airlines and their commercial partners and the aviation industry needs support and practical policy decisions from governments.
ACI World is cautiously optimistic and advocates for a risk-based approach to travel restrictions. Pendulums are presently moving in opposite directions – Increased vaccination rates are reducing the propensity of transmission and infection. At the same time, many states are or will likely be confronted with subsequent waves of infections due to the spread of COVID-19 variants and several jurisdictions could opt for the re-imposition of partial lockdowns or will maintain travel restrictions.
Government action to promote safe travel with a coordinated and risk-based approach to testing and vaccination is critical instead of full-scale restrictions and blanket quarantine measures.
In this context and using the latest data from the 2020 annual traffic collection, ACI World has produced the latest estimates regarding impact of the crisis on passenger traffic.
Taking one last look at 2020
- In 2020, the COVID-19 crisis removed more than 5.9 billion passengers for the whole year 2020 compared to the projected baseline (pre-COVID-19 forecast for 2020), representing a decline of 62.3% of global passenger traffic (see Table 1). Compared to 2019 level, the decline is recorded at 61.0%.
- Europe followed by the Middle East and Africa were the most impacted regions. Europe is the only region posting a decline above 70% seeing its traffic falling 70.5% compared to the projected baseline. The Middle East and Africa recorded declines of 68.5% and 67.6% respectively.
- Asia-Pacific was the least impacted of all regions in 2020 posting a decline of 55.5% compared to the projected baseline (-53.7% compared to 2019 level). After being hit first, Asia-Pacific embarked on recovery earlier and faster than any other regions mostly driven by the recovery of China’s sizable domestic market. However, because of the magnitude of Asia-Pacific’s market, the region recorded the highest traffic loss of all regions with a loss of 1.95 billion passengers in 2020 compared to the projected baseline.
- Since the “Great Lockdown” of April 2020, international passenger traffic remained virtually non-existent for the remaining of 2020. International passenger volume ended the year slightly below 1 billion passengers, a decrease of more than 73.7% compared to 2019 volume (see Chart 4).
- Domestic passenger traffic volume was helped by the early recovery of major domestic markets like China and Russia. Sill, global domestic traffic volume for 2020 reached only 2.6 billion passengers, a decline of 51.8% compared to 2019 volume (see Chart 4).
Projections for 2021
- The lasting adverse impact of the COVID-19 crisis is forecasted to remove an additional 5 billion passengers by year end 2021 compared to the projected baseline (pre-COVID-19 forecast for 2021), representing a decline of 50.9% of global passenger traffic (see Table 1). Compared to 2019 level, the decline is forecasted to be -47.3% by year end.
- While it was expected that the first quarter of 2021 will show little signs of improvement compared to Q4 2020, there were some hopes that Q2 2021 would emerge as the pivotal point and the start of a real recovery. Those expectations did not materialize, and it is expected that globally Q2 will end up only marginally better than Q4 2020 and Q1 2021. However, as the vaccination continues to be rolled out and travel restrictions are slowly eased, more passengers are expected to return to travel in Q3 and Q4 of 2021.
- Similar to 2020, Europe and the Middle East are forecasted to remain the two most impacted regions with declines of 66.0% and 59.4%, respectively, compared to the projected baseline due to their high dependence on international travel and connectivity which are recovering at a slower pace than domestic travel.
- Driven by the combination of a fast-recovering US domestic market and strong vaccination rate, North America forecast for 2021 significantly improved and it is not forecasted that it will outperform all other regions ending the year 2021 at -40.9% compared to the projected baseline (or -37.3% compared to 2019 level), a 2.6 percentage point increase compared to our March 2021 forecast.
- Following its early start to recovery, Asia-Pacific experienced a slower than expected first quarter due to restrictions imposed around the Chinese New Year festivity to limit the spread of the virus. However, the region’s recovery is expected to accelerate starting in the second quarter of 2021. In Q4 2021, Asia-Pacific is predicted to be only 23.7% below the projected baseline. The region is expected to end the year 2021 with an estimated traffic loss of 45.7% compared to the projected baseline (a decline of 41.0% compared to 2019 level).
- International passenger traffic remained weak in the first half of 2021, but signs are pointing toward a surge in air travel demand for the second half of 2021 as an increasing number of people get vaccinated and international travel restrictions are gradually eased. International passenger traffic volume is expected to significantly lag domestic traffic recovery in 2021 and is forecasted to end the year slightly above 1.5 billion passenger or 40.6% of 2019 level (see Chart 4).
- Domestic passenger traffic is recovering faster than international traffic. Major domestic markets started on a path to recovery in 2020, accelerating its pace in 2021, especially the US, by far the biggest domestic market. Globally, domestic traffic will continue to increase in 2021 to reach close to 3.3 billion passengers by the end of 2021 corresponding to 61.4% of the 2019 level (see Chart 4).
- Find more details as well as regional breakdowns in Table 1, Table 2, Chart 1, and Chart 2 below.
Table 1: The impact of the COVID-19 crisis on quarterly passenger traffic by region (2020–2021, rounded in million passengers)
Table 2: The impact of the COVID-19 crisis on quarterly passenger traffic by region (2020–2021, rounded in million passengers, percentage of change compared to 2019)
Chart 1: Projected global quarterly passenger losses due to the COVID-19 crisis (2019/2020/2021, in billion passengers)
Chart 2: Quarterly global passenger traffic projection compared to pre-COVID-19 forecast (2019/2020/2021, in billion passengers)
2. COVID-19 effect on airport revenues: catastrophic impact in 2020 persisting in 2021
Aviation is crucial for global economic recovery from the impact and effects of COVID-19. The industry’s global economic impact – direct, indirect, induced and catalytic – contributes trillions to world gross domestic product, supports millions of jobs, and fosters sustainable development. Airports play a pivotal role in this ecosystem.
Air traffic is the lifeblood of the airport business. Practically all aeronautical revenues are a direct function of traffic and include passenger-related charges and aircraft-related charges levied aircraft operators.
As traffic declines, airports’ ability to collect those charges decreases proportionally . With little flexibility in operating expenditures coupled with capital costs that are largely fixed, the current crisis represents an unprecedented challenge for the airport industry’s financial viability.
Looking back on 2020
- The airport industry was expected to generate close to $200 billion (figures in US dollars) in 2020 prior to the COVID-19 outbreak. The impact of the COVID-19 crisis on airport revenues was unprecedented, reducing revenues by more than $129 billion airport in 2020 compared to the projected baseline (pre-COVID-19 revenue forecast), a reduction of 64.7%. See Table 3.
- The second quarter of 2020 alone contributed to a reduction of close to $46 billion in revenues compared to the projected baseline, a decrease of more than 90.6%. The third quarter, northern summer season, also posted a significant decrease in revenues, erasing more than $40 billion of airport revenues.
- In relative terms, Europe and the Middle East were the most affected regions with decline of 70.5% and 68.5% of their revenues for 2020 compared to the projected baseline. Africa and North America follow with decline of 67.6% and 66.9% respectively.
- In absolute terms, Europe recorded an estimated revenue shortfall of $52.4 billion for 2020. Asia-Pacific saw a $32.8 billion drop of its revenues in 2020 compared to the projected baseline.
Projections for 2021
- The impact of the COVID-19 crisis will continue to severely affect airport revenues in 2021. It is estimated that globally, airports will suffer the loss of more than $108 billion of revenues by year end of 2021 cutting more than half of airport revenue expectations (-54.6%) compared to the projected baseline (-50.5% compared to 2019 level). See Table 3.
- While the first quarter of 2021 ended up lower than the last quarter of 2020, it is expected that each quarter of 2021 will show improvements compared to the previous one, moving from a decline of 71.4% in the first quarter of 2021 to a decline of 37.2% in the fourth quarter compared to the projected baseline.
- Europe will remain the most affected region in absolute and in relative terms, with an estimated loss of revenues of more than $49 billion by year end 2021, a decline of 66.0% compared of the projected baseline.
- North America, Asia-Pacific and Latin America-Caribbean are all expected to recover quicker than the other regions and reach more than half of the projected baseline revenues for 2021. Those regions are forecasted to achieve 55.2%, 54.3% and 53.9% of the projected baseline by year end.
- Find more details as well as regional breakdowns in Table 3 and Table 4 below.
Table 3: Impact of the COVID-19 crisis on quarterly revenues* by region (2020–2021) (rounded in million USD)
Table 4: Impact of the COVID-19 crisis on quarterly revenues* by region (2020–2021) (rounded in million USD, percentage of change compared to 2019)
3. Road to Recovery
Much uncertainty still surrounds the recovery of the aviation industry. Projecting the path to recovery at this point is still an exercise requiring prudence. While the biggest vaccination campaign in history is underway with positive signs of a recovery, it could be dampened, erased by the emergence of a new variant of the COVID-19 virus that will make vaccines ineffective, bringing the industry, and the world, back to square one. We now know that the expected increase in spring did not fully materialize in part because of delays in lifting safety measures and travel restrictions due to new infection clusters and threats from the spread of variants like the Delta variant. However, many consumer sentiment surveys done in early 2021 point to a form of “vacation deprivation” and pent-up demand. This combined with an upsurge in confidence in air travel provided by increased vaccination rates and safety measures will continue to boost the propensity for air travel in the second half of the year.
There is no doubt that both travellers and industry stakeholders are eager to resume traveling. Many industry experts still forecast a surge in travel for the second half of 2021. Some are even referring to this potential increase as a “post-war like surge” or boom in travel.
Three scenarios are used to look at the potential recovery trajectory using the following assumptions.
- World Airport Traffic Forecasts (WATF) 2020–2040: Developed in December 2020 and published in January of 2021, the WATF 2020–2040 was based on the assumptions of effective vaccines largely distributed in the second half of 2021 in addition to rising consumer confidence to start flying again and a reasonable airline fleet recovery. This scenario remains achievable for 2022 and onward but contingent on the ability of governments to contain the spread of new variants of the virus.
- Revised projection (Baseline): This scenario considers effective vaccine distribution in the second half of 2021 to major markets in addition to rising consumer confidence to start flying again in the second half of 2021 and a reasonable airlines fleet recovery. Third and fourth waves of infections are possible but contained and limited to specific regions.
- Pessimistic: This scenario considers weaker vaccine distribution in 2021 especially in many emerging and developing countries with limited vaccine supply. Fear of traveling still present amongst passengers, coupled with prolonged economic weakness and slow airline fleet recovery. Third and fourth waves of infections are likely and could spread to multiple regions with difficulties to contain the spread of new variants of the virus.
Under those assumptions, ACI World forecast the following related to the recovery of airport passenger traffic:
- Under the baseline scenario and despite the slower than expected first half of 2021, global passenger traffic is now expected to recover to 2019 levels in 2023 mainly driven by the recovery of domestic passenger traffic but dampened by a slower recovery of international travel (globally, domestic traffic accounts for 58% of total passenger traffic as of 2019). If new variants of the virus are effectively contained, ACI World expect that as of 2022, the WATF 2020–2040 is the most likely scenario, resulting in a recovery to 2019 level by the end of 2023.
- Domestic passenger traffic is expected to reach 2019 levels in 2023 while the recovery of international passenger traffic will require one more year, thus getting back to 2019 levels only in 2024.
- At the country-market level, markets having significant domestic traffic are expected to recover in 2023 to pre-COVID-19 levels while markets with a significant share of international traffic are unlikely to return to 2019 levels until 2024. However, because of uneven vaccines availability and worsening two-track economic recovery, some poorer country-market will likely reach 2019 passenger levels not before 2025 or even later in some cases.
- The pessimistic scenario calls for a delayed recovery with the appearance of new variants of the virus resulting in governments introducing more restrictive measures, creating new lockdowns and travel restrictions, severely hampering efforts to safely restart. Under this scenario, 2021 passenger volume will remain weak, ending the year at only 45.9% of 2019 level. Global recovery to 2019 level will happen only in 2024.
- In the long run, it is predicted that global traffic may take up to two decades to return to previously projected levels (pre-COVID-19 forecast). A structural change (traffic will never return to pre-COVID-19 forecasted level) is still a possibility.
Chart 3: Medium-term global passenger traffic projection (indexed, 2019 = 100)
Chart 4: Global passenger traffic by type (in million passengers)