DEMAND UNCERTAINTY IN AIRLINE INDUSTRY

The ongoing pandemic has derailed the activities of airline companies and the passengers
alike and right now, the demand uncertainty is higher than ever in the airline industry. The
main drivers for the demand uncertainty right now are the restrictions imposed because of
the pandemic. The causes for demand uncertainty can be sub-divided into multiple other
reasons as well. India started acting against covid-19 around mid-March and around this
time domestic flights and international flights were stopped in order to combat the spread
of the virus. For two months air travel in India was effectively suspended (except for
exceptional cases) and on May 25th after nearly two months, domestic travel was allowed.
International travel also has resumed since then (albeit with many restrictions). The
pandemic was a huge blow to the airline carriers in the country. Passengers carried by
domestic airlines during January-June 2020 were 351.78 lakh as against 706.60 lakh during
the corresponding period of the previous year, amounting to an annual growth of -50.22
per cent and monthly growth of -83.50 per cent[CITATION Vis20 \l 16393 ]. Airlines were
already operating at around 30% of their total capacity but still the demand is too low.
Adding to the uncertainty are the differences in the state government policies regarding air
travel and quarantine. Despite many places easing the rules and restrictions in recent times
the demand is lower than expected. Some of the hard-hit states (like Maharashtra and
Karnataka) which have traditionally been air traffic hubs have eased the restrictions a little
bit in order to boost the aviation sector but there haven’t been any immediate results. This
can be attributed to the psychological impact of the covid-19 pandemic. Most of the people
do not want to risk contracting the virus and therefore put off their travel plans (maybe
related to work, vacations etc.). Most of the recent air traffic is because of the people
returning home from the places they were at (maybe because of work requirements,
colleges, vacationers etc.). Demand forecasting has therefore become very difficult and the
market has become extremely volatile. It is predicted that the aviation sector will be
relatively subdued until the second quarter of 2021 at least. Newer airline companies have
been hit very hard and there is a high chance of consolidation in the airline industry with
the previously established airline services gaining more power (ex: Indigo, SpiceJet). Right
now, the main reason for demand uncertainty is the covid-19 pandemic. But we must not
forget there are various other factors affecting uncertainty like fuel prices, consumer
behavior, technological advancements, global/local economy, global/local political stability,
and other miscellaneous factors. Accurate forecasting is inherently very difficult in the
aviation industry with the ever-changing demographics and economic factors. Historically,
there have been instances when short-term fluctuations influenced long term trends. It is
now evident that the disruption caused by the pandemic is going to have a long-term
impact on the aviation industry (or almost every other industry for that matter.). When
doing demand forecasting, all of these factors cannot accurately be implemented and
therefore leads to uncertainty. Sometimes some unrealistic assumptions are taken into
account as well, thereby hindering the forecast. A major factor that influences the demand
projection is the type and amount of data collected. Excessive data or very little data can
both be very problematic. These factors mentioned in the past few sentences are run-of-
the-mill, but the situation right now is unlike any the aviation industry has faced before.
Therefore, the factors mentioned in the past couple of sentences hold little weight when
compared to the main reason for demand uncertainty right now- government policies and
restrictions imposed. The uncertainty in passenger demand has also extended to aircraft
production as well. Before the pandemic struck there were many orders for aircrafts and
the demand was predicted to grow by about 7% this year. The pandemic has caused a
massive supply chain disruption for both airline carriers and aircraft producers.
International travel has become heavily restricted. The current economic climate is also not
very favorable and is volatile and hence hinders demand forecasting. The uncertainty in
demand is expected to continue until the pandemic lasts or at least until a few months after
a proven vaccine is released. Demand uncertainty in forecasting is a cause for concern right
now but this concern can be alleviated a little by including the appropriate factors into the
forecasting methods. Indian passenger demand for airline travel had constantly been on the
rise so the demand uncertainty right now has clouded future prospects.