Innovative Project 

Managerial Economics 
December 22, 2020 

Impact of Covid-19 on Aviation and 

Tourism Industry 

SUBMITTED TO: MS. Aakanksha Kaushik, Assistant Professor 

  

SUBMITTED BY:  

Mudita Nimje 2k20/UMBA/21 

Pallavi Priyanka 2k20/UMBA/23 

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AVIATION SECTOR
The civil aviation industry in India has emerged as one of the fastest growing industries in the
country during the last three years. India became the third largest domestic aviation market in
the world and was expected to overtake the UK to become the third largest air passenger
market by 2024. But in March this year, when the aviation industry was sent into a tailspin
following the outbreak of COVID-19, as airports, air spaces and borders were shut down, and
most fleets were grounded. The industry has been among the worst hit by the pandemic, with
many airlines forced to suspend or close operations over the past eight months, disrupting
supply chains globally and claiming millions of jobs.
The Aviation sector in India currently contributes $72 bn to GDP. India has 464 airports and
airstrips, of which 125 airports are owned by Airport Authority of India (AAI). These 125 AAI
airports manage close to 78% of domestic passenger traffic and 22% of international passenger
traffic. supports more than 65 million jobs around the world. Had 2020 been a normal year, it
would have seen more than 40 million commercial flights take to the skies carrying more than
4.7 billion passengers and 65 million tons of cargo. Passenger traffic in India stood at 316.51
million during April 2018 - Feb 2019. The aviation sector has suffered in a couple of distinct
ways.
1. There is a fear of contagion. Few other businesses require such proximity with strangers
for hours, while potentially carrying the infection from one geography to another.
2. In midst of the worst economic downturn in recent history, there has been a sharp
decline in travel across the spheres of business and tourism. With no immediate cure or
vaccine in sight, the pandemic will likely continue to challenge our normal lives and air
travel in particular.
The travel and tourism industry across the world is expected to lose more than USD1 trillion in
revenues this year and close to 200 million jobs. The recovery is expected to be slow, uncertain,
and inevitably, painful. India, in particular, has done well to bring back flyers on domestic
routes while international passenger services continue to be restricted and operated under
‘travel bubbles’ through bilateral agreements with partner countries. Interestingly, the air cargo
market has continued to grow steadily to meet the increasing demand for food essentials and
medical aid. The fall in passenger demand has also prompted many carriers to retrofit aircraft
to carry more cargo across borders, in search of better margins and cash flows.

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As with any major crisis, COVID-19 and its economic ramifications have presented both
challenges and opportunities. Five key challenges that the industry faces as it strives to recover
from its precipitous fall:
1. Rationalization of corporate travel - ​Even as markets recover, the increasing adoption
of technology and work-from-home routines are likely to reduce demand for business
travel significantly. Some experts estimate this to be higher than 40 per cent, as
employees and traditional jetsetters become more comfortable with better and cheaper
technology and hybrid workspaces. The need to conserve cash and reduce costs in the
long run will reinforce such behaviors as businesses struggle to restore profitability and
value for shareholders. Airlines and airports will have to contend with this new normal,
innovate and rejig their growth strategies accordingly.

2. Drop in commercial revenues - ​The need for social distancing and personal hygiene
while travelling has already hurt passenger spends within terminals significantly.
Commercial or non-aeronautical revenues are a rich source of income in airports
businesses, more than 50 per cent of overall revenues in many mature airports, a large
proportion generated by duty-free retail, which has completely dried up with limited or
absent international footfalls. ​Job losses, rationalization of salaries, reduced economic
growth and lower disposable incomes ​are likely to exacerbate the impact in the future
reducing footfalls and spending both at airports and in-flight. Airport owners will need
to transform their commercial business and operating models to deal with this new
reality but will be helped by advances in technology and the growing popularity of
digital platforms.

3. Market distortions – ​Airlines have suffered heavy losses in revenue from the pandemic,
threatening the survival of many, especially given the nature of the business (high
capex, cash guzzling, low margins, and with long paybacks). Financially solvent
governments (U.S., Germany, Singapore, U.A.E., Japan among others) have stepped in to
provide relief to many national carriers through grants, soft loans, credit guarantees and
other forms of support. Private carriers have not been equal beneficiaries in such
markets with minimal or no support at all from regulators or governments potentially
jeopardizing competitive tension and aggravating market distortions that can impact
both choice and fares for flyers in the future.

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4. Impact on future investments and asset rebalancing - ​High growth markets like India
have created capacity to meet consistently growing demand for air travel over the last
two decades. In some airports, capacity has either been built upfront or being created
with significant costs already incurred. While the long-term outlook for growth remains
strong in underpenetrated air markets like India, the next three to four years are going
to pose significant challenges for airport owners and investors to monetize assets or
repurpose them to create shareholder value. In some cases, competition from newer
asset-light airports may also pose an additional challenge on asset rebalancing and
profitability.

5. The double whammy for regulators - ​A ​combination of factors, such as weak demand
outlook, poor revenues, high asset servicing costs and low liquidity, appears to have
caught regulators across the world in a perfect storm. Compensating airports on current
business models without imposing an additional pricing burden on airports’ principal
users- airlines, passengers, commercial businesses - presents a major conundrum for
regulators. In some cases, they also must make difficult decisions in fairly and equitably
reallocating airport assets such as slots and real estate.

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The impact of COVID-19 on the aviation sector has been severe but it has also provided an
opportunity for the industry to reimagine its future. Here are five ways in which it could be
done.
1. Refocus on the cost-line - ​Innovations in design, technology and financing can
significantly change the cost of providing services for both airlines and airports. It can
help deliver more bang for the buck and cushion the pressure on both affordability and
profitability. Solar powered airports, electric bussing, green buildings and recycling can
engender significant savings in operating costs and could become the norm for the best
performing airports.

2. Make technology work harder for you - ​In a progressively digital world, bytes carry
more value than bricks if used well. Investing in the right tools and technology can not
only help monetize assets better but also significantly improve operating efficiency and
customer experience.

3. Transform the operating model - ​Technology can facilitate a complete revamp of the
operating model for greenfield assets. For example, touchless check-ins, RFID bag-tags,
contactless and paper-less immigration and boarding processes can largely obviate the
need for large passenger concourses and check-in areas and release more monetizable
commercial spaces. Sustainability is a concomitant theme that can enhance asset
productivity and unlock value by effectively managing life-cycle costs. Another
important consideration would be to find the right balance between resilience and
efficiency.

4. Collaborate - ​Airlines and airports have often been adversaries in a commercial

ecosystem but may have a lot to gain from each other in a demand​-​constrained,
price-sensitive market. Sharing data could be the key to maximizing value and sharing
gains from mutual benefits. It could not only help extend the clientele beyond airport
boundaries but also help optimize costs while providing more value for passengers and
airport users.

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5. Innovate - ​History has shown us that crises have often spawned the best inventions and
innovations. The immense value of data and technology that we have access to today
cannot be overstated. They act as perfect levers to invent and innovate solutions that
can boldly take on a world shaped by volatility, uncertainty, complexity and ambiguity
(VUCA). Will we see more bio-fueled planes? Will we have more satellite-based
navigation systems? Can we have integrated departure and arrival areas in a digitally
enforced airport?

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Jobs affected due to covid hit on aviation industry

1. Globally around ​400,000 airline workers have been fired, furloughed or told they may
lose their jobs due to the coronavirus.

2. In India many airlines like Etihad and Air India have laid off pilots and aviation workers.
Air India sacked pilots while they were still flying due to the magnitude of the lay off.

3. The crisis faced by the aviation industry is even deeper than the affect it faced after
9/11 attacks.

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4. Female pilots are also facing the brunt of coronavirus affecting the aviation industry. Before
the crisis, global air travel was growing at a record 5% a year, generating a need for 804,000
pilots over the next 20 years. The need for more pilots had pushed female recruitment to the
top of the agenda.
But a shattered post-Covid industry does not expect traffic to regain 2019 levels and start
growing again before 2024. Despite the female recruitment improvement, just 5.3% of airline
pilots globally were women before the coronavirus crisis. That percentage is set to drop again
as airlines carry out furlough plans.

At American Airlines and Delta Air, women make up around 5.2% of the combined pilot
population of about 27,800 and 6.7% of the 3,645 pilots whom those airlines expect to
furlough, according to numbers provided by their main pilot unions.

The union data implied that the proportion of female pilots would slip post-furloughs to 4.9%
from 5.1%.

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TOURISM SECTOR

Corona virus that causes cold and seasonal flu, which was earlier Severe Acute Respiratory
Syndrome (SARS) and Middle Eastern Respiratory Syndrome (MERS). This was first detected in
Wuhan, China, which was said to be spread out from bats. The outbreak was announced by
WHO on 30 January 2020 as a Public Health Emergency of International Concern. Lockdown and
self-isolation were the only way identified to control the spread of the virus and to break the
chain, the step taken by the world countries. The same thing happened in India, and was put on
lockdown. The lockdown, in turn, had a drastic impact on the country's economy, as it stopped
money circulation. Tourism and hospitality were among the industries most affected. This
research was undertaken to examine the pandemic situation of India and its effects on tourism,
hospitality, and food services. As the country is in the unlocking phase right now, the study has
come up with suggestions that would help overcome the pandemic-related economic crisis.
The Tourism and Hospitality industry is one of the largest service industries in India.
Tourism is an integral pillar of the Make in India program. Tourism plays a role of significant
economic multiplier and becomes critical since India has to grow at rapid rates and create jobs.
India’s ranking in the Travel and Tourism Competitive Index (TTCI) of World Economic Forum
moved from 52​nd position in 2015 to 40​th position in 2017. Now India has moved up by another
6 positions and ranked at 34​th position in 2019. Tourism tends to encourage the development of
multiple-use infrastructure including hotels, resorts & restaurants, transport infrastructure
(aviation, roads, shipping & railways) and healthcare facilities.
Travel and Tourism was the largest service industry in India and was worth $234 bn in 2018. The
industry has become one of the largest Foreign Exchange Earners in India with earnings of
$29.962 billion over Jan 2019 – Dec 2019 equating a growth of 4.8% over the previous year.
According to The World Travel and Tourism Council (WTTC), tourism generated $194 bn or 6.8%
of India’s GDP in 2019 and supported 39.80 Mn jobs which is 8 % of its total employment. The
sector was predicted to grow at an annual rate of 6.9% to $460 bn by 2028 which is 9.9% of
GDP.

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India's aviation, tourism and hospitality industry sustained the highest damage from Covid19
outbreak. The industry comprises hotels, restaurants, tour agencies, food and beverage outlets,
transportation, etc. Indian tourism industry is projected to suffer a loss of 125 trillion in 2020
along with a potential loss of around 38 million, that is, 70% of the overall workforce. Relative
to last year, the tourism income in the country may be declined in 2020. There is a sense of fear
among people that foreign tourists could be carriers of viruses because the virus came from
abroad to India. Through an economic standpoint, the ban of traveling and closure of industrial
units leads to a reduction in jobs and production. Neither can all roads be opened in rural areas
or new tourism trails be built.
At least 30 percent of hotel and hospitality industry revenue could be impacted if the situation
doesn’t improve by the end of June 2020. There is a threat of job loss of nearly 15% in the hotel
and restaurant industry once the lockdown is lifted, as they will not see an immediate surge in
demand. Aviation industry in India could incur losses worth ₹ 27,000 crore ($3.3-3.6 billion) in
the first quarter of 2020-21. The passenger growth of airlines is likely to fall sharply to a
negative 20-25% growth for the 2020-21.
Indian Association of Tour Operators (IATO) estimates the hotel, aviation and travel sector
together may suffer a loss of about ₹85 billion keeping in mind the travel restrictions imposed
on foreign tourists. India’s outbound and inbound travel will witness an all-time low. The
restaurant industry in India is expecting almost zero revenue in the immediate term, and a drop
of 50% in the months to come.
Moreover, the Indian medical tourism that was estimated to be at $28 billion by 2020 was
disrupted due to the spread of virus. The main reason behind all this was the spread of virus
that can be restrained only by social- distancing and thus the affected countries decided on
lockdown of the nation.
The Covid-19 pandemic has severely impacted the tourism industry across the globe covering
sectors like hospitality, tour operators, travel agents, air, land and sea transportation industry
and others. As per WTCC, the Covid-19 pandemic is expected to cost the tourism industry at
least USD 22 billion resulting in a loss of 50 million jobs globally. India is no exception; tourism
has witnessed a significant decline during 2020.

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We are staring at a gradual or in fact slow recovery scenario of the tourism industry in India,
however, the important thing to focus on is there’s hope of recovery after all. For the recovery
of the sector few things have been proposed by leaders in the industry.
● Experts have emphasized on the need to focus on the potential of domestic tourism and

try to gain some profit through it.

● ICC suggests setting up of a ‘Travel & Tourism Stabilization Fund’ with direct benefit

transfer to each unit to prevent financial and job loss.

● The experts also recommend cost optimization at all operational levels.

● It is also being recommended to cautiously utilize the FF&E Reserves. Operators would

need to support the hotel owners.

● Any dry powder that is available in the market should be utilized more on buying

operating assets rather than building new ones.

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Assessing the Impact of Covid-19 pandemic in Tourism Sector:

World Tourism

The World Tourism Organisation (UNWTO) has estimated that 120 million direct tourism jobs
could be lost or at risk due to the COVID-19 pandemic, which has impacted travel like no other
event in the history and this could implore US $ 1.2 trillion loss of revenue in the global tourism
industry because of 850 to 1.1 billion lesser tourist arrivals in 2020 (UNWTO, 2020)​5​.

The tourism sector directly contributes to the GDP by generating foreign exchange, creating
numerous jobs and supporting different types of businesses and thereby development of a
region. On an average tourism contributes almost 4.4% of GDP in developed nations and
generates almost 7% direct jobs​6​. The shares of tourism are much higher for several OECD
(Organisation for Economic Co-operation and Development countries). For example, tourism in
Spain contributes 11.8% of GDP whereas Mexico, Iceland, Portugal and France generate 8.7%,
8.6%, 8.0% and 7.4% of GDP from tourism respectively.

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Post Covid19 strategy to survive the Indian Tourism industry

1. For the tourism sector in India, it is no longer going to be business-as-usual and we will
need to redefine, refocus and change the game plan going forward. It is essential to
measure the impact of Covid-19 and prepare a cogent strategy involving both the
government and the industry stakeholders, which can be categorised into three phases:
Survive (short-term), revive (medium-term) and thrive (long-term).

2. The twin challenges in the survival stage are to save businesses and save jobs. The
Centre must provide businesses with institutional access to working capital and enable
liquidity through a deferment of loan repayments. The Centre intends to help small
businesses to access working capital by underwriting a part of the loan amount.

3. On the demand side, India has a robust domestic market which could soften the impact
as compared with nations that rely largely on international tourists. India receives 11
million foreign tourists, which is small compared to its size and relative potential. Dubai
receives well over 16 million tourists. At least 24 million Indian tourists travel abroad
each year and spend an estimated $25 billion.

4. We must incentivise domestic travel to retain these high- spending tourists, which
should not be difficult given the international travel restrictions in place. Critical to the
success of this would be to allay the anxieties of tourists by ensuring that robust
protocols for safety and hygiene are in place.

5. In the revive phase, the slow easing of international travel restrictions will result in
intense competition as all countries will target the same markets. This calls for a nimble
and aggressive strategy for specific micro-markets focused on intense localised
communication through social media.

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6. We need to prioritise products and destinations that would be of interest in the target
market and ensure that these deliver value for money.

7. Even though a significant part of the business travel will be lost to technology, India
should aggressively campaign with state support to host a handful of the biggest and
best global conferences and conventions to send out the message that India is safe and
is back in business.

8. The thrive phase calls for an adaptation to a fundamentally changed tourism sector
post-Covid-19.

9. Consumer preferences and tourism policies the world over are expected to evolve
towards achieving greater sustainability and community orientation.

10. We will see a trend towards taking cognisance of environmental costs beyond economic
costs; destinations that will move towards a zero carbon footprint along with higher
levels of hygiene; tour operators and hoteliers gravitating towards more responsible and
meaningful experiences through minimising food miles; showcasing the local for the
global; and positioning the host community as the centrepiece of the tourist experience.

11. The pandemic offers us an opportunity to hit the reset button to make the tourism
sector a sustainable engine for economic growth and development.

12. Beyond the immediate pain of the pandemic, we should not miss the chance to make
full use of the crisis.

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Bibliography
1. airlines.aita.org
2. wikipedia.org
3. www.oecd.org 
4. www.tourmyindia.com 
5. www.investindia.gov.in
6. www.statista.com
7. businessworld.in
8. hindustantimes.com
9. www.bloombergquint.com
10. mondaq.com

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