Latin America needs six years for pre-corona air travel levels

08 June 2020 Consultancy.lat

Latin America’s aviation industry will be among the slowest in the world to recover from the Covid-19 crisis, according to an analysis by consulting firm ICF. The firm anticipates a six-year recovery period for the region, driven by a variety of economic factors.

The forecasts are notably grim for the global aviation sector as a whole. ICF uses the global financial crisis of 2008 as a somewhat comparable benchmark to assess economic damage, although the aviation sector in particular will take a lot longer to recover from this crisis than it did from the last one.

While most sectors of the economy have felt the effects of the pandemic-induced downturn, the travel, tourism and hospitality sectors have understandably taken the largest hit amid lockdowns. The aviation industry is nestled within this economic segment, and has seen revenues completely dry up as governments across the globe implemented strict travel restrictions.

Recovery from the Great Recession vs recovery from Covid-19

ICF points out that government support has managed to sustain some life in the sector, although the broader impact has been nothing short of devastating. Lockdown restrictions are now being eased in a number of markets, but air travel might not reach its pre-crisis level for several years.

No doubt, the speed and level of recovery depends on each region and its specific economic conditions. Globally, three phases of the recovery process for aviation businesses have been identified. The first is the quarantine phase, which is where most markets are in right now, but some are emerging from quarantine gradually.

Under this phase, only essential passenger flights – such as those for repatriation – are permitted, as are cargo flights. The second phase is the pre-recovery phase, which according to ICF could last anywhere between six and 18 months after lockdowns are lifted across the globe.

Global passenger forecast

For instance, most markets will first resume domestic flights, while it will take a while for international borders to open completely. Once borders are open, people will have to fly under social distancing guidelines and with the fear of being infected, which is likely to dampen demand. Passengers worrying about infections and a possible second wave means that passengers will need time to feel comfortable with air travel again.

Only once this phase has been waited out can airlines expect a full recovery to pre-crisis levels. By this point, borders will be open, social distancing will be in the past and business as well as leisure travel will normalise. ICF predicts that it will take the global aviation sector as a whole at least four years to achieve this full recovery status, given the conditions that need to be fulfilled in the interim.

However, four years is the best-case scenario. Asia-Pacific and North America are the only two regions that can expect a four-year recovery time according to the analysis. This is driven by strong economic conditions, large domestic markets, financially stable airline companies and the state backing for several companies.

Global passenger forecast by region

How Latin America fares

Latin America, meanwhile, is expected to take between five and six years to recover. Some factors work in the region’s favour, including vibrant domestic aviation markets with no substitute travel options, as well as partnerships with major European players. However, ICF points out a number of factors that will work against a speedy recovery in the region.

For starters, the overall economic outlook in the region was less than ideal before the crisis, with diminishing GDP forecasts. Many economies in Latin America are heavily reliant on commodities, and are suffering under fluctuating global markets. Countries in the region also rely heavily on China for investments, which has been a particularly disadvantageous position for many under the Covid-19 crisis.

Then there is the state of the airline sector specifically. Many airlines in Latin America were already financially under-performing compared to their global peers before the crisis – a scenario that will make a quick recovery exceptionally challenging. “The starting point is worse for Latin American airlines,” said Maurício França, a partner at L.E.K Consulting in Brazil.

Meanwhile, to date Latin American airlines have been receiving less support from the government, unlike state-backed airlines in the Middle East or many North American and European airlines that have received major government bailouts to support them through this crisis.

As a result, ICF predicts an extended recovery period for travel in the region. Europe and Africa have also been attributed a similar recovery timeline by ICF, drawing other economic conditions unique to those regions.


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