According to the Federal Aviation Administration infosheet, 5400 aircraft are in the sky at peak operational times, with 2.9 million daily passengers and 44 billion pounds of freight per year [1]. In a report published by the FAA in 2016, The Economic Impact of Civil Aviation on the U.S. Economy, “During 2014, the total U.S. economy generated $17.4 trillion in value-added economic activity and supported 147.4 million jobs. At the same time, civil aviation: Accounted for $1.6 trillion in total economic activity, supported 10.6 million jobs and contributed 5.1 percent to U.S. gross domestic product” [2]. Understanding the scale at which the aviation industry affects the overall economy is essential because it has become a critical transportation component that lets society succeed daily. In this digital age, by the minute.

Screenshot of United States on February 2nd, 2021 from www.flightradar24.com. Click on the image to learn more.  - Everything from textiles to phones is transported on these avian creations, with the internet hosting a platform to get a bird's eye view: www.flightradar24.com. The website provides a statistical view of the number of flights, and the image is quite remarkable.

 

Screenshot of United States on February 2nd, 2021 from www.flightradar24.com. Everything from textiles to phones is transported on these avian creations, with the internet hosting a platform to get a bird’s eye view: www.flightradar24.com. The website provides a statistical view of the number of flights, and the image is quite remarkable.

Screenshot from www.flightradar24.com/data/statistics. Click on the image to learn more.  - The airline industry's impact from the pandemic can be blatantly visualized with a steep decline corresponding to subsequent lockdown measures placed towards the end of March.

Screenshot from www.flightradar24.com/data/statistics. The airline industry’s impact from the pandemic can be blatantly visualized with a steep decline corresponding to subsequent lockdown measures placed towards the end of March.

A quicker recovery can be noticed from the graph for ‘total number of flights’ vs. ‘ number of commercial flights’ even though it does not imply growth [3]. Aviation is too important and critical of a component that did not completely disappear because of the pandemic. The federal government was previously and is consistently looked upon to save the aviation industry.

On September 29, 2020, the U.S. Department of Treasury announced that it had closed $7.5 billion loans to seven large passenger air carriers: Alaska Airlines, American Airlines, Frontier Airlines, JetBlue Airways, Hawaiian Airlines, SkyWest Airlines, and United Airlines with the commitment to “certain requirements under the CARES Act regarding the maintenance of employment levels and limiting employee compensation, dividends, and share repurchases” [4]. This act of federal aid helped keep these airlines afloat through some severe economic conditions. Such aid is essential when you pause to think that six of those seven companies are publically traded entities: ALK, AAL, JBLU, HA, SKYW, and UAL, with a combined market capitalization of approximately $36 billion. Furthermore, within the SPDR Transportation ETF, XTN, the companies listed above make up six of the ten holdings with an average weight of 2.55% [5]. The companies listed above are also companies that are mostly consumer-facing. While I do think that commercial airlines will be an integral component of society in general, it is still contingent on the proper execution and acceptance of vaccination efforts. Society will be back on planes for connectivity convenience, but when is a question that time will decide.

In the meantime, if one believes in the value that commercial aviation provides, keeping an eye on these companies instead of participating would be a better approach. Recent commentary on the aviation industry has been laser-focused on the cash-burn rate, with American Airlines said it would lose $30 million a day in the first quarter. In contrast, Southwest expects to burn $10 million to $15 million a day [6].

In data from www.finviz.com, very few airlines have positive sales, which is reflected in contrast between the Sales Past 5Y average and sales quarterly over Quarter percentage. In March 2020, Ben Schott for Bloomberg reported that 6000 planes or 28% of the global fleet were grounded [7]. The grounding of planes has a restricting impact on the frequency of flights available for consumers, causing a decline in sales. Reports such as American Airlines preparing to discontinue up to 30 smaller city routes [8] does not provide a promising sign for domestic avian travel.

At this inflection point, the aviation industry’s reflection provides uncertainty and instability due to the inconsistencies provided by multiple variables ranging from consumers to nation-states and lack of steady cash inflows.

Image from FRED, Economic Research St. Louis Federal Reserve. Click on the image to learn more.  - The St.Louis Fed publishes data under the Personal Consumption Expenditures specific for Air Transporation, which suggests that the indicator at the end of 2020 is at the same level as 2009. This chart serves as a proxy to learn that recovery on the consumer side requires a steep incline.
 

Image from FRED, Economic Research St. Louis Federal Reserve. Click on the image to learn more. The St.Louis Fed publishes data under the Personal Consumption Expenditures specific for Air Transporation, which suggests that the indicator at the end of 2020 is at the same level as 2009. This chart serves as a proxy to learn that recovery on the consumer side requires a steep incline.

Another set of data that reflects the decline in air transportation is data published by the Bureau of Transportation Statistics. A review of the Number of Passengers chart reflects a total number of passengers in 2020, almost half of what it was in 2002. A comparison to the Net Income illustrates that the total net loss in 2020 is twice as much as in 2002. Furthermore, it is interesting to note how even though the number of passengers was growing when net income fluctuated over time, just the sheer decline in passengers’ number is startling and would require patience. 

An incline in a particular activity does not benefit the supply-demand equation for consumer aviation –  the increased entry steps into the actual airplane itself. The Centers for Disease Control still advises against travel since it “can increase your chance of spreading and getting COVID-19” and suggest following nine steps before travel, chief among checking the travel restrictions related to the corresponding place” [9].

In 20 years, we have gone from having little restrictions to gain entry into an airplane to security (TSA checks) and medical (testing and vaccine checks) to gain entry into an airplane. While it cannot be said with certainty that increased medical clearance specifically would negatively impact travel, an impact can be suggested. Research published in the Journal of Business and Economics from Harumi Ito and Darin Lee of Brown University titled, Assessing the impact of the September 11 terrorist attacks on U.S. airline demand, concludes that “The terrorist attacks of September 11 had a dramatic impact on the U.S. airline industry. Although some of the initial panic and fear of flying directly following September 11 has dissipated, more rigorous security screening and passengers’ perceptions of the risk of flying have altered the demand for and experience of air travel, especially in the United States” [10].

Increasing medical validation and scrutiny to ensure everyone’s safety on the airplane is vital for the industry’s financial and economic sustainability. But it would come at a cost and, more importantly, patience. There will be a considerable shift in transportation, and climate change will play a critical role in determining its participants. Being a spectator and witnessing any industry adjustments is better than to participate directly and incur volatility. There is a long way to go in terms of reaching back to a globalized world before the pandemic, and the world that was enabled by cheap flights and convenience is no longer fiscally viable for many airliners.