Pandemic and Recession Impact on Airlines

Table of Contents

Chapter 1: Introduction

Chapter 1.1- Report Aims and Objectives

Chapter 1.2- Background to research

Chapter 2: Literature Review

Chapter 2:1- Introduction

2.2.1- Past Recession in Ireland

2.2.2- Airline strategies used in the global crisis and COVID-19.

2.2.3- Government policies used in Ireland for greenhouse gases.

Chapter 1: Introduction

The airline industry is a volatile market, every year every airline goes through an evolution that impacts the world both good and bad. More importantly, after the deregulation of the airline market, it allowed airlines to thrive on the new open market, by introducing low-cost airlines such as Ryanair, EasyJet and many more.

The industry has gone many changes over the years from jumbo jets to fuel-efficient aircraft. Therefore, the industry is volatile, this is since different low-cost airliners are competing with one another for the same destination by introducing extremely low-cost fares therefore eventually dissolving airline companies that cannot afford to play in the market anymore.

However, the most impact that the air industry is on emissions, even though the air industry is 2.5% of global emission, the industry still survives. Moreover, it is a global crisis that affects any airliners. Ireland is one of many countries that went through many recessions as well as the new global crisis that has been affecting the globe from the year 2020 which is COVID-19.

The new strain of the virus has attacked and brought down the airline industry to its knees where it is barely surviving and has completely changed every aspect of modern life. However, even though Ireland experienced a level of recession it has also experienced rapid economic growth which is also known as the ‘Celtic Tiger Era’. Moreover, Ireland’s evolution began when joined the European Union in the year 1973.

Moreover, during the global crisis, organisations such as the airline industry were faced with difficult challenges such as cutting back in activities which increased the unemployment rate due to low employment pay rate. According to the Central Statistics Office of Ireland during 2010, Ireland faced a huge recession where the national unemployment rate reached up to 13.8. [1]. At present, due to COVID, the usage of flight has dramatically decreased in the passenger sector. This is due to the strict implementation of government made policies to tackle the virus.

The European Union’s transportation sector is one of the most important factors in its economy. The demand for transportation usage depends on the amount of economic activity are present as well the expanding trade relations with both domestic and international attendees. This will eventually result in higher use of all modes of transport.

This research project will analyse how the first recession in Ireland has started and how different companies such as Ryanair, EasyJet implement different strategies and how they are affected during a global crisis such as a pandemic or even a recession. Moreover, it also analyses different government policies that are introduced by the Irish Government to reduce greenhouse gases. Moreover, this paper would also investigate the impacts that the aviation industry has had on as well as how the recovery process would look like after a recession or a global crisis.

Chapter 1.1 - Report Aims and Objectives

This project is to identify the different type of global crisis that had affected the airline industry and how it slowly recovered from it. It also identifies how Ryanair and EasyJet challenge these crises from boom to bust. Moreover, the project also identifies the different types of government policies that are in play to reduce carbon footprints. However, the project will also identify how different authors tackle recession from countries as well as the issue of greenhouse gases.

Chapter 1.2 - Background to research

The background of this research report is to identify and evaluate the methods and strategies that are used by the aviation industry to recover from a global crisis. To conduct the report, the author has examined past recessions that took place in Ireland and recessions that took place in other countries and how they affected the Irish economy. This gave the author the ability to understand the barriers that were faced by airline companies during an economic bust.

During this time of a global pandemic, the author believes that it would be a topic to research as the global pandemic is and still having an impact on the aviation industry. To adapt to these struggling times for the companies, they have made several changes to operate efficiently as possible, therefore, most companies have made strategic plans to combat the issue.

The airline industry has been facing several changes over the past decade such as technological advances to automatic runway landing systems. Apart from these changes, the airline industry is competing against each other to rise to the top. However, one company that has been on the rise is the low-cost airline Ryanair. Moreover, during this global pandemic, the author is analysing how different airline companies, as well as other global crisis, are competing against each other when the percentile on passengers is decreasing.

Though recessions only affect certain parts of the world, a global pandemic has a global effect on travel itself. During the recession companies such as Ryanair faced difficult decisions for the survival of company this means that companies will do whatever is necessary such as cost-cutting strategic plans to survive.

For Ireland, the ‘Celtic Tiger’ were one of the best eras in Irish history business was booming, unemployment rates were low and disposable income was spent everywhere. The airline industry itself was rushing into new research and development to attract more customers. However, as recent trends change after the recession people became aware of how to spend their disposable income. Therefore, this made an impact on air travel itself, after the deregulation in the airline market, companies such as Ryanair brought out low-cost airfares to attract customers. This low-fare scheme eventually led Ryanair as the cheapest but most successful airline company in Europe alone.

Chapter 2: Literature Review

Chapter 2:1 - Introduction

A global recession or any global event can take a toll on the airline’s finances, for both passenger and air cargo activities. The aviation industry is a crucial part of the development of Ireland its competitiveness industry created almost 140,000 jobs and contributing almost €8.9 billion to the GDP. Every author has discussed this topic, to understand the different strategies that were used by different companies during a recession, moreover, to discuss the government obstacles that were used to prevent a pandemic from spreading out of control, the main question that arises is how international trade and economic growth will shape the future. Therefore, the main purpose of this literature review is to summarise and introduce past literature that was used on this topic.

This chapter will discuss and explain the following literature:

1. Past recessions in Ireland.
2. Airline Strategies used in the global crisis and COVID-19.
3. Government policies used in Ireland for greenhouse gases.

2.2.1 - Past Recession in Ireland

A recession is the decline of a country’s economic growth.

Ireland has faced numerous recessions in the past years. Richard Koo, clearly describes that “the key difference between an ordinary recession and one that can produce a lost decade is that in the latter, a large portion of the private sector minimises debts instead of maximising profits” [2].

The employment growth in Ireland during the 90s nothing less than extraordinary. However, unemployment during the 1980s was a serious issue mainly to the fact of poor economic decisions by the government. The Celtic Tiger Era landed the country many new jobs, which doubled the size of the labour market. However, this massive performance improvement came to a sudden stop when the world was stuck in the financial crisis which began in 2007.

The 2008 recession was far the most worth crisis that Ireland has ever faced. Furthermore, the recession led many people to emigrate to different countries in search of better livelihood. However, two causes made this crisis worse for Ireland.

1. The Great Recession

According to an article the Great Recession devasted the world financial markets [3]. This economic downturn caused the increase of home mortgages, loss of life savings as well as the increasement in bank loans. Although the Great Recession originated in the United States, it eventually spread through Western Europe, where Ireland suffered the most. What caused the great recession was the subprime mortgages, this is where home loans are approved to borrowers either with low income or poor credit history.

With the housing industry booming in Ireland from the mid-1990s to the late 2000s, mortgage lenders captured the opportunity by giving out less restrictive loans, in hopes to make a quick profit. However, this practises soon proves the catastrophic consequences.

2. Irish Banks

The Irish successful economy was followed by a substantial rise in real estate and commercial growth during the 2000s otherwise known as the Celtic Tiger Era. Thousands of loans to Irish banks funded this rise in growth. Irish banks such as Allied Irish Bank, Bank of Ireland were all involved with such loans. With the addition of low-interest rate loans offered by the banks, the Irish government also decreased the low corporate tax rates, which eventually led up to borrowing more loans. Ireland’s economy has been in a somewhat unbalanced situation due to its high dependency on the construction industry.

When the recession finally arrived in 2008, real estate developers and individuals who took out the loans from these banks were not able to repay them. These unpaid loans led Irish banks with substantial debts. As a result of the recession, property prices deflated to this crisis, creating even more debt. Although the current unemployment rate in Ireland is 5.8 according to the latest CSO (Central Statistics Office) [4]. However, according to CSO, the unemployment rate of 2010 has reached up to 13.7% [5]. Although the air industry is a volatile market, Markus Franke and Florain John describe that apart from recessions the air industry faces negative growth in other global crisis such as the First Gulf War, or even the consequences of the 9/11 attack that happened [6]. The consequence of the 9/11 attack led to the collapse of the air industry immediately, one of the main reasons for the decline was fear. Though fear was a factor in this scenario, Ryanair and EasyJet were still able to provide services during that period.

Despite the global economy’s rebound, many authors such as Markus Franke and Florain John believes that the airline industry will take a long time to return to their normal procedures [6].

Though Ireland faced recessions in the past, the main key question after the crisis is how the crisis is being handled as well as what comes after the recession. For Ireland though, unemployment has affected some groups as well in different sectors. According to the authors William K Roche et al, the result of unemployment led young people from ages 20-24 to emigrate to other countries in search of employment and opportunities [7]. Moreover, authors such as William K Roche et al and Alan Barrett and Séamus McGuiness, both quotes about the rate of unemployment between 2007 and 2009 [7,8]. By comparison with the articles, it tells us that the rate of unemployment was different across different age sectors.

The economic downfall between the year 2008 to 2010 was considered the most serious recession ever happened in Ireland, with the scale of the Irish banking loss as a result also weakened the financial position of the government. As a result of no confidence from the government, this weakened the government even further which led to such a point to get aid from the EU (European Union), the IMF (International Monetary Fund) and the ECB (European Central Bank).

2.2.2 - Airline strategies used in the global crisis and COVID-19.

The airline industry is extremely vulnerable to outside factors even if they are minute. External factors such as natural disasters, terrorist attacks, economic recession have a more severe impact on the decline of air traffic and the rise in travel bans, flight cancellations and even border closures.

The COVID-19 outbreak is the most important disease that impacted air traffic around the world. However, even before COVID, the SARS virus in 2003 had the most effect. According to IATA (International Air Transport Association), due to travel restriction of the 2020 COVID-19 outbreak, the aviation sector in the world lost around $113 Billion in revenue, where in Europe around $6.6 Billion was lost with a 9% decrease in passenger numbers [9]. Though the author of that article presented an assessment during the start of COVID, the impact that has exploded in the airline industry is still unaccounted for. However, passengers’ conduct has changed because of the COVID-19 crisis, travel sanctions, and the subsequent economic crisis this resulted in a substantial decline in demand for airline services.

Despite the 2008/2009 recession, the birth of Ryanair has brought out low-fare competition in the EU market. Ryanair bets on the growth of the recession. According to an article, Ryanair posted a 21.3% rise in revenue flow, while the fuel cost rose to 14.1% in 2007/2008 [10]. However, Ryanair’s chief executive Michael O’Leary also points out that the company would break if the price of the oil goes above a certain threshold. However, the fact that many of Ryanair’s competitors have been hedging effectively, while Ryanair’s mistake was the lack of hedging. Despite this logic decision, Ryanair also made another wrong turn by hedging almost 90% of its US Dollar during the 2008/2009 financial crisis.

The strategies that all airliners have different methods to cut cost at the maximum when the company is at the end of the bridge. Ryanair’s main response was to move forward by intensifying cost-cutting measures in all its operations. According, the same article some measures include the closing of Dublin call centres which resulted in up to 40 job losses and redirecting call centres of cheap labour countries such as Germany and Romania, establishing relations with other airports to increase passenger traffic as well as revenue [10]. Ryanair, however, took a step further by freezing pay to all senior managers in the company, as well as introducing automatic check-in facilities to most and all airports around Europe. With the launch of the cost-saving programme, Ryanair aimed to cut off nearly €400 million during the financial crisis. Further cost cutting measures such as reducing the number of employees required at the airport, replacing check-in services with fast drop services and forcing passengers to check-in online and printing out their own boarding passes were all introduced. Despite the strategies Ryanair used it helped them to become the most successful as well as the most fastest growing airline company in Europe.

Another low budget airline is EasyJet which is operated in the United Kingdom. Based on the idea that a priceless tree is the most important element in air travel this is the principle that both EasyJet and Ryanair operate on. Many airliners run on the theory that as income growth so will the number of passengers and that reducing transportation rates will result in lower revenue. Both EasyJet and Ryanair are in the mass transportation business, where it focuses on business travellers and offering them air transport that has good value and safety. According to an article, EasyJet’s passenger traffic flow dropped from 0.6% to almost 86.3%, during the 2009 financial crisis [11]. Both authors prove that it is reasonable to believe that as people get richer, they will be able to move more further and often, paying for goods and services in the process. Yet, both articles are claiming that the main reason for the reduction in passenger flow and profit was the increase in fuel cost. Although each airline tries to put its commodity in a particular manner, the available resources are invariably the same by analysing the different strategic actions that are used by different carriers. Although bankruptcies, mergers or even acquisitions are viable options for struggling airlines or large companies, this step could have a negative impact on the fair competition among different airliners in the air industry with price consequences are a possibility. Moreover, one of the main strategies that are used in most airlines during an economic downturn is the formation of alliance, between two or more airline companies.

The global economy is now being heavily reliant on-air traffic, with the rising share of freight being transported by air in terms of volume that are required. Besides, with the deregulation of the open market in the aviation sector in Europe and all over the world. The affordability of air travel opened a new destination to the customers as well as new opportunities. Moreover, with the Open Skies Agreement as well as deregulation air carriers, competitiveness arose between different airliners. However, the context can change quickly when a global crisis arises, and one of the new crises that have been going around the world since 2020 is the COVID-19 pandemic.

The aviation sector is continuing to have a devastating effect by the COVID-19 crisis. When Covid was declared a pandemic by WHO (World Health Organisation), the EU developed a EU-wide traffic light system [12]. One of the features of the COVID-19 outbreak has been the virus’s rapid geographical spread, with a delayed reaction in the rest of the world’s areas after the initial manifestation in Asia. This traffic light system has been implemented to all EU countries therefore, restricting free movement. Though most airliners attempted to operate on a regular schedule; until they were unable to do so due to severe mobility restrictions. Due to this restrictions airliner such as Ryanair have closed their airport bases at both Shannon and Cork. Although there are signs of reduction in the number of cases, the crisis still appears as a challenge, as the demand for travel has declined over the past month.

Another impact that COVID has had on over the past month was airports. An airports income is determined on the number of passengers that arrive as well as the hire of airport equipment’s which are used by different airliners. According to Central Statistics Office (CSO), Quarter 3 of 2020, there was an 87.5% drop in the number of passengers handled by main Irish airports such as Cork and Dublin [13]. The updated data shows that the significant decrease in the number of passengers were coincided with the restrictions that were imposed by the Irish government due to COVID-19. Though passenger numbers have decreased in all five airports in Ireland, only Dublin airport accounted at 87.4% in all passenger travel that was handled in the quarter of 2020. The DAA (Dublin Airport Authority) had accumulated almost €150 million in losses due to COVID-19 passenger travel restrictions. Moreover, according to a document produced by Euro Control, the latest figures show that air traffic has almost been reduced to 65% from all major European Airports [14]. At present, airports are mainly focused on merely surviving in the absence of passenger demand and flights to stabilise and rebound from this global crisis. Though passenger air travel is the one main profit from all airports, due to COVID restrictions, air freight travel has slightly been increased due to the increasement of online shopping from home. Moreover, with the effective closures of Ryanair’s Cork and Shannon airport bases, this has already threatened the airports viability as well as the impact on the local economy of both Cork and Shannon. Both Cork and Shannon airports play a critical role in maintaining sustainable regional development and communication between the West and the South.

Nonetheless, the most impact that this crisis influenced was on the employees. Workers from any sector, even aviation sector has been widely impacted by reduced air activities, this eventually led to reduce working hours, pay cuts, layoff. Wage cuts and layoffs at regional airports have a highly negative impact on the local economies, communities, and the areas that they represent. Aer Lingus and Ryanair have both announced planned reductions in size and job cuts in Ireland [15]. Moreover, according to an article by Economic Times, the budget airline, EasyJet decided to cut up to a third of the 15,000 workforce to cope with the COVID-19 pandemic [16].Furthermore, aircraft manufactures are heavily reliant on demand from the aviation industry, either directly or indirectly by leasing firms. This domino effect is also affecting jobs at Boeing and other aircraft manufacturers. Along with the United States, Ireland has emerged as one of the world’s two main hubs for aircraft leasing companies. According to a report, over 50 aircraft leasing companies are based in Ireland, where an Irish leased aircraft takes off every two seconds [17]. Ireland has over 65% share of the aircraft leasing market, where over 60% of aircrafts around the world are managed by Irish leasing companies. Since, most aircraft leasing companies are not publicly traded therefore, the information on aircraft lessors is limited to a certain degree. According to Irish Times, Aircraft lessor Avolon lost almost €30 million due to COVID-19 restrictions hit air travel [18].

COVID-19 has triggered one of the worst crises in the modern world and the global economy will be impacted for years.

2.2.3 - Government policies used in Ireland for greenhouse gases

Climate change is one of the ongoing problems that the world is facing every day. Though transport has played critical role, the demand of travel has rapidly increased over the years due to the change in trends that we live today. One of the major increases in CO2 (Carbon Dioxide) emissions are caused by the transportation sector. Europe itself almost produces 22% of carbon emissions of that most are produced by the transportation sector. Although transporting is important in the modern world, finding a way to mitigate these emissions is more difficult. Reducing emissions has become a much more difficult challenge as trend and lifestyle are changing continuously. This paper examines the sudden shift in patterns in the airline industry, as well as how human lifestyles have changed, causing demand to rise.

According to Lee J. Joosung et.al, air travel is one of the fastest growths of all modes of transport and that though energy intensity continues to decline, the use of fuel and emissions are steadily risen [19]. Although the increase in trends has grown the effects in growth as well as environmental impacts, every author who has researched about the topic has been motivated as well as the scientific community. Moreover, according to Jan and Anming, as concerns about global warming has being rising every day, policy makers of each country began targeting emissions of aircraft as well as other modes of transport to reduce the production of greenhouse gases [20].

The Irish government has already introduced several climate control policies such as the National Climate Policy Position which is the main policy to tackle climate change which was published in 2020. According to the policy, the main aim is to reduce greenhouse gas emissions by introducing series of national plans till the year 2050 [21]. The main key point of this policy is that national plans are created and are adopted to ensure that it covers all areas of climate change. Moreover, this is a strategic plan in every government in any country by tackling the action one by one. Furthermore, Ireland took it one step further by enforcing the Climate Action and Low-Carbon Development Act of 2015, in this act it is stated that the Minister for Communication, Climate Action and Environment must send to the government set of plans and actions that ensures the succession of the National Climate Policies target using cost-effective steps and measures. The National Climate Policy does not correlate with the National Aviation Policy, though its secondary objective is to create and implement an efficient method of air travel, its primary purpose is to create employment as well as to increase revenue flow to the aviation industry. Another objective of this policy is also to make Ireland to position itself as a recognised leader in the aviation industry. However, when comparing policies that are created by different country, we can see the same trend.

Similarly, authors such as Xander, Jan, Lee Joosung et al. and Stefan analyse the different policies of different countries than what is being suggested now. However, all authors agree that the demand for transportation is due to the rate of increase in wealth, therefore as the economies of a country grow so as the demand in products thus increase in traffic by volume. According to an article from the EU (European Union), policy actions and with combined efforts for different sectors from the industry have led to improvement in fuel efficiency over the years, moreover, the amount of fuel burned by per passenger had dropped by 24% between the years 2005 and 2017 [22]. Furthermore, as the author mentioned about the global financial crisis in the first chapter, we can clearly see how a global impact have an equal and opposite effect on the environment. As the EU pointed out that in Europe out of the world the aviation industry accounts a total of 3.8% of total CO2 emissions, although this is not a massive number, in Europe alone the aviation sector produces almost 13.9% of emissions making it the biggest emitters after road transport.

The rapid growth in the Irish aviation industry over the past years can be reflected in the increase of other organisational activities in the sector such as the introduction of low-cost airlines such as Ryanair and EasyJet.

Although COVID-19 has had devasting impact on the loss of life as well as economic downturn, the resulting restrictions implemented by governments from all over the world to restrict the spread of the virus has provided a positive effect in the short-term in the world’s environment. According to a report by EEA (European Environment Agency) with the decline of road passenger transport and air transport, the International Energy Agency (IEA) has estimated that greenhouse emissions and energy consumptions could fall by 6% [23]. This decline in emissions would support not just the climate or the environment but also the health and the well-being of the human population. The drastic change in air quality, particularly in most polluted cities in the world, has been one of the most noticeable short-term results of the COVID-19 lockdown. According to NASA (National Aeronautics and Space Administration), since the pandemic began in 2020, both space and ground-based observation centres, have shown that the Earth’s global nitrogen dioxide level has been reduced nearly 20% [24]. The decline in energy usage and emissions became a targetable achievement for government policies. In Ireland, greenhouse gas emissions fell by 6% in the year 2020, due to the national lockdown [25].

There are many policies to deal with emissions, however, as economic development of a country is important, most climate policies are not directly aimed at reducing emissions as pointed out by Cameron and Benito (2010) [26]. However, F.R. Wood et al (2010), disagrees that no one person should be in charge of climate policies, that all governments should be involved in the process for the policies to be successful [27]. The authors of these articles show that government roles in these policies only play 50% of the role in the reduction of greenhouse gases. Moreover, according to Anna Elofsson et al., (2018), all climate policies on transport are aimed at the reduction of greenhouse gases but in stages, such as reducing air traffic volume by encouraging new modes of transport, raising the cost of travel [28].

The European Green Deal is one of the action plans that are set by the European Union. According to the EU, the European Green Deal aim is to provide the efficient use of resources by moving and guiding to a cleaner environment and to restore the damaged biodiversity and furthermore, to reduce pollution [29]. Moreover, the plan also includes the financial tools that are needed to do so to transition to a cleaner environment. However, in the fact that policymakers make climate policy, the boundaries are largely fixed in corporate boardrooms. Furthermore, according to David Popp, trying to reduce emissions that causes climate change will require dramatic changes in the way energy is produced as well as consumed [30]. Several authors also agree that, to change how energy is produced they argue that technological advances in the coming future will play an important role to combat climate change.

For any government policy to become successful, it depends on the trust in government. According to the authors Joakim and Ingemar, they have established a connection between how people would react on a policy of any sorts either by trusting the political institution or the encouragement of influential personal [31]. Furthermore, according to a group study authors Hammer and Jagers, shows that trust in politicians are shown if policies are related to anything that contributes to the environment and other beneficial policies [32]. However, according to Anttila et al, the determinants of a countries economic policy is based on the economic weight of the country [33]. This means that any climate policy of a country is based on how much fossil fuel that they use. Moreover, this also proves that some countries who are heavily dependant on fossil fuels will be less ambitious to alter changes in their climate policies. Ireland is highly dependent on fossil fuels in Europe including counties such as Malta and Belgium. According to a report, in 2013 almost 75% of energy was imported to Ireland to consume [34]. Even though Ireland is ranked second to Denmark for wind production in the world, it is still dependent on fossil fuels for transport and so on. The rise in import of fuels was increased due to the decline in the production of natural gas in Kinsale during 1995 [35].

Since climate change is one of the highly discussed topics around the world, the government of Ireland plan to tackle the situation by introducing certain measures to do so. According to the Irish Times, the government will introduce regulations such as introduction of taxes/levys on the use of single use plastics by the end of 2021, as well as to impose heavy fees on the production of materials which are difficult to recycle [36]. Moreover, the government plans scheme also contains 200 plans to tackle this issue, some of them include retrofitting gas energy efficient heating systems and to ban oil burners by the end of 2022. The plan also includes the expansion of cycle paths, to provide local authorities the power to make their town a zero-emission town. The government’s main aim is to pass a legislation in which they can ban both petrol and diesel vehicles by the end of 2030. By reading different articles from different authors, we can see that there is a correlation in how authors portray the government’s role in climate agenda.

The Paris Agreement is one of the few universal binding agreements which was adopted at the Paris climate conference in 2015. The main objective of this agreement is to limit global warming below two degrees as well as to change the impact of climate change by providing support for developing nations. This ambitious action plan was signed by all members of the EU as well as nearly 190 international countries to fight climate change. However, according to Clive Spash, the author argues that the agreement is a fantasy which lacks plans to achieve the mentioned targets [37]. Moreover, every author who has researched about the topic on GHG, has mentioned that the government play a small role in the contribution to fight climate change. Though the Paris Agreement is not enforcing the law, it is however, bringing every country in the planet to join the battle of climate change.

Government policies changes over time, as they need to be constantly being amended, however, enforcing a climate policy on a developing nation or a developed country is not possible as most countries are heavily dependent on natural resources in order for their country’s economy to grow. From every authors perspective, as long as there is natural resources, a climate policy is useless, unless it is enforced and acted quickly when time eventually runs out.