Turbulence in the aviation sector: what is the outlook for the year ahead?

Friday January 22, 2021

With ongoing travel restrictions and new quarantine measures for air travel due to COVID-19, what does the future hold for the aviation sector?

Restructuring Partners Phil Armstrong and Andrew Sheridan explore the ongoing challenges posed by the COVID-19 pandemic on the aviation sector, and share what businesses should do to review, adapt and evolve.

The disruption caused by the COVID-19 pandemic has left the UK civil aviation sector facing a period of turbulence.

Ongoing border closures and travel restrictions severely impacted passenger numbers over the course of 2020. According to a report by Heathrow Airport in January 2020, passenger numbers had dropped by 73 per cent in the last 12 months. The airport, which is Europe’s biggest hub for air travel, handled just 1.1 million passengers during the festive period – a fraction of the 6.7 million passengers that passed through it in December 2019. Worldwide, airline passenger traffic dropped by 60 per cent in 2020.

And now, with the latest national lockdown underway in the UK, the aviation sector is facing new challenges as fresh measures are imposed by the government to try to reduce the spread of COVID-19.

All UK travel corridors – routes that had previously allowed passengers’ entry to the UK without needing to quarantine – have been closed until mid-February 2021 at the earliest.

Additionally, all travellers entering the UK must now produce proof of a negative COVID-19 test, taken in the 72 hours before travelling, to be allowed entry – and are required to quarantine for up to 10 days upon arrival. Anyone arriving without evidence of a negative test will face a fine of up to £500.

The introduction of pre-departure testing and quarantine measures could deter passengers from travelling in the coming months, and it is likely to exacerbate the problems already facing the industry. But there is light at the end of the tunnel as the UK’s vaccination programme picks up speed. Travel companies have reported a surge in bookings for 2021 and 2022, with Abta reporting that the over-50s represented a much higher proportion of early bookers than normal in January. A sign that hope is gathering among consumers.

In the immediate future, however, airports, airlines, travel companies, aerospace manufacturers and smaller supply chain companies in the sector face a deepening financial crisis. With the dip in demand, some airline leaders are now warning airports may need to close temporarily in a cost-saving exercise, to try to preserve business operations for the future.

Many operators are taking steps to reduce costs and review their strategy to shore up their future operations. Norwegian Air is just the latest carrier to pivot its business structure in response to the challenges, having ceased its long-haul network of flights following the “profound” impact of the pandemic – and more airlines will inevitably follow suit.

Business leaders must consider what route to take to put their businesses on the front foot, and they need continued support in contingency planning, running financial health checks and reviewing strategy in order to navigate the months ahead.

In our aviation publication, we analyse the challenges facing global aviation manufacturers and the supply chain companies, as well as smaller supply chain companies in the sector, and explore what the future may hold.

We look in detail at what implications the contraction in demand, coupled with the inevitable post-Brexit changes to the UK’s global trading relationships, will have for the sector.

Click below to read our aviation sector publication.

Restructuring in the aviation sector publication

In case you missed it, we recently published our Restructuring in the aviation sector publication, in which we explore the emerging trends in the sector and outline the risks and opportunities the future holds.

Related team

Andrew Sheridan

Andrew Sheridan

Andrew Sheridan

  • Consultant
  • Restructuring Advisory
  • Bristol
Phil Armstrong

Phil Armstrong

Phil Armstrong

  • Partner
  • Restructuring Advisory
  • London