Troubled aviation sector prepares for imminent resumption of international travel

Following a year with more planes grounded than in the skies, the aviation sector and its insurers are grappling with the challenges of resuming operations amid a varied international recovery.

Aviation and aerospace experts have warned that the system was not built to accommodate the unprecedented number of aircraft grounded.

Joe Trotti, head of aviation and aerospace at McGill and Partners commented: “2020 was certainly a difficult year for airlines and their insurers. And it’s not over yet as many airlines continue to exist in survival mode in 2021. This is despite recent news of increasing domestic passenger demand in some countries such as the US which might suggest a recovery is beginning to take place. However, restrictions and closed borders in many countries are making timeframes for a full recovery unclear.

“Recently, we’ve seen many of the world’s biggest commercial airlines post huge losses and with travel restrictions still in place internationally it’s expected that these financial losses will continue in 2021. With the challenges faced by legacy carriers we are also seeing a disproportion emergence of start-up airlines worldwide taking advantage of the availability of both quality aircraft at attractive rates and qualified pilots and staff who are not currently working.

“The restart of operations will also pose challenges to the airlines and insurers alike. The system was not built to accommodate the unprecedented number of aircraft grounded. Airlines have worked hard to maintain their fleets in the various forms of storage. As they prepare to bring them back into service they are working hard to ensure that both their fleets are restored to airworthiness, and that crews are prepared to get back in the air. Underwriters are taking a keen interest in understanding these plans to return to service.”

While the market remains challenging, capacity in the market is currently plentiful, with underwriters who understand the environment and are working with brokers to provide a tailored approach to address the challenges.

“Broker selection is critical to the success of a renewal as clients need to have confidence that their brokers experience, relationships, use of analytics and innovative approach are suitably dynamic to overcome these challenges to deliver the best solution that meet the individual needs and differentiates them from the crowd,” Trotti added.

In numbers: (Source: McGill and Partners)

• In 2020 the industry reported losses of £84bn with demand down 65.9% compared with
2019

• Nearly 17,000 airliners were idled at the peak downturn due to the COVID-19 pandemic

• In the US Trade group Airlines for America estimates that nearly 20% of airline fleets, nearly 1,000 aircraft, were in long-term storage as of 25th October 2020. In Q4 I 2020 revenues continued to fall faster than cost with the cash burn continuing,

• In addition, 43 commercial airlines failed or suspended operations in 2020 including larger carriers

• The International Air Transport Association warned that the industry is likely to continue to lose around £3.5bn to £4.3bn a month in 2021 and passenger numbers are only likely to fully recover by 2024


Image: Shutterstock

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