3.1
It is well-documented that the aviation sector was among the hardest hit by the COVID-19 pandemic. Australia's aviation sector was experiencing strong growth prior to the COVID-19 pandemic, with a marked increase in air travel in recent years. This growth was halted by national and state border closures, and the threat of uncertainty around the resumption of travel further undermined operator and public confidence in the sector.
3.2
The pandemic also exacerbated longstanding issues in aviation, including workforce retention and skills shortages. This chapter outlines the key impacts of COVID-19 and related measures on aviation, and the challenges that continue to hinder the sector's recovery.
3.3
After noting the critical importance of the aviation sector in Australia, the chapter discusses:
travel patterns and consumer behaviour during the pandemic; and
financial and operational impacts of the pandemic on airlines, airports, ground handling service companies, and aviation-dependent sectors.
Importance of the aviation sector in Australia
3.4
According to the Australian Industry and Skills Committee (AISC), aviation had an estimated annual revenue of $45.98 billion and contributed $18.42 billion to the Australian economy in 2018. In 2019-20, due to the effects of the pandemic, these figures almost halved to an estimated annual revenue of $26.94 billion and a $10.73 billion economic contribution.
3.5
Prior to COVID-19, AISC estimates that Australia's aviation sector directly employed more than 93 000 people across its major subsectors: domestic commercial aviation, international commercial aviation, general aviation,
air‑freight transport and aviation support infrastructure. In its June 2021 Aviation Industry Outlook, the Aviation Industry Reference Committee revealed that employment numbers had decreased, with around 65 000 people employed as at June 2021. In January 2022, AISC also estimated that the sector employed around 65 000 people.
3.6
Figure 3.1 below shows actual employment levels from 2001 to 2021 and projected employment levels for 2022 to 2025. The graph shows the dramatic impact of the pandemic on jobs in air and space transport, which fell from a high of 61 600 in 2017 to a low of 34 400 in 2020, before recovering some of that loss to end at 41 000 in 2021. The impacts of the pandemic on the aviation workforce are further discussed in Chapter 4.
3.7
The air transport sector also supports a broader jobs market in related businesses and sectors. For instance, the Australian Airports Association submitted that, before the pandemic, the Australian airport sector supported the employment of over 206 000 workers and added $34.6 billion to GDP. It also generated employment for 600 000 jobs and businesses reliant on tourism.
3.8
Previous forecasts suggested strong aviation growth globally—especially for the Asia Pacific region. In 2018, for example, the International Air Transport Association (IATA) predicted that annual passenger numbers would double to reach 7 billion by 2036.
Travel patterns and consumer behaviour
3.9
As noted in the committee's interim report, the pandemic, travel restrictions, and the ensuing economic crisis shaped the behaviour of passengers and resulted in a dramatic drop in demand for air travel. The impacts of these changes will continue to be felt by airlines, airports, the ground handling industry and associated sectors as they progress through the recovery.
Domestic travel
3.10
Reduced demand saw domestic flights in April 2020 fall by around 97 per cent from pre‑pandemic levels. In November 2020, the Infrastructure and Transport Ministers' Meetings (formally Transport Infrastructure Council) reported that:
From June 2019 to June 2020, international passenger services were down 98 per cent to 65 000 passengers carried, with international air freight volumes experiencing a decrease of 23 per cent over the same period. Domestic freight volumes on scheduled flights were also down 16 per cent over the same period and passenger numbers were down 92 per cent. By June 2020, the majority of international flights were freight-only.
3.11
In the second half of 2020, and in early 2021, there were positive signs that the aviation sector was recovering. In its fourth airline monitoring report, the Australian Competition and Consumer Commission (ACCC) reported that passenger numbers were at 55 per cent of pre‑pandemic levels in March 2021—up from 41 per cent in December 2020—and peaked at 68 per in April 2021.
3.12
The ACCC identified that much of this recovery was due to growing consumer confidence to travel interstate. In addition, leisure demand has been strong while business travel has been slower to recover.
3.13
Prior to the Victorian lockdown in May 2021, airlines had forecast a return to pre‑
COVID levels of flying in the second half of 2021, with both Qantas and Jetstar expected to exceed 100 per cent of pre-pandemic levels in 2021–22.
3.14
However, the numerous COVID-19 outbreaks across Australia in late May 2021 saw an increasing of domestic travel restrictions, resulting in significantly reduced domestic aviation activity. The ACCC reported that Qantas, Jetstar, Virgin and Rex combined were forced to cancel one-in-three flights in July 2021; the highest cancellation rate since April 2020. Weekly passenger numbers in Victoria fell 91 per cent from mid-May to early June and in NSW they dropped 97 per cent between mid-June and the end of July.
3.15
Participants in the inquiry emphasised the challenges that continually‑changing border restrictions presented to their operations, including the need to ensure their operations were agile and responsive to short-notice changes. For example, Mr Andrew Parker, Group Executive, Government, Industry, International and Sustainability at Qantas Airways Ltd (Qantas), told the committee that confidence in borders is essential for recovery. There was widespread agreement across the sector that a national approach to border closures would be beneficial. This is discussed further in Chapter 5.
3.16
Inquiry participants predicted that air travel would recover once a vaccine was widely available. Mr Parker predicted that the vaccine rollout 'would significantly improve consumer confidence and travel demand'. Similarly, Ms Christine Dacey from the Department of Infrastructure, Transport, Regional Development and Communications (the Department, DITRDC) said the Department hoped the vaccine rollout would lead to 'a much more enduring recovery trajectory'.
3.17
As expected, demand for domestic travel, especially to leisure destinations, increased once vaccination targets were reached and border restrictions were eased in late 2021. Due to the emergence of new variants, however, there remains the continued risk of COVID-19 outbreaks and recurring travel restrictions.
3.18
Qantas appeared before the committee for a second time in March 2022 and provided an update from its perspective. Group Executive of Corporate Affairs, Mr Andrew McGinnes, said that 'total flying [at Qantas] was reduced to just 18 per cent of pre-COVID levels during the last half [of 2021]'. Mr McGinnes described the disappointment:
Just as those lockdowns were finally ending and international borders were opening, omicron arrived, and that blunted demand, including during the critical Christmas holiday period, which really is such a vital time for airlines.
International travel
3.19
Different parts of the aviation network have been impacted differently due to COVID-19. The loss of the international tourism market was particularly significant. While domestic tourism has seen some recovery, the committee heard that 'there is no way that domestic tourism can fill the gap that will be left by inbound international'.
3.20
Since March 2020, international flights into Australia largely ceased due to a ban on arrivals of non-Australian citizens. International passenger travel declined by 98 per cent in October 2020 compared to October 2019, and EY estimated that Australia lost around $61 billion in economic value between March and October 2020 ($250 million per day).
3.21
There were 197 000 overseas arrivals to Australia and 229 000 overseas departures from Australia in December 2021—the highest volumes since international travel restrictions were introduced in March 2020, according to provisional data released by the Australian Bureau of Statistics (ABS). Ms Jenny Dobak, ABS Director of Migration Statistics, attributed the increase to the easing of international travel restrictions on 1 November 2021 which permitted fully vaccinated Australian citizens and permanent residents to travel to and from Australia without an exemption.
3.22
However, the committee heard that full recovery of the aviation sector is likely to take some years, particularly for international aviation. In addition, COVID‑19 may also result in long-term changes in demand, arising from increased remote working and videoconferencing.
3.23
According to Professionals Australia, the long-term effects of the global pandemic on the flying public's attitude to air travel are unknown:
Surveys show that the exponential increase in video conferencing and remote working has changed the attitudes of business travellers, while recreational travellers are far more likely to holiday domestically, lacking the confidence to travel too far abroad. Modelling indicates that the aviation industry is on a slow, 3-year recovery path which will likely only reach 80% of the industry's pre-COVID capacity.
3.24
Mr Matthew Brine from the Department of the Treasury, reported that:
Turning specifically to Australia, the IATA [International Air Transport Association] expects that the recovery in our outbound and inbound air passenger travel will lag the Asia-Pacific by six to 12 months and 12‑18 months respectively. So that's six to 12 months for outbound flights and 12 to 18 months for inbound flights. This is because the IATA expect that long-haul travel, which makes up a larger share of Australia's air passenger travel, will recover more slowly than short-haul travel.
3.25
In January 2021, Professor Brendan Murphy, Secretary of the Department of Health, predicted international travel wouldn't resume until 2022. Meanwhile, the latest International Air Transport Association (IATA) forecast expects global passenger traffic to return to 2019 levels in 2024 at the earliest, with domestic markets recovering faster than international services.
3.26
Similarly, Mr Jose Alejandro Reyes, from Cebu Pacific Air, predicted a slow recovery for international travel:
We don't expect it to ramp up quickly. It's almost like we're going to starting from scratch again. The way we view the international network, it really takes us a year to two years to actually build up the flights and get to a sustained level of profitability … We don't expect a very quick ramp-up back to original levels once the borders open. Traveller confidence to go out into other countries will take a while to be restored.
3.27
Qantas has announced a far more optimistic forecast to its shareholders, with its FY22 Half Year Results claiming that ‘Group International capacity expected to grow to 70% pre-COVID in 1Q23.’
Consumer confidence
3.28
The committee's interim report noted that the aviation sector's recovery is expected to be much slower than the downturn due to the ongoing risk of domestic border closures, the staggered reopening of international travel routes, and the impacts of a broader economic downturn. Even once restrictions are fully lifted, overall demand for air travel is expected to be depressed by low consumer and business confidence.
3.29
One key theme that emerged throughout the inquiry was that of low public confidence in undertaking air travel. Submitters identified a number of contributing factors, with the primary reason being the risk of the reintroduction of public health measures following an outbreak of COVID-19 in Australia.
3.30
Submitters, including Professionals Australia and the Australian International Pilots Association, emphasised the negative impact of the uncertainty associated with COVID-19—along with border restrictions and quarantine requirements—on consumer confidence.
3.31
Mr Parker noted that both leisure and business travellers are confused by a patchwork of rapidly changing restrictions and are understandably worried about being locked out of their own home state or their intended destination. The flow-on impacts for tourism and the broader economy, he argued, are 'obviously severe'.
3.32
The Australian Airports Association explained that the aviation sector has suffered significant impacts due the different positions of states and territories on border openings and closings. It submitted that this has 'diminished the public's confidence to travel due to uncertainty on whether borders will be open or closed in response to flare-ups and outbreaks of the virus'.
3.33
In addition, a recent survey conducted by the Tourism and Transport Forum found that 53 per cent of respondents had 'no confidence' in making any interstate travel arrangements due to recent COVID-19 restrictions. Only 41 per cent had 'some confidence' in making interstate travel arrangements and a mere 6 per cent were confident to book without hesitation.
3.34
According to Mr Tom Manwaring, Chair of the Australian Federation of Travel Agents, consumer confidence was of paramount importance for the travel sector:
Consumers and corporate travellers need to know when they make their bookings, whether domestic or international, that their travel plans are not going to be derailed by snap border closures; in some cases people are being advised halfway to their destinations, mid-air. We need all governments to stick to the national cabinet road map for reopening. That's the most critical thing to restore confidence within the travelling public. Announcements must be backed up with firm plans.
3.35
Canberra Airport argued that strengthening public confidence in aviation travel must be a principal focus of the Australian Government's policy outcomes over the next five years.
3.36
In addition, the committee received evidence that, for many consumers, hygiene and cleanliness are now key factors influencing confidence in travel. Inquiry participants highlighted the crucial safety role of skilled aviation workers in ensuring passenger safety, including through upholding standards of cleanliness and hygiene, which have 'an enormous effect' on consumer confidence.
Sluggish recovery
3.37
With over 80 per cent of the Australian population now vaccinated, the committee heard that both customers and industry stakeholders are eager to resume travelling. Much uncertainty still surrounds the recovery of the aviation sector, however, and despite positive signs and prospects for recovery COVID-19 remains an existential crisis for the aviation sector.
3.38
Even though Australia has moved away from all-encompassing lockdowns, most jurisdictions have retained COVID-19 related restrictions in an effort to control subsequent waves of infection. While airlines had predicted a swift recovery in early 2022, the impact of ongoing isolation requirements on crewing level and the so-called self-imposed 'shadow lockdown' has resulted in capacity reductions:
On 10 January 2022, Virgin Australia announced that it will reduce its flight capacity by 25 per cent in January and February 2022 and suspend its only international route between Sydney and Fiji.
In a statement dated 13 January 2022, Qantas announced that it now expects domestic capacity for the third quarter of financial year 2022 to be at around 70 per cent of pre-COVID levels, down from the 102 per previously envisaged. Chief Executive Officer (CEO) of Qantas, Mr Alan Joyce, stated that '[t]he sudden uptick in COVID cases is having an obvious impact on consumer behaviour across various sectors, including travel, but we know it's temporary'. Qantas' international flying is expected to remain at around 20 per cent of pre-COVID levels up until April 2022, at which point it is anticipated to increase as Omicron-related restrictions ease overseas.
3.39
During Qantas' appearance in March 2022, Mr McGinnes noted hopeful signs:
With more border restrictions dropping away and omicron waves subsiding, bookings are strengthening. In mid-February, we had our best week for international ticket sales since before COVID. We expect more momentum from Western Australia finally opening today.
Financial and operational impacts
Impact on airline operations
3.40
As discussed in the committee's interim report, COVID-19 had a significant impact on the operations of major airlines, which are the sector's key employers.
3.41
In response to the changing market due to the pandemic and drastically reduced demand, Qantas announced a 90 per cent reduction to international capacity and 60 per cent to domestic capacity, with around 150 aircraft being grounded, and stood down 20 000 employees.
3.42
As part of its COVID-19 recovery plan, it cut at least 6000 positions in response to border closures and more permanent structural changes to the aviation industry. Qantas also significantly reduced planned capital investment and outsourced 2000 ground handling positions at 10 airports.
3.43
Mr Parker described the COVID-19 pandemic as 'the single greatest threat and crisis our industry—all airlines—has ever faced'. He explained that, as a result, '[a]irline revenues collapsed, entire fleets, such as our entire A380 fleet, were grounded and the world's biggest carriers were forced to take extreme measures just to survive'. Further reductions to Qantas' fleet included:
retiring its six remaining 747s;
grounding up to 100 aircraft for 12 months or longer, including most of the international fleet;
returning leased aircraft as they fell due; and
deferring the delivery of new A321neo and 787-9 aircraft orders.
3.44
Qantas announced a $2.7 billion loss for financial year 2020 and a $1.8 billion loss for financial year 2021. With 'total flying' reduced to 18 per cent of
pre-COVID levels in the last half of 2021, Mr McGinnes confirmed a loss of '$1.3 billion and a statutory loss before tax of $622 million for the six months to the end of December', taking the 'total statutory loss since the start of this crisis to over $6 billion', and revenue losses to 'well over $22 billion and counting'.
3.45
In March 2020, Virgin Australia (Virgin) announced a 90 per cent reduction in domestic capacity, with 125 aircraft grounded, and stood down 80 per cent of its workforce. The sudden downturn led Virgin to enter into voluntary administration in April 2020. In November 2020, Bain Capital became the owner of the airline and new CEO, Ms Jayne Hrdlicka, revealed plans to position Virgin as a mid-market carrier that will serve 'all segments of the market', including price conscious corporate travellers, small to medium businesses, premium leisure travellers and holidaymakers.
3.46
The resultant company restructure cut 3000 jobs cut, discontinued the Tigerair Australia brand and downsized the aircraft fleet, with Virgin recording a $3.1 billion loss for financial year 2020.
3.47
Regional Airlines (Rex) announced in March 2020 that it would reduce its capacity by 45 per cent and subsequently suspend services entirely. However, after the federal and state governments provided assistance, Rex announced in April 2020 that it would run two to three return flights per week to all destinations on its network.
3.48
In contrast with the decisions of Virgin and Qantas to reduce operations, Rex announced in June 2020 that it would look into expanding its operations to undertake domestic flights on more routes to major cities. On 22 September 2020, Rex announced it had entered negotiations with a private equity firm regarding an investment of up to $150 million to be used exclusively to support the launch of domestic major city jet operations in 2021; and, in February 2021, the former regional-focused airline launched new intercity routes.
3.49
Rex reported an $18.4 million loss for financial year 2021, with revenue down 20 per cent on the prior year.
3.50
Captain Murray Butt, President of the Australian and International Pilots Association, spoke to the impact on a global level:
… over 50 airlines have become insolvent during the last 12 months, including Virgin Australia. Over 500,000 jobs and over a trillion dollars of revenue have been lost. They are direct losses. It must be remembered that the International Civil Aviation Organization has stated every job in the aviation sector generates six jobs elsewhere in the economy and every dollar earned in aviation generates a further $3 in the economy. Prior to the pandemic, Qantas generated $15 billion directly and a further $45 billion indirectly for the Australian economy.
3.51
The committee heard that, in 2020, Cebu Pacific suffered a net loss of almost $600 million. Mr Reyes advised that, before the pandemic, freight cargo accounted for eight or nine per cent of Cebu Pacific's total revenue. By late 2021, however, this percentage had increased to half of total revenue.
3.52
In contrast, Ms Rachel Crowley from the Brisbane Airport Corporation, challenged what she called the 'misconception' that freight volumes have increased and demand has grown during the pandemic:
What has occurred is that longstanding freight capacity, 85 per cent of which is flown in the belly of passenger services, has shrunk significantly on the back of international restrictions and domestic border closures.
Impact on airports
3.53
At the same time, airports were working hard to remain open for critical services, such as repatriation flights. The committee heard that this has been a particularly challenging time for airports as they continued to play their vital role for local communities while their source of revenue—generated by aeronautical and non-aeronautical services—disappeared.
3.54
Mr James Goodwin, CEO of the Australian Airports Association, told the committee that '[k]eeping the national airport network open costs more than $4 million a day' due to high fixed costs involved in keeping the lights on and runways open, regardless of aviation activity levels. The Australian Airports Association estimated that, in March 2020, Australia's major airports would lose more than $500 million in aeronautical revenue alone, compared to 2019.
3.55
In addition, the committee heard that the COVID-19 crisis and downturn in passenger movements resulted in a reduction in non-aeronautical revenue, such as rental payments and income from a range of aviation-related businesses. The Australian Airports Association estimated that, in 2020, accumulated losses from this part of the airport sector were more than $1 billion.
Impact on ground handling service providers
3.56
Ground handling companies, such as dnata, were also significantly impacted. Mr Hiranjan Aloysius, CEO of dnata Catering Australia, informed the committee that dnata Catering's revenues had 'taken a hit of up to 90 per cent'. These concerns were echoed by Mr Glenn Rutherford of the Australian Aviation Ground Handling Industry Alliance.
3.57
Despite extensive evidence regarding the vital importance of ground handlers—who perform a number of essential functions at airports, ranging from security assessment of passengers at check‑in through to aircraft safety inspections before take-off and in-flight catering—the exclusion of many ground handers from aviation support measures was consistently raised throughout the inquiry. This is discussed further in the following chapter.
Impact on aviation-dependent sectors: tourism
3.58
Aviation-dependent sectors were also heavily impacted. For example, Mr Manwaring spoke to the impact on the travel sector:
We haven't had a stop-start lockdown in our sector; we have been in firm lockdown for 19 months. Our members have almost across the board had to deal with immediate revenue falls of 95 per cent, and more in some cases, in that 19 months.
3.59
Witnesses based in the Northern Territory spoke about the flow-on impacts of border closures and travel bans on the tourism sector. Ms Valerie Smith from Tourism NT explained that some businesses had been more heavily affected than others, with those that rely on backpackers and international tourists the hardest hit. Demand for accommodation was down around 50 per cent in Central Australia and 35 to 40 per cent in the Top End. Securing an adequate and reliable supply of labour for hospitality and tourism businesses was also heavily impacted, with many businesses unable to achieve full staffing.
3.60
Ms Smith said tourism operators in the NT reported that 2021 was harder in many ways than 2020, 'because of the absence of JobKeeper':
They still have no or very limited revenue coming in, but they're trying to maintain the staff that they still have because they know they're going to need them again next year.
3.61
Manager of Tourism Top End, Mr Glen Hingley, highlighted the centrality of aviation to Northern Territory tourism—'affordable aviation, dependable aviation and aviation that operates at the right times'. Mr Hingley added:
When we talk about our international markets, in 2019 the Territory enjoyed over two million visitors. Over 20 per cent of those were international visitors. That equated to $2.4 billion in our visitor economy. In the Territory, tourism employs one in eight Territorians, against the national average of one in fourteen. It's our number one service economy, ahead of education. It is also our fourth-largest input to the Territory economy.
3.62
Ms Smith was similarly concerned about the drop in international tourism, saying the fact that some international airlines have reverted to providing domestic‑only services may also mean a slower 'pace of recovery in international markets'. Ms Smith said:
… our best estimation is that it could take three or four years for us to get back to where we were internationally pre-COVID if the borders opened, let's say, very early next year [2022].
Concluding comment
3.63
This chapter has outlined the massive impacts of the pandemic on airlines and other parts of the aviation sector, and some of the measures the sector took to survive the downturn. The next chapter looks at impacts on aviation workers.