BLOG: Why now is the right time to be investing in the aviation industry
The COVID pandemic has triggered one of the most disruptive periods on record for air travel. As a result, many carriers have had to make dramatic spending cuts over the past year and the economic impact has put a significant strain on the liquidity buffers of airline companies.
On top of this, it will come as no surprise that successive travel bans and nationwide lockdowns acted as a deterrent for investors – with 2020 going down in the history books as one of the air transport industry’s most turbulent years to date.
However, with the aviation industry now looking to re-build as international air travel begins to re-open, it’s imperative that we see a shift in this narrative and a return to capital investment drives, so that the sector can come back stronger.
So why, despite the ongoing global economic uncertainty, is now the right time to be investing in the aviation industry?
Whilst air transport only accounts for a small share of GDP, it has strong inter-industry linkages with upstream and downstream sectors – making it a crucial part of the economy that cannot continue to be left on pause.
Without a doubt, mobility is at the core of our socio-economic fabric – it supports social connections and enables access to goods and services. Whilst there are numerous pillars of transport, the aviation industry provides an unrivalled global transportation network, creating jobs, economic growth and facilitating international trade.
In the UK alone, the ongoing crisis has resulted in a £271 billion hole in the nations finances, plunging the country into one of the worst economic recessions in recorded history. And it is by no means an exception.
The aviation industry is a crucial facilitator of much broader economic activity, and so, if we are to start to pave a way out of this unprecedented crisis, it’s crucial that the sector has the investment and support it needs to be back up and running as soon as possible.
New market optimism
With the vaccine roll out gaining momentum, we are already seeing airlines adding new routes, hiring new pilots and taking delivery of new aircraft. For example, JetBlue recently announced a new service from London to New York, PSA Airlines and Frontier Airlines are just two groups that have resumed pilot hiring, and Boeing has unveiled plans to ship half of its undelivered aircraft by the end of this year.
On top of this, domestic market activity is booming. In India, activity has come back to 85% and China’s domestic aviation market has rebounded following strict lockdowns early last year. With the Asian middle class predicted to increase to around 3.5 billion by 2032, this region is set to become extremely important and there will be new demands to meet.
Whilst the pandemic has thrown the aviation industry into turmoil, it has also created the opportunity for new market players to emerge by taking advantage of the voids left by their competitors. Against this backdrop, it will be the airlines and companies that invest in these future market opportunities now, that will be the ones who benefit in the long run.
Mitigating future pilot shortage issues
While the number of active pilots decreased significantly during 2020, according to the 2020-2029 CAE Pilot Demand Outlook, growing consumer demand and the challenge of age-based retirement are expected to drive a resurgence in demand for pilots. In fact, the report suggests that the global civil aviation industry will still need 264,000 new pilots over the next decade.
On top of this, pilots are still required to clock up over 1,500 flying hours to receive their ATP certificate. With flight routes still restricted, airlines and cargo operators need to re-think their pilot training programme and innovate to ensure that they can meet the demand for new cohorts of pilots who strive to excel.
Amid this backdrop, investing in appropriate simulator training facilities and e-learning solutions has become pivotal. For example, online solutions have helped to ensure that cadet classes have stayed on track and enabled them to progress and train remotely.
Moreover, by adapting to a simulator model, pilots have been able to keep on top of the legal requirements and proficiency needed to be ready to return to the sky as soon as the opportunity arises.
Whilst these tech solutions have been propelled to the forefront over the past twelve months, the market is still growing and therefore ripe for investment. Airline groups and training facilities are already working with the regulators to ensure that these training methods continue as we emerge into a post-covid era. With the digital transition only gaining pace, now is the time to invest to ensure the industry can build back better.
Opportunities for all
Without a doubt, 2020 was a turbulent period for airline stocks. In fact, the NYSE Arca Global Airlines Index lost more than 31% over the 12 month period as record industry losses were reported by several carriers. However, for an investor, this means that industry stocks are at a discount.
Looking ahead throughout 2021 and market growth is optimistic. For example, China’s aviation industry is set to recover the quickest among G-20 nations and the county’s passenger volume is estimated to reach 90% of pre-COVID levels by as soon as the end of July. In addition, low-cost carriers in India are suggesting that consumer demand for travel will return to pre-pandemic levels by the end of the year.
With the market now on an upward trajectory, stock prices are set to gain momentum again. So now may be the time to invest ahead of an anticipated industry boom.
The aviation industry has taken a significant hit amid the COVID pandemic and, whilst signs of a recovery are starting to emerge, commercial aviation will still have some challenging times ahead.
However, with a path out of this turbulent period in sight, it’s imperative we start planning ahead for the future and investing in the new market developments and technological advancements that will enable the industry to meet new supply and demand scenarios as they emerge. There are plenty of opportunities coming to market, now we just need to be bold and seize them.
About the author
Bhanu Choudhrie is the founder and executive director of the Alpha Aviation Group.