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Has COVID-19 changed the aviation industry’s attitude to risk?

By John Wadhams | January 31, 2023

The aviation sector was at the centre of many of the challenges that COVID-19 created but it has always been adept at recognising and managing risk.
Aerospace
Risque de pandémie|Geopolitical Risk

COVID-19 has not yet been consigned to the history books, but, in the main, it seems like we have moved past the acute phase. In May 2021, we published an article that outlined the immediate impact of the pandemic on the aviation industry and its supporting insurance markets. In this article, we are going to look at how things have evolved and discuss whether the pandemic has led to a fundamental change in attitudes to risk.

Infectious disease experts had been warning about the risk of a pandemic for some time. It had been nearly a century since so-called Spanish flu ran rampant through the global population, and while medicine changed beyond all recognition in the subsequent years, the balance of probability, as well as the changing ways that we live, work and travel, suggested that a novel disease was likely to arise at some point within the next couple of decades.

There had also been recent incidents that had put the potential of pandemic disease on the agenda. Swine Flu, a new strain of the H1N1 virus that caused widespread devastation in the early 1920s, was declared a pandemic by the World Health Organisation (WHO) in 2009, while an outbreak of SARS-CoV-1, a precursor of COVID-19, had caused significant concern between 2002 and 2004.

These incidents raised awareness of the risk, but the global community dealt with them relatively efficiently. As a result, pandemic risk was on the corporate agenda but in a relatively low position.

The real thing

This started to change in late 2019 when reports of a new disease started to emerge. The severity of the outbreak became clear over the course of about four months in early 2020, and governments around the world moved to curtail social mixing and institute a range of lockdowns.

The impact that this had on aviation activity cannot be understated. According to figures from the International Air Transport Association (IATA), passenger demand was significantly dented and is only now in the process of recovery1. As we noted in our 2020 article, airline operators required well-orchestrated recovery plans supported by external agencies to safely regain operational tempo and replenish cash reserves.

Two years on and the picture is very different. While air travel has not completely returned to pre-pandemic levels, most countries have eased if not completely dropped their restrictions and airline passenger levels have returned to about 80% of their pre-2020 levels. IATA suggests that the industry will not start to exceed 2019 levels of activity until 20242, but things are a great deal more positive than they were 18 months ago.

Understandably much of the media has turned away from COVID-19 and is now focused on the crisis in Russia and Ukraine and the cost-of-living challenges that are currently gripping the globe. In the background though, both aviation and insurance have taken several lessons from the pandemic.

Responsive phase

One of the main features of the recovery from COVID-19 has been the struggle to ensure the correct staffing and crew levels. During the various national lockdowns airlines and airports moved to reduce headcount, and while many people remained employed through furlough schemes, many others took their skills and experience into other sectors.

The recovery is now generally stable and the scramble to attract and retain skilled staff has become a major challenge for the aviation industry, with passengers facing significant disruptions to air travel globally during peak travel periods. The 2022 summer holiday season in the northern hemisphere was massively disrupted as airports tried to get their post-pandemic staffing levels right, while the run into the festive season in Europe and North America at the back end of 2022 was further complicated by a wave of industrial action.

That said, the industry seems to have become adept at dealing with challenges in a more flexible manner. For example, during the challenging summer of 2022, as a result of problems with baggage handlers at Amsterdam Schiphol Airport in the Netherlands, some airlines were flying baggage handlers from their home airport to support the beleaguered colleagues.3

A risk is not a forecast

It is worth noting that while the pandemic was incredibly challenging for the aviation industry, it did not reach the worst-case scenarios that some were forecasting during the darkest days of 2020. Again, here we must stress that at this point in 2023 there is still a potential for a new, virulent, strain to emerge with much attention currently on strain XBB.15, the so-called Kraken variant4, but in the main it seems that the vaccine programme was up and running far more quickly than some expected and has worked more effectively than many forecast.

Some of the challenges that were expected to emerge as a result of the COVID-19-related lockdowns did not actually have a significant impact on the risk environment. For example, bringing aircraft back into service combined with pilots that were out of practice as a result of lockdowns led some to raise concerns that there could be an increase in aviation incidents and associated insurance claims5. The positive news is that level of claims in 2022 does not support this supposition. As we discussed in our claims article at the start of 2023, while there has been a spate of runway overruns, the claims picture has been relatively benign.

Something similar but different

Most COVID-19-related working groups and taskforces appear to have been wound-up, but the structures around them are still in place from both an insurance and aviation perspective.

This corporate muscle memory will remain in place for some time, and the various cross-industry reports that we discussed in more detail in the previous article, created by groups such as Airports Council International (ACI), IATA and even the WHO, will remain available. If a similar circumstance arises in the future, the aviation industry should be in a strong position to respond quickly and effectively.

Some of the challenges are still being worked through, but it seems that they have been adapted to relatively well, at least in the short term.

When should we expect the next black swan?

It is almost inevitable that the aviation sector will face new challenges in 2023 and beyond. While it is impossible to say with certainty what they will be or when they will arise, the aviation industry and the insurance sector that supports it have become adept at responding efficiently.

While the working groups and project task forces have in the main been wound up, they leave behind a legacy of well researched plans and scenario response projects that could be adapted very quickly to respond to different challenges as they arise.

In many ways, COVID-19 has not changed the aviation industry’s attitude to risk. This is a complex, global industry that often finds itself at the centre of events, and as such it recognises the importance of understanding and communicating risk. The events of the last few years may have honed some skills and made some organisations more flexible, but this has been a process of enhancement rather than creating from scratch.

As ever, the insurance sector exists to facilitate activity and the quickest way to ensure its support is to communicate openly and effectively with risk partners. There is a myriad of ways to manage risk efficiently, but the best way to access them is to work openly with the insurance markets.

Footnotes

1 September Passenger Demand Stays Strong
2 Air Passenger Numbers to Recover in 2024
3 An airline CEO says that airports were to blame for the summer travel chaos because they were not ready to welcome passengers
4 What is known about the XBB.1.5 COVID variant and what's behind the nickname 'kraken'?
5 Aviation trends post Covid‑19

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Managing Director, Client Relationship Management
WTW

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Charles Motion
Executive Director, Global Aviation & Space

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