For Air Canada, the pandemic could not have come at a worse time, as it was already experiencing a major crisis due to the saga of the Boeing 737 Max, which it flew extensively in many of its routes. The 737 Max had experienced recurring failures with a crucial system, causing two fatal crashes. In response to this serious safety issue, the 737 Max was grounded worldwide from March 2019 to November 2020. However, because of COVID-19, it only resumed flying of the Boeing 737 Max on February 1, 2021 — almost two years after its initial grounding.

COVID-19 has affected airlines in several ways. First, it affected the number of flights and vacations they offered due to both government travel restrictions and passengers’ fears. This was followed by exceptionally low yield in their flights in the rare event that they took place. Together, these two effects created a cash-flow crunch for Air Canada and led to a deficit in its operating cash flows of about $2.3 billion in 2020, compared to a positive $5.7 billion in 2019.

As a result of the cash flow crisis, Air Canada had to borrow about $6.3 billion and issue shares for $1.4 billion in 2020. To some extent, this cash flow crisis was the result of poor risk management by Air Canada’s leadership. For example, it repurchased shares from the public for $373 million in 2019 and $132 million in 2020 — over half a billion dollars of cash flow that Air Canada sorely missed when the crisis happened. As WestJet went private after its acquisition by Onex in 2019, we have no financial information on it for 2019 onwards.

As the result of their cash-flow problems, Canadian airlines refused to refund passengers — even for flights that the airlines cancelled themselves — leaving their customers frustrated. Moreover, at the beginning of 2021 Air Canada announced that it would cut about 1,700 jobs and WestJet 1,000, leading to low morale among employees. It might well be that these job losses are permanent and could even get worse in the future. As such, governments should consider retraining these employees, as well as those in satellite business segments, which were also hard hit, as I will discuss below.

The picture for tourism in Canada is not any prettier than it is for the rest of the world.

The global picture is as grim for international airlines as it is for Canadian airlines, if not worse. In its report from August 24, 2021, the International Civil Aviation Organization (ICAO), a United Nations Specialized Agency, estimates that seats offered dropped by 50 per cent in 2020 and will drop by 34 per cent in 2021. The number of flight passengers dropped by 2.7 billion in 2020 (a 66 per cent reduction in international passengers and 38 per cent in domestic passengers from 2019) and is estimated to drop by 2.1 billion in 2021 thanks to a 59 to 63 per cent reduction in international traffic and 23 to 24 per cent reduction in domestic seats from 2019. In addition, the ICAO estimates that worldwide, airlines’ revenue losses were US$371 billion in 2020 and between US$305 and 324 billion in 2021, and that international tourism revenues declined by US$1.3 trillion in 2020 compared to 2019. The picture for tourism in Canada is not any prettier than for the rest of the world. Statistics Canada estimates that the tourism Gross Domestic Product (GDP) was down in 2020 by about 48 per cent, and a similar decline occurred in tourism spending in Canada.

One example of a hard-hit travel-related sector is restaurants, both those that serve tourists and those that cater to the local population. For example, in places like New York City — where a sizable portion of the city’s revenues comes from tourism — restaurants have struggled as tourism dwindled and COVID-19 restrictions limited seating. Restaurants that survived did so by pivoting quickly to offer deliveries and takeout. This meant restaurants had to let go of some of their staff (for example, serving staff) and that they might need to operate from cheaper real estate locations (enter ghost kitchens). This could very well be a permanent change to the industry, and it will in turn affect real estate prices.

The question is, what is next for the travel industry and the industries that support it? Will it even survive? One key factor that will affect its future is whether the pandemic is quickly brought under control worldwide. If this does not happen soon, airlines will continue to hemorrhage money and some might go out of business unless the government bails them out. The same applies to all travel-related businesses. Worldwide virus control is crucial, because as we have seen, viral mutations that develop in one part of world are soon exported to the rest of it.

Examples of this global virus traffic include the South African variant, the UK variant, the Delta and Delta Plus variants and the emerging Lambda variant. The problem that these Sars-CoV-2 variants pose is that current vaccines are ineffective to varying degrees against them. A related issue is the question of how quickly vaccines can be administered around the world — something that was moving slowly at press time.

Finally, how long will vaccine immunity last? The situation will be drastically different, for instance, if we would need to be inoculated twice each year versus once every two years. The current evidence suggests that acquired immunity from the vaccine erodes after five or six months. If this is indeed the case, the vaccination gap between developing and developed countries will continue to grow even further, as the latter are now getting a third booster shot, while the former are not even at the first shot phase. As a result of these factors, it is highly unlikely the pandemic will be under control worldwide anytime soon.

The next question is whether the decline in travel that we are seeing now will be permanent or temporary. One of the lessons from this crisis is that businesses can effectively run meetings and operate online instead of travelling for meetings. As such, we could see a permanent and severe decrease in business-related travel — a critical segment of airline revenues—leading to a permanent loss of revenues for all related business segments, from taxis to hotels.

A related question is whether people will be afraid to travel for a long time into the future, and whether they will be willing to wear masks throughout entire flights. We may see a situation where we must continue to wear masks indefinitely, as is quite common in Asia. The question of whether passengers’ fears are permanent or temporary is closely related to the question of whether the crisis will be over soon, which is unlikely, as indicated.

Lastly, we need to ask whether governments should do more to help the travel industry as it faces this unprecedented crisis. The answer to this question is complex. The Canadian government, for example, has already provided some aid to employers. Before ramping this up or extending it, it needs to determine whether the problems facing the airlines today are the result of the pandemic, or the result of events that took place well before the crisis — for example, the aforementioned Air Canada stock repurchases.

One thing is certain: The disruption to the global travel industry will last for some time to come. Moreover, some of the effects could be permanent, including the way restaurants now operate and the severe decline in business travel, coupled with the rapid rise in teleconferencing, which will have detrimental effects on airlines and all related satellite business sectors. Governments around the world face serious decisions around how much and what type of support to provide. The months ahead will certainly be interesting to watch for travel industry analysts the world over.

This article first appeared in the Winter 2022 issue of Rotman Management magazine. Published in January, May and September, each issue features thought-provoking insights and problem-solving tools from leading global researchers and management practitioners. Subscribe Today.