Impacts of COVID-19 on the Dutch aviation industry

The Dutch Ministry of Infrastructure and Water Management commissioned SEO Amsterdam Economics and To70 to estimate the impacts of the corona crisis on the Dutch aviation industry. The scale of the impacts depends on multiple factors that are currently shrouded in uncertainty, such as: the speed at which the virus is controlled, travel restrictions are lifted and confidence among travellers returns, as well as structural impacts on travel behaviour, the degree of consolidation within the industry and long-term impacts on the economy. Due to these uncertainties, the impacts are estimated for four possible future scenarios.

Scenarios
In the most optimistic scenario, the virus is quickly under control and the aviation industry recovers to pre-crisis traffic in 2021. In the most pessimistic scenario, it appears challenging to control the virus, travel restrictions remain in place for a long time, confidence among travellers reduces and companies increasingly switch to digital ways of communication. In this pessimistic scenario, social distancing becomes the norm inside aircraft, which leads to lower load factors and higher ticket prices. Combined with a global recession, this will significantly reduce the demand for air travel. Consequently many airlines go bankrupt and Schiphol loses its hub status.

For each of the four scenarios, the impacts have been estimated on air passenger and cargo demand, the aviation network, national welfare and the economy (employment and value added). The impacts are quantified for the period 2020-2022 by contrasting the scenarios against a reference scenario without COVID-19. The medium-term impacts (up to 2030) are addressed in a qualitative way.

Results
In the most optimistic scenario, the Dutch aviation industry recovers to pre-crisis traffic levels in the first half of 2021; in the most pessimistic scenario passenger volumes remain 70 to 80 percent below pre-crisis levels for a prolonged period of time.

In 2020 national welfare decreases by € 0.9 to 1.3 billion depending on the scenario. The welfare losses decline during the recovery process. In the most pessimistic scenario the welfare losses increase to € 1.4 billion in 2021 and 2022 due to the presumed bankruptcy of KLM in 2021. The welfare losses for the largest part consist of higher travel costs for Dutch passengers (in terms of additional travel time and higher ticket prices). These cost increases are partly offset by positive impacts on the climate and the local surroundings of airports.

Lower demand for air transport (temporarily) translates into less economic activity within the aviation industry and within supplying industries. In the most optimistic scenario, gross employment declines by almost 40,000 FTE in 2020 compared to 2019. At the same time almost €4 billion in added value is lost. In the most pessimistic scenario, gross employment and value added drop by 67,000 FTE and €6.6 billion respectively in 2022.

Methodology
The scenarios are defined based on existing literature, surveys among travellers and interviews with Dutch and international experts. Structural changes in travel behaviour, ticket pricing and capacity were into account when assessing the demand impacts. The impacts on the aviation network were modelled with the SEO NetScan connectivity model based on changes in passenger demand and load factors in different markets. The welfare and economic impacts were estimated by making use of existing ratios.

The executive summary of the report can be downloaded below. For the full report (in Dutch) please visit our Dutch website.