Impact of COVID-19 on Aviation and Tourism

The COVID-19 pandemic has heavily impacted the United Kingdom's aviation and aerospace industries, with over 26,000 jobs lost by airlines and aerospace firms. The UK tourism sector is expected to decline by £40 billion due to reduced international travel. Meanwhile, the aviation industry is forecasted to grow at a rate of 4.3% per year, leading to increased demand for air transport services.

AIRLINE INDUSTRY
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Table of Contents
Introduction......................................................................................................................................3
Trend in sales of the airline companies in the UK...........................................................................3
Determine which corporations are the biggest competitors and their market shares...................3
Barriers to entry in this market....................................................................................................4
How a standard Airline firm in the industry determines price and production............................4
Relationship of US Dollar and UK Pound.......................................................................................5
What happens to the Pound sterling (sterling) against the USA dollar between 1st June 2016
and 1st January 2020....................................................................................................................5
Explain effect of this shift in the value of the pound against the dollar on a USA airline firm
flying to the UK assuming that their tickets are priced in pounds...............................................7
Conclusion.......................................................................................................................................8
Reference list.................................................................................................................................10
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Introduction
The United Kingdom now has the world's third-largest aviation platform and the second-largest
aerospace manufacturing market. The aviation industry generates over £60 billion in income,
adds over £22 billion to national GDP, and provides nearly one million workers in the UK
directly or indirectly. The following report shows the trend in the sales of the airline companies
in the UK over the last 5 to 10 years. Moreover, it also describes what has happened to the UK
pound (sterling) against the USA dollar between 1st June 2016 and 1st January 2020. And at last,
it shows the impact of this change in the value of sterling against the dollar on a USA airline
firm.
Trend in sales of the airline companies in the UK
Determine which corporations are the biggest competitors and their market shares
The aviation industry of the UK is a very huge industry including so many airline companies.
The main competitive companies involved are :
● British Airways: This is the UK's largest airline, capable of satisfying all customer
demands. It delivers quality services at more affordable rates. British Airways offers
online booking as well. Website: www.britishairways.com
● Jet2.Com: Jet2.Com is a low-cost carrier that predominantly services major European
destinations. It also operates low-cost flights to Amsterdam, Paris, and Prague, among
other destinations. www.jet2.com is the company's website.
● VLM Airlines: It mostly serves regional destinations such as Amsterdam, Brussels,
Antwerp, as well as Luxembourg. www.flyvlm.com is the company's website.
● Virgin Atlantic Airways: Virgin Atlantic Airways is another successful airline in the
United Kingdom that has made online reservations extremely convenient for travelers.
Virgin Atlantic's website is www.virgin-atlantic.com.
Monarch Airlines, Ryan Air, Easy Jet, Astraeus, Aer Lingus, bmi British Midland, Aurigny,
Brussels Airlines, Eastern Airways, and Qantas are among the other leading companies. Many of
these firms have a market share dependent on their ability (Abdullahi et al.2020). Flybe has a
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29.8% market share, British Airways has a 19.9% market share, Easy Jet has a 19.3% market
share, BMI has an 8% market share, and Ryan Air has a 7.26 percent market share. Easy Jet's
market share has risen as a result of its £ 104 million acquisition of GB Airways
Explain what type of market structure exists
The type of market structure that exists in the Airline Industry of the UK is an Oligopoly market.
The oligopoly market structure is an imperfect competition market in which there is a limited
number of companies that dominate the whole industry. Oligopolistic companies may set or
adjust prices for their goods by setting different production levels, granting them market control.
Since oligopoly firms generate comparable outputs and compete with each other in their markets,
any action taken by an oligopoly firm is observed by its rivals (Anjum and Malik, 2020). As a
consequence, competitors can respond by lowering prices or attempting to capture market share
in other ways. As a result, oligopolistic companies are interdependent, and each acknowledges
that its monopoly position is vulnerable to rivalry or new market entrants.
Barriers to entry in this market
The most important challenges in this category of competition are scale economies, licenses,
access to expensive and complex technology, and concerted efforts by incumbent firms to
discourage new entrants. Many airlines, such as British Airways in UK, have high brand loyalty
(Isiaka et al.2021). They invest a significant amount of money in advertisements. As a result,
emerging companies will have to spend more money on advertisements. This is a sunk expense
since it is non-recoverable, and it will discourage companies from entering because they would
risk revenue.
How a standard Airline firm in the industry determines price and production
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Labor and fuel prices are the two most important expenditures that airline industry in UK face. In
the short term, labor prices are mostly constant, while fuel costs fluctuate wildly depending on
the price of oil (Oliver, 2018). As a result, analysts are paying more attention to fuel markets in
the short term. Since two-thirds of the expenses of flying an airplane are set, increases in fuel
prices will make or break a trip, depending on the number of passengers on board.
Relationship of US Dollar and UK Pound
What happens to the Pound sterling (sterling) against the USA dollar between 1st June
2016 and 1st January 2020
Before Britain decided to exit the EU in June 2016, the pound was valued at just under $1.50.
Since then, the value of the pound has plummeted, due in large part to the confusion surrounding
Brexit. Its worth had plummeted to about $1.22 when Boris Johnson stepped over as Prime
Minister in July. However, its worth rose by 1.9 percent to $1.34 after a Majority government
was expected. After May 2018, this was the highest amount against the dollar.
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Pound Dollar Exchange Rate (GBP USD)
According to some observers, the rise is due to the fact that a strong Conservative majority
implies Boris Johnson will have a simpler time pushing his Brexit offer through Parliament,
eliminating some confusion.
Many different factors impact this, including:
● Economy: Stable currencies are correlated with strong economies since other nations
tend to spend there. They'll require local currency to do that, which would drive up
demand as well as the value of the currency.
● Savings: As UK banks lift interest rates, it becomes more appealing to save or lend in
pounds and you get more money back (Saraçyakupoğlu, 2019). As a result, demand for
sterling rises.
● Prices: If UK products are less expensive than those sold elsewhere, they would appeal
to foreign companies who use sterling to buy them. The exchange rate would definitely
increase as a result of this.
● Finances of government: The condition of a government's bank account, or the amount
of debt it owes, may have an effect on the exchange rate.
● Speculation: Money speculators buy as well as sell sterling depending on predictions of
upcoming developments, making the exchange rate extremely fragile.
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Explain effect of this shift in the value of the pound against the dollar on a USA airline firm
flying to the UK assuming that their tickets are priced in pounds
● Effect of the appreciation
Travelers to foreign countries must exchange their money for the local currency in order
to spend it at hotels, restaurants, as well as other attractions. When the US dollar
appreciates against big world currencies, Americans going abroad would be able to
experience more because the exchange rate would support them when exchanging their
dollars (Swornowski, 2017). As tourists take advantage of the prevailing dollar to visit
different locations for sea, heat, and sand, as well as a number of other exciting
attractions, it is expected to see an increased company.
● Effect of Depreciation
Travelers leaving the country for holiday or industry would have to spend extra money in
foreign countries if the US dollar declines in value for an extended period of time. The
travel industry will almost definitely see a change in holiday patterns. Traditional family
popular attractions in the European Union, for example, can lose popularity as visitors
choose safaris in Africa, where they'll get more bang for their buck. Others may opt to fly
within their own country (Waclawski and Noone, 2017). Traveling to the United States
would be less expensive for foreigners, and even if the company is placed to appeal to
this audience, the company will prosper.
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On June 23, 2016, British voters voted in favor of leaving the European Union (EU), which they
have been a member of this since 1973.
The "Brexit," or British departure, was precipitated by a conservative insurgency fed up with
ceding the power of laws and rules to Brussels and fearful of the consequences of what it saw as
unrestricted immigration (Yang and O’Connell, 2020). Economists, the majority of which
believed that Britain would opt to stay in the EU, advised of the economic implications of Brexit.
Conclusion
COVID-19 is presently heavily effect on the United Kingdom, with the aviation and aerospace
industries taking the bulk of the impact. So far, over 26,000 jobs have been lost by airlines and
aerospace firms, who are some of our most well-known names, and it does not mention the as-
yet-unknown effects on supply chains. UK tourism, which would be largely dependent on
aviation, is projected to decline by about £40 billion, exacerbating the country's already grim
hospitality condition. According to the most recent forecasts, air transport demand would grow at
a rate of 4.3 percent per year over the next 20 years. If this rate of growth is maintained through
2036, the air transportation sector will provide 15.5 million direct jobs and $1.5 trillion in GDP
to the global economy. And thus it will also helpful for the airline industry in the UK. And also
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there was a significant growth in the Aviation industry in the UK as the number of airline
passengers is expected to increase. This is due in part to increasing levels of financial freedom
and a higher global average GDP, which means that more people can afford to fly.
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Reference list
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Anjum, H. and Malik, F., 2020. Forecasting risk in the US Dollar exchange rate under volatility
shifts. The North American Journal of Economics and Finance, 54, p.101257.
Isiaka, A., Isiaka, A. and Isiaka, A., 2021. Forecasting with ARMA models: A case study of the
exchange rate between the US Dollar and a unit of the British Pound. International Journal of
Research in Business and Social Science (2147-4478), 10(1), pp.205-234.
Oliver, D., 2018. David Oliver: Are comparisons between acute healthcare and the aviation
industry invidious?. Bmj, 361.
Saraçyakupoğlu, T., 2019. The Qualification of the Additively Manufactured Parts in the
Aviation Industry.
Swornowski, P.J., 2017. Destruction mechanism of the internal structure in Lithium-ion batteries
used in aviation industry. Energy, 122, pp.779-786.
Waclawski, E. and Noone, P., 2017. Are aviation industry fatigue risk management strategies
needed in healthcare?. Anaesthesia, 72(11), pp.1417-1419.
Yang, H. and O’Connell, J.F., 2020. Short-term carbon emissions forecast for aviation industry
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