Macroeconomic Factors Affecting the Aviation Industry

Topic: Economics
Words: 789 Pages: 3

The aviation industry is highly vulnerable to external economic variables because it influences and relies on so many businesses. Furthermore, since the company has cross-border operations, many pressures from other parts of the world and the domestic market impact operational dimensions. Fiscal policies, pay disparities, and positive and negative externalities influence how this sector operates. Generally, the expansion of the airline market frequently topples due to its sensitivity to a volatile economic landscape, cost-laden, shifting consumer preferences, and other unforeseeable variables such as pandemics.

The development of the airline industry is often affected by volatile economic situations. Even though travel restrictions are beginning to loosen, the downturn will continue to weigh passenger numbers (Poonoosamy, 2020). One of the aviation industry’s main concerns could be a predicted economic slowdown in the following years. A growing middle class has emerged in the expanding market. While the supply chain struggles to keep up with demand due to increased output, geopolitical and economic turbulence is rising, and a labor crisis is looming. In essence, this will significantly affect the airline industry’s progress and new challenges for employees. Therefore, their financial situations could be endangered, and their global operations might be stressed as they adjust to new compliance regulations in the various countries where they do business.

Consumer preferences and regulations around sustainability are pushing change in the way people travel in the following years, and the aerospace industry is likely to grow at a slow pace. Travelers are more inclined to remain at home than spend their whole vacation in quarantine, and the system is ineffective for a standard one or two-day business excursion (Poonoosamy, 2020). While facing competition from various new entrants, airlines must rethink their technological platforms, service offerings, and business models to adapt. Essentially, this means they will have to serve their customers reasons to return for more excellent service. The client’s interests may alter due to the countries’ investments or regulations requiring passengers to undergo compulsory isolation. Citizens will be more likely to visit their parks rather than travel outside of the country for equivalent services. Ultimately, travelers’ preferences will vary due to advanced technology and aerospace system advances in one airport vs. the other, as they will move to the airport that provides superior service.

The advent of the pandemic led to a dramatic drop in demand for civil airplanes around the world. Airlines have been halted, and air travel has been disrupted worldwide due to COVID-19 (Poonoosamy, 2020). Supply delays and massive production fallouts arose from the rapid drop in demand for aircraft manufacturing in the first quarter of 2020 and challenges in obtaining raw materials due to cross-border movement restrictions. Therefore, multiple businesses throughout the aerial supply chain have faced significant cash flow issues. Generally, since the beginning of the crisis, numerous airlines have been struggling as several service sub-sectors went bankrupt or met major corporate restructuring, resulting in forced cost and asset reductions, as well as job losses.

The development of the airline industry is often affected since it is cost-laden. Unprecedented losses have already driven government intervention, but ongoing support may be conditional on financial stability and ecological sustainability (Poonoosamy, 2020). Many airlines have had to take out substantial loans to stay viable and deal with significant daily burn rates. They will have difficulty recovering from their increased debt burden due to their efforts to survive the crisis. Unfortunately, the sector is not anticipated to turn cash positive for at least another year. The amount of help provided will considerably impact the speed and strength of aviation recovery. The International Air Transport Association has recommended countries still waiting for financial aid to concentrate on steps that will help airlines raise equity financing (Poonoosamy, 2020). As a result of these expenditures being recouped, ticket prices are expected to rise.

In brief, the development of the airline industry is vulnerable to the volatile economic landscape, changing consumer preferences, high costs involved in running the business, and various crises like COVID-19. Operations are expected to be sluggish in the next five years as the sector restructures its model to incorporate the changing macroeconomic factors. Despite the challenges, the airline industry collaborates with other institutions to overcome macroeconomic situations and expand the market. For instance, the carbon constraints of a country should be defined, and firms that stay below those limits can sell their carbon balances to companies that lack. Essentially, this helps to encourage airline operators to operate within their restrictions, resulting in considerable reductions in hazardous emissions. The aviation industry should obtain more financing to buy high-quality engines that use less fuel and generate fewer dangerous emissions. Ultimately, the problems will only be solved if a collaborative effort exists between the governments and the corporate world.


Poonoosamy, V. (2020). These 4 charts show the crisis faced by airlines – and the way ahead. World Economic Forum. Web.

Macropoland: Monetary Theory and Fiscal Policy
Causes and Consequences of Market Equilibrium for Price and Quantity