Wrestle with PESTLE: the airline industry and covid-19

Reading time: nine minutes

This LCN Says is part of LawCareers.Net’s new ‘Wrestle with PESTLE (WWP)’ series, which will look at various business case studies using the PESTLE technique.

PESTLE stands for:

• political;
• economic;
• sociological;
• technological;
• legal; and
• environmental.

This analysis technique involves using these six external factors to assess the impact on a business and/or industry.

Commercial awareness

Commercial awareness is the ability to understand the business environment in which a law firm and its clients operate and how this informs its goals and advice.

Visit our commercial awareness hub, take part in the LCN commercial quiz on Twitter on Mondays, digest the Commercial Question on Tuesdays and read the Commercial news round-up on Thursdays; you’ll be an expert in no time!

Case study: airline industry’s covid meltdown

In September 2021, the Guardian explained how covid-19 disrupted the airline industry, describing it as “triple trouble” because it affected the economy, decreased customer confidence and affected ongoing environmental challenges the industry was already facing.

Political impact

Politics and the airline industry go hand in hand – from government plans to expand Heathrow airport (and the subsequent backlash) to ailing airlines begging for emergency funding and bailouts.

At the height of the pandemic, Flybe had no choice but to seek financial support from the government. It asked for a commercial loan to help to restructure the business. However, the airline went bust just two months after the government’s rescue deal following the demise of travel group Thomas Cook. According to the BBC, “a combination of higher costs, late flights, and compensation for delayed passengers” caused the airline to lose money and snowball into debt.

The airline industry relies on government decisions that are sometimes made for political reasons rather than from a place of rationale. Therefore, political stability is essential for the aviation industry to thrive. For example, many airlines reduced or cut services to and from Hong Kong in 2019 following the political unrest, which resulted in reduced travel and a considerable cash loss for airlines.

Since the pandemic we’ve witnessed airlines struggle to recover from the repercussions of covid-19 and are now seeing disruptions following Russia's invasion of Ukraine. While there are several political factors to think about, the current conflict in Ukraine is another example of bad news for the airline industry, which is only just finding its feet after the outbreak of covid-19. The war has caused a massive stall in recovery and contributed to airlines losing customers in high-security threat areas.

According to this Lexology article by Freeths LLP partner Shashi Chambers, Quantas’ chief executive, Alan Joyce, “predicts that average fares will increase by 7% and Loganair has added a £3.95 surcharge per one-way ticket in response to rising oil prices”. Chambers also comments that the sanctions on Russia have caused widespread disruption and longer flight times, with airlines forced to avoid Russian airspace.

Airlines are under pressure to pass on increased costs to passengers through higher ticket prices, which will have a knock-on effect on passenger confidence, with some passengers choosing not to fly at all. 

Economic impact

A healthy economy is measured by growth in GDP, per capital income, disposable income, industrial production and consumer confidence. The aviation industry supports 87.7 million jobs worldwide, so it’s a vital contributor to employment and the economy.

How the aviation industry makes money is simple – if there are no passengers, there’s no revenue, and if there’s no revenue, this has a knock-on effect on the economy. During the covid-19 pandemic, the travelling public had their movements restricted or, as restrictions opened, lost their confidence in flying as covid variants spread.

This decrease in footfall certainly harmed business for airlines like EasyJet and British Airways, who offered its customers vouchers, full refunds and compensation for cancelled flights and delays. The airline industry was also tasked with ensuring its staff were retrained to covid rules and policies, which had an economic impact.

In 2020, we reported that aerospace firm Boeing would stop manufacturing its aircraft due to the “reduced demand for air travel, badly affecting airlines which have responded by cutting their fleets and delaying or cancelling orders for new planes”. Boeing lost $2.4 billion in 2020 and its sales fell 25% to $11.8 billion – this meant roughly 16,000 workers lost their jobs, which caused a strain on the economy’s recovery.

Social impact

When covid hit, there was a change in the behaviour of passengers, caused by several factors including the introduction of travel restrictions which caused a dramatic drop in demand for airline services. The aviation industry supports millions of jobs worldwide, and with the demand in services falling due to covid and the subsequent restrictions, many airline staff lost their jobs and livelihoods.

In addition to this, people’s attitudes towards flying deteriorated; many were reluctant to fly until there was a working vaccine and even then, some were still unsure. Despite the government lifting the mandatory requirement for face coverings, it was only until 27 March 2022 that most airlines followed suit.

According to Which?, before this time, an FFP2 (or equivalent) surgical face mask was mandatory on all EasyJet flights during boarding and throughout the flight for all passengers aged six years and over unless medically exempt. Despite the airline industry having relaxed its covid-19 rules, people are taking fewer business trips due to remote working and flexible working arrangements. As such, the airline industry will rely on leisure trips during the day or short city breaks to fuel recovery post-covid.

According to McKinsey & Company research, business travel takes the longest to recover after an economic crisis and there’s reasonable doubt of there being a full recovery.

Read this LCN Blog to find out the travel ban’s impact on the tourism industry: ‘How the coronavirus is affecting economies’.

Technological impact

The aviation industry needs to adapt to the newest technology to ensure everything runs smoothly for its customers and workers. Airlines use the latest technology because it helps to lower fuel consumption and airline operations and improves aircraft efficiency, therefore increasing sales. It can also help with ticketing, distribution and customer service. One of the impacts of covid on the airline industry was that the price competition and algorithms kept prices low but profits high.

Netflix recently aired a documentary called Downfall: The case against Boeing where investigators reveal how airlines cut costs and risked safety to maximise profit. This allegedly contributed to two subsequent plane crashes. The documentary highlights the importance of airlines doing due diligence in ensuring that their systems are working smoothly to avoid any catastrophic crashes that could endanger life.

Legal impact 

Lawyers working in the airline industry will need to be aware of demand, costs, staffing and inventory courtesy of covid-19. For example, due to travel restrictions, many passengers requested refunds because they no longer felt safe flying. This meant airline industries had outstanding contracts to deal with, thus needing the help of lawyers in this area.

Aviation lawyers provide airlines with commercial, regulatory, insurance advice and litigation services. If the airline industry is on the verge of collapsing or undergoing an aviation disaster, these lawyers are uniquely positioned to advise companies and governments. For example, according to Bott and Co, it’s helped 606,000 passengers claim flight compensation and has claimed over £73 million in compensation from the airlines – more than any other law firm.

Check out LawCareers.Net’s aviation practice area profile for a deeper insight into this work area.

According to the UK Civil Aviation Authority, UK airlines comply with consumer law which “includes legislation relating to price transparency, passenger rights during disrupted flights, access to air travel for passengers with reduced mobility, unfair contract terms and requirements to trade fairly”.

Since the pandemic, lawsuits against airlines have increased from customers and workers. A table from Statista reveals the airline passenger complaint rate in the UK, showing the likes of Virgin Atlantic with 726 complaints per million passengers and British Airways with 352 complaints in the first quarter of 2021.

Similarly, according to Reuters, a woman at Orlando International Airport sued Southwest Airlines for ejecting her after she removed her mask to drink water. This led to regulators being stricter with airlines.

Cases like this could mean delays in new projects or strategies an airline might want to implement because the regulator will be thorough and wary to ensure no laws are being violated. Increased regulation and a rise in lawsuits add to the public’s fear of flying and put airlines on edge, as they feel like every move they make is being monitored.

Environmental impact

One of the things covid-19 has awakened in people is “the Greta effect” – passengers are taking a more thoughtful approach to travel. Similarly, we’ve seen a rise in law firms taking environmental, social, and governance (ESG) seriously. Passengers are now aware of how much they travel and are trying to be more eco-friendly by using airlines less and only for essential travel. 

This has led to airlines adopting sustainable travel initiatives, referred to as ‘green flying’.  The rise of green flying has led to airlines taking reduced carbon footprints more seriously. In the Guardian, Andrew Murphy, aviation policy officer at the NGO Transport & Environment, said: “Before the covid crisis, aviation emissions were going in the wrong direction. This moment has shaken up the industry and raised questions about subsidies, tax breaks, and frequent flying. It is an opportunity for governments to think how they support the airline industry.”

Dan Rutherford, aviation director at the International Council on clean transportation, echoed this by suggesting introducing policies to curb frequent flying, highlighting the benefits to public health and the global environment. He also suggested that passengers be given information about the carbon costs of their flights to allow them to support efficient airlines.

The pandemic has made airlines more responsive to environmentalists’ concerns. Airlines are keen to get in the public’s good books, especially as they walk on eggshells around their regulators. This is also a good chance for airlines to showcase their corporate social responsibility and join law firms in taking ESG goals seriously to combat the climate crisis.

Read this Commercial Question: ‘What impact will next zero have on law firms?’ for insights into what next zero and law firm’s ESG focus.

The verdict

Overall, the pandemic has cooked up a concussion of strict regulators, competition from low-cost airliners, a change in the travelling public and loss of jobs that has wrecked the progress the aviation industry has been making for centuries. It’s a wonder whether this industry will ever find its wings again. 

Christianah Babajide (she/her) is the content and engagement coordinator at LawCareers.Net.