From the U.S. Government Accountability Office, www.gao.gov Transcript for: The Ongoing Recovery of the Aviation Industry Description: International flight restrictions, local stay at home orders, and a fear of catching COVID-19 had a profound effect on airports, airlines and industries that rely on commercial travel. How is the aviation industry doing now? We'll find out more from GAO's Heather Krause. Related GAO Work: GAO-22-104429, COVID-19 Pandemic: Observations on the Ongoing Recovery of the Aviation Industry Released: October 2021 [Heather Krause:] The federal government and aviation businesses took significant action to help the industry respond to COVID-19. [Music] [Holly Hobbs:] Hi, and welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office--celebrating 100 years of fact-based, nonpartisan government oversight. I'm Holly Hobbs. The aviation industry has seen a dramatic decline in travelers because of COVID-19. At its lowest point, in April of 2020, passenger traffic was down 96 percent compared to the previous year, and it remained slow throughout 2020. So how is the aviation industry doing now? We'll find out more from GAO's Heather Krause, an expert on aviation industries and a director in our Physical Infrastructure Team. Thanks for joining us. [Heather Krause:] Thanks for having me. [Holly Hobbs:] So, Heather, what were the immediate effects of COVID on the aviation industry? [Heather Krause:] So, after hitting that lowest level in an April 2020, as you had mentioned, traffic began to pick up later in 2020, but remain down 60 percent for the year as compared to 2019. This had a really big impact on the airline and the airport revenues, but the effects weren't even across the sectors. For example, domestic and leisure travel has returned more quickly than business and international travel. And what that's meant is airlines and airports that have historically served more business and international travelers were harder hit, such as the large international hubs like New York's JFK Airport. [Holly Hobbs:] So this raises a good point. It wasn't just airports and airlines that were impacted. Other aviation related industries were hurt too, right? [Heather Krause:] Yeah, that is right. The effects of that large drop in air travel really cascaded across the entire aviation supply chain. For example, you know, in a response to that reduced demand, airlines parked or retired a substantial portion of their fleet and also deferred orders for new aircraft. In turn, this led to a slowdown in demand for new commercial planes and aircraft parts, as well as a slowdown in revenues for manufacturers and businesses that provide aircraft maintenance services. [Holly Hobbs:] So, the aviation industry received more than $100 billion in assistance from the federal government. How was that money used? [Heather Krause:] The largest portion of this assistance was roughly $60 billion for continuing to pay employee wages, salaries and benefits for eligible passenger, and cargo airlines and aviation contractors. There is also $29 billion made available in loans and loan guarantees to provide liquidity to passenger and cargo airlines, repair stations and ticket agents. Another $20 billion in grants was provided to U.S. airports of all sizes and certain airport tenants that were experiencing severe economic disruptions. And then $3 billion to establish an aviation manufacturing jobs protection program. [Holly Hobbs:] We interviewed industry stakeholders about the impact of federal relief funding. What did they tell us? [Heather Krause:] Stakeholders told us that the federal funding really has been critical to the industry managing through a period of unprecedented declines in revenue, which is due to that steep drop in passenger demand. For businesses such as airlines and contractors, this funding allowed them to keep staff employed, to keep operating and avoid bankruptcy. For the airports, we spoke with the funds, allowed them to maintain operations, pay their employees and meet their debt obligations. We found the loan program provided critical assistance to large passenger air carriers, but fewer benefits to some of the small businesses. At this point, most of those federal funds to the aviation industry have been distributed. And the industry continues to take actions to respond to the evolving market conditions that they face. [Holly Hobbs:] And what about the steps the industry took? [Heather Krause:] You know, in addition to leveraging that financial assistance, the industry reported quickly taking actions to mitigate financial losses. So, for example, airlines offered voluntary early retirement programs, voluntary unpaid leave, and also froze nonessential hiring. Some manufacturers and repair stations reduced their workforces and, in some cases, closed facilities. And then with the airports, they were changing timelines of capital projects, delaying some, accelerating others to take advantage of the reduced traffic. And then in another area you had, in addition to taking that federal assistance, the aviation businesses went to the financial markets to raise funds. Stakeholders that we interviewed told us that the federal assistance helped to stabilize the financial markets, which allowed those businesses to borrow money. [Holly Hobbs:] So Heather, given all of this, what might passengers expect to see this fall and holiday season? [Heather Krause:] We're finding that the airlines are continuing to respond to the demand changes. We found this summer, when they experienced a quick ramp up in demand of domestic leisure travel, that they faced some operational challenges. They continue to look to hire additional workforce and look at operations as they go into what they expect to be a busy holiday season. [Music] [Holly Hobbs:] So it sounds like federal assistance and actions taken by the aviation industry to cut costs have played a critical role in the survival of this industry during the pandemic. But that travelers will still likely see some effects of those actions and COVID-19 this fall and holiday season. Heather given all of this, what is the aviation industry's outlook? [Heather Krause:] There continues to be uncertainty in the industry's recovery. While U.S. passenger airlines experienced a surge in demand for domestic leisure travel beginning in spring, their recovery was tempered by the effect of the COVID-19 delta variant and operational challenges. Also, business and international travel, which are the most significant contributors to airline profitability, continue to lag. Industry forecasts project a multiyear recovery to return to pre-pandemic levels. [Holly Hobbs:] And last question, what's the bottom line of this report? [Heather Krause:] The challenges the aviation industry faced when COVID-19 hit were unprecedented. The federal government and aviation businesses took significant action to help the industry respond to COVID-19. Our report offers areas for policymakers to consider as they determine how or whether to continue to assist the industry as federal relief assistance expires and market conditions continue to evolve. [Holly Hobbs:] That was Heather Krause talking about GAO's recent report on the aviation industry. Thanks for your time, Heather. [Heather Krause:] Thank you. [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts, Spotify or wherever you listen. And make sure to leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.