CHAPTER 2

Overview of Shock Events

The COVID-19 pandemic led to the largest downturn in global commercial aviation in modern history. However, the aviation industry has been affected by pandemics before, such as SARS (2003), Swine Flu (2009), and MERS (Middle East Respiratory Syndrome) (2012), albeit nowhere on the scale of COVID-19. The industry as a whole and individual airports have also been affected by economic shocks and recessions, air market changes and airline failures, terrorist attacks (or attempts), and wars. In fact, these shock events occur with considerable frequency, as illustrated in Figure 1.

This timeline shows shock events potentially relevant to the U.S. aviation industry since 1970 in four categories: economic, airline market, pandemics and natural disasters, and wars and terrorist attacks. Some of these events had little material effect on the industry as a whole, while others were highly significant. In general, the industry has a long-term track record of recovering from these events and reverting to growth, although not always recovering to the previous trend. Furthermore, while the impact on the entire industry may be modest, the impacts on individual airports can be profound and long-lived: dehubbing, the loss of a major carrier, entry of ultra-low-cost carriers (ULCCs), new passenger processing requirements, etc. The impacts are not necessarily uniform, affecting some airports severely and others only slightly.

Defining Shock Events

It is useful to have a clear idea of what is meant by “shock event.” In this guide, the term “shock event” has generally been used, but other terminology is used elsewhere. As documented in Part II, terms such as “black swan events,” “grey swan events,” “rare events,” “disrupters,” and “high-impact, low-probability events” are also used. Shock event is used in this document as it provides a general idea of the concept without any implied assumptions around the level of prior knowledge (black versus grey swan) or likelihood of occurring (low probability). Based on research conducted for this guide and the team’s prior experience, the characteristics of a shock event can be summarized as follows.

• Uncertainty exists around whether the event will occur and when.

  The probability of the event is not necessarily low, but neither is it a certainty. Given the history of airline bankruptcies and mergers, the failure or exit of a key airline at an airport is not an extremely unlikely event or black swan, but if and when it might occur remains fairly uncertain. Where an event is a certainty or near certainty it should be built into the planning and management of the airport (e.g., poor weather conditions in the winter, the hurricane season disrupting operations in southeastern U.S. states).

• When the event does occur, it has the potential to impact the airport in a significant or strategic way (positively or negatively).

  The event may have profound implications for the traffic, management, finances, and planning of the airport. This differentiates it from operational events such as a ground collision or snowstorms that disrupt operations for a fairly short time but do not lead to significant changes in the airport business or strategy.

• The event itself can vary in its timeline.

  Some events unfold over minutes or hours, such as terrorist attacks; others develop over weeks, months, or years, such as the COVID-19 pandemic. Regardless, the resulting impacts of such events are generally long-lived and can transform the path of the business.

To consider it another way, almost all airports base their medium- and long-term planning on forecasts that predict largely gradual and relatively consistent growth in air traffic volumes (it is extremely rare for an airport traffic forecast to predict long-term declining volumes). This is based on the extensive historical experience in the United States and elsewhere of economic growth and rising incomes leading to increasing air traffic volumes, often in combination with competitive airline markets and technological improvement. It is expected that forecasts will still be generated in this manner for the most part. However, consideration can also be given to potential shock events that could cause traffic development to diverge considerably from the long-term trend, perhaps permanently, as illustrated in Figure 2 showing total traffic volumes (but other aspects such as traffic mix can also be considered).