Airline Update – COVID-19, Perspective on the world airline traffic
Dear Brokers, Insureds and Friends,
It has now been two weeks since our last newsletter and the world situation has not improved. As a result of the grounding of most fleet carriers, the airline traffic related exposure has now dropped to a minimum.
In the meantime, as aircrafts are parked on airports around the globe, our industry is currently facing an unprecedented accumulation of risks.
Furthermore, the expected re-start of airline operations in the coming months will also add new challenges.
This questions the capital requirements, the pricing levels and reinsurance structures in place before this crisis; especially since aviation insurance has been seen as a non correlated and steady line of business.
ATOM provides elseco with valuable data to measure the amplitude of these phenomenons and we are once again happy to share the results of our findings with our community.
Please also let us know, via report@atomdn.com, if there are any other subjects that you would like us to consider covering in future issues of our elseco newsletter series and we will consider your suggestions.
Last but not least, I take this opportunity to wish you again the best for the coming weeks.
Best regards,
Laurent Lemaire, Founder & CEO
Tel: +971 4 384 2801 Mob: +971 50 852 7896 www.else.co
Newsletter #5 / Airline Update – COVID-19, Perspective on the world airline traffic
The following tables and graphs are the highlights of a joint study between elseco and our technology partner ATOM on the impact of COVID-19 on airline exposures worldwide.
Summary
1- World airlines traffic has now plumeted, generating a significant reduction in exposure weighted capacity (Item 1 & Item 2)
2- The fleet value on the ground is now in excess of 90% of the total fleet value, compared to less than 60% before the crisis. (Item 3)
3- The impact on the “per airport” accumulation varies significantly per region (Item 4)
4- The local operators network structure explains most of these ground accumulation differences together with parking strategies (Item 5)
Item 1. Flight traffic evolution (week “n” of 2020 vs week “n” of 2019 basis)
The traffic (in terms of number of flights) has now dropped in North America at similar levels to Europe in week 13. In week 15, the amplitude of the reduction in flights has worsened in every region apart from China, which continues to operate almost half the flights it was operating a year ago.
Item 2. Risk weighted offered capacity (Evolution since 1st January 2020 and on an underwriting year basis)
The global risk weighted offered capacity has now started to reduce significantly (-8% on an underwriting year basis) compared to last year. This is due to the reduction of North American flights which represent a disproportionate weight in terms of exposure due to the average higher COL. It is however important to note that the risk weighted offered capacity does not take into consideration the probable reduction in load factor.
Item 3. Comparison of fleet values on the ground (April 11th 2019 vs April 9th 2020, 12:00PM G.M.T.)
On Wednesday, April 11th 2019, at 12:00 PM G.M.T., 58% of the world-wide fleet was on the ground (expressed in market value). On Wednesday, April 9th, 2020 at 12:00PM G.M.T., 92% of the world fleet value was on the ground. This represents a difference of 281billion dollars in market values which approximates 450 billion dollars in insured values. It should be noted that another contributing factor over the last 12 months is the grounding of the B737 Max but its impact is not significant as it represents 261 aircraft for approximately 10 billion dollars of market value.
Item 4. Airport accumulations (in excess of 5 billion USD market value per location on April 9th 2020, 12:00PM G.M.T.)
The value at risk on the ground has increased significantly in Airports across the globe. But the increase is far more concentrated around a limited number of airports in the Middle-East and in the Asia Pacific zone than in North America. As a consequence, only three American Airports are listed in the top 20 current Ground Accumulations.
In this letter we only focus on the exposures but it is clear to us that the data will be even more valuable when crossed with the natural (or other) perils exposure per location.
Item 5. Operators accumulations
The difference of “per airport accumulation” amongst the main regions can be explained by the network structure of the local operators.
- When carriers operate from several hubs, they have the ability to spread evenly their fleets around their network. This is the case in North America as illustrated in the table below
- On the contrary, when airlines have a single hub of operation, they then have to gather all their fleet in a unique location, creating larger clusters of ground accumulations. This is the case in most of the Middle-East and for certain airports in Asia (Honk Hong and Singapore).
It should be noted that the ground accumulations of American Airlines in Tulsa and Southwest Airlines in Southern California Logistics are influenced by the presence of a large number of grounded B737 Max.
Note on content and data:
We endevour in this letter to collate and structure meaningful information for the community. However, should you feel that there are some points that we could have treated differently or some additional data you would like us to include, feel free to reach to us and we will try to incorporate your suggestions in our next news letter.
The data presented covers 267 airlines and 21.5 million flights between 2018 and 2020.
The ground accumulation aggregates the value of the 24,984 aircraft on the ground per airport
on April 9th 2020 at 12:00PM G.M.T and,
on April 11th 2019 at 12:00PM G.M.T. (same week and day of the week)
Values are indicative market values. It is generally estimated that a fair multiplier between market value and insured value is 1.6.
In absence of reliable data regarding the actual number of passengers carried, we measure the two metrics listed hereunder
the number of flights;
the “risk weighted” offered capacity:
the capacity is expressed as # of flights x # of seats
for each individual flight, we assess the relative accident probability and our best estimate of the Cost of Life (COL) for each offered seat should it be occupied.