As I am writing these lines, the commercial airline industry finds itself in the middle of the deepest crisis it has ever faced. The Covid-19 pandemic and the subsequent severe travel restrictions that have been introduced by governments to attempt to limit the spread of the virus have yielded a drastic reduction in passenger air travel volume across the world. According to IATA estimates, 2020 passenger volume was around one third of that in 2019, and a recovery to the level of the last full pre-pandemic year is not expected until 2023. In many places, commercial aircraft in-flight have become a rare sight. Today, in Singapore, where I am currently based, Changi airport handles fewer than 10 per cent of its pre-pandemic flight volume. The increase in air cargo business has not for most airlines been enough to offset the revenues lost due to the drastic fall in passenger operations. Some of the smaller carriers have disappeared. Most larger airlines have been kept afloat through government assistance.

It goes without saying that in this second edition I will have to discuss the impact of the Covid-19 pandemic on the aviation sector. Some experts and commentators are suggesting that the pandemic will change the airline industry “forever”. I am more inclined to subscribe to the view that most of the effects of this disruption will dissipate within the next decade. Perhaps a subsequent edition of this book will be able to answer that question definitively.

It is important to note from the outset that this book is not about the impact of the pandemic on the airline industry. It is a book about the economics of the aviation sector, with the emphasis on airlines. The pandemic – or any other large-scale external shock – will not change the underlying economics of the sector. Moreover, a clear understanding of the core economics of airlines will help us understand and potentially predict the effects of the pandemic on the industry.

Aviation facilitates trade, plays an instrumental role in the development of tourism, and provides employment to millions of people. At the same time, airlines have traditionally been viewed as national symbols, which has resulted in heavy regulation and significant artificial barriers to competition, even in such otherwise open and developed economies as the United States.