This article was first published in the ’s Spring 2022 edition of
And now comes the recovery.
As the Canadian and North American aviation industry emerges from under the restrictions, lockdowns and reductions in travel, the questions loom. How is the industry recovering? What was the impact of COVID-19 and what kind of pressure will the ongoing pandemic put on the industry? What does the future of Canadian aviation look like in a pandemic-weary world?
For some in the industry, those questions are much easier to address than for others. Depending on what type of aviation business you were running, the majority of Canadian aviation operations fared well amid the pandemic. Essential services, such as those servicing remote communities, cargo, EMS, and general utility operators flew close to, and in some instances, more than those years prior to COVID, increasing flights and taking on more aircraft.
Conversely, the scheduled passenger carriers struggled. Screened passenger data from Canadian Air Transport Security Authority (CATSA) show that the total number of passengers screened at the country’s 15 largest airports dropped significantly. On March 31, 2020, there were just 5,322 screened passengers compared to 164,399 screened on the same day in 2019. While passenger travel has resumed, screenings on March 31, 2022 totaled just 102,518.
As a result, many of the passenger airlines spent the downtime purchasing new aircraft and making upgrades to their existing fleet. Likewise, many of the essential services operators added new equipment to meet increased demand. Ultra-low-cost carriers also entered the Canadian marketplace amid the pandemic. Those carriers came with new aircraft and equipment, so insurers and underwriters saw a sharp increase in actual insurable assets. In total, we at 九色视频have seen over a combined $1 billion of insured assets enter the marketplace during the pandemic.
Loss Ratios Then and Now
That type of investment from each end of the aviation spectrum, combined with a drop in incident rates, and increased rating environment and premium, the industry saw an improvement in loss ratios across the marketplace. That has fed an environment ripe for new competitors, and indeed, increased capacity has come into the market.
Will that capacity and competition be enough? The looming questions remain: How much of an impact was driven by reduced usage as a result of COVID-19 to the loss ratio and how much did it impact the overall rating environment? Is the business being written today based on pandemic-related loss ratios and are these rating levels going to be sufficient in the long term? What will the overall impact to the market be, when loss ratios inevitably return to pre-pandemic levels?
These are the questions that the markets must consider as they look toward writing new or renewing business. Writing business at the current pricing level may have been adequate during leaner operating times, but as operations increase, pricing could quickly become inadequate, depending on how quickly the market rebounds. As demand increases for cargo, leisure travel and more, and it is already showing signs of recovery, will current pricing levels be sustainable?
Over the long term, expect rapid return to service, which is already beginning to occur. That swift recovery is putting huge strains on operators, pilots, maintenance, and support services as they struggle to hire skilled and entry-level workers to handle daily operations. Given this shortage of experienced workers, expect to see more attritional type losses such as ground incidents as operators struggle to hire, train and attract experienced personnel.
Add to that the struggle increased demand for next-day delivery is having on an industry not quite set up for the influx. Especially in Canada’s northern and remote communities, the industry is not adequately equipped to deliver products at the required next day delivery level of service. Some carriers did buy additional aircraft and upscale their operations to meet the demand brought on by pandemic-induced online shopping, but the sheer size of the territory covered, the remoteness of many locations puts additional strain on the industry to deliver.
Writing business at the current pricing level may have been adequate during leaner operating times, but as operations increase, pricing could quickly become inadequate, depending on how quickly the market rebounds.
Canadian Aviation Going Forward
The industry continues to expand where needed and upgrade where necessary. As asset values increase, there is an increasing amount of premium to offset some of this exposure growth. If the Canadian aviation insurance industry can maintain the current rating levels against these increasing exposures, will this be enough to sustain the required insurer profitability? If, however, we allow the core rating to erode because of these increased premiums and market capacity, will the market face similar challenges to the not so distant past?
Canada has always punched above its weight when it comes to what it's contributed to the global aviation industry, including industry leading OEMs, a global helicopter center of excellence and government entities such as CATSA and NAV Canada which are recognized industry leaders. With aviation pioneers across the vast landscape. I would also argue the Canadian aviation insurance market punches above its relatively small circa $400 million marketplace weight when it comes to relevance and standing in the global insurance marketplace. The Canadian aviation industry is therefore well positioned to lead the way back from the dark days of pandemic uncertainty. As it emerges from COVID-19, how the Canadian market responds is a bellwether – as well as a template – for how quickly the overall industry will recover and, ultimately, thrive.
About the Author
As Head of Specialty Lines for Canada, Alex is responsible for managing a diverse underwriting portfolio, including Aviation, Fine Art and Specie, Political Risk, Credit, Bond and Marine. He has worked in the aviation insurance business for over 15 years as an Underwriter and Broker. The first half of his career in the London wholesale market, before moving to Canada, and the North American retail market. He holds a master’s degree from the University of Manchester, England, and is an Associate of the Chartered 尤物视频Institute.
