Testing the differentiated impact of the COVID-19 pandemic on air travel demand considering social inclusion

TL;DR

This study examines how the COVID-19 pandemic differently impacted air travel demand across markets with varying levels of social inclusion in Brazil, revealing that more socially inclusive markets experienced greater demand declines.

Contribution

It introduces a two-step regression approach to identify social inclusion levels and analyze their effect on air travel demand decline during the pandemic in Brazil.

Findings

Markets with higher social inclusion experienced larger demand drops.

Short and low-density routes were most affected.

Business routes faced more impact than leisure routes.

Abstract

The economic downturn and the air travel crisis triggered by the recent coronavirus pandemic pose a substantial threat to the new consumer class of many emerging economies. In Brazil, considerable improvements in social inclusion have fostered the emergence of hundreds of thousands of first-time fliers over the past decades. We apply a two-step regression methodology in which the first step consists of identifying air transport markets characterized by greater social inclusion, using indicators of the local economies' income distribution, credit availability, and access to the Internet. In the second step, we inspect the drivers of the plunge in air travel demand since the pandemic began, differentiating markets by their predicted social inclusion intensity. After controlling for potential endogeneity stemming from the spread of COVID-19 through air travel, our results suggest that short and low-density routes are among the most impacted airline markets and that business-oriented routes are more impacted than leisure ones. Finally, we estimate that a market with 1 per cent higher social inclusion is associated with a 0.153 per cent to 0.166 per cent more pronounced decline in demand during the pandemic. Therefore, markets that have benefited from greater social inclusion in the country may be the most vulnerable to the current crisis.