Hard winter awaits airlines; government relief measures needed
The International Air Transport Association (IATA) warned that the airline industry faces a hard winter and called on governments around the world to continue providing relief measures as the Covid-19 crisis continues.
Airlines are expected to post a loss of $84.3 billion in 2020 and government financial relief is a lifeline to many airlines. The bulk of airlines make their money in the northern summer season, while the winter season, even in the best of times, is a struggle to remain profitable. For example, the 2019 net profit margin for European airlines followed the normal seasonal pattern and was 9 percent and 17 percent respectively in Q2 and Q3 (northern summer). But it started at -1 percent in Q1 and finished the year at 2 percent in Q4 (northern winter). The winter season will be even more challenging amid the recovery from Covid-19.
Public opinion research in the first week of June 2020 showed greater caution among travellers in returning to travel. Only 45 percent of travellers surveyed intend to return to the skies within a few months of the pandemic subsiding. A further 36 percent said that they would wait six months. That is a significant shift from April 2020 when 61 percent said that they would return to travel within a few months of the pandemic subsiding and 21 percent responded that they would wait about six months.
The survey findings are corroborated in key passenger trends demonstrating continuing market uncertainty:
- Overall bookings are down 82 percent year-on-year compared to June 2019.
- Long-haul forward bookings for the first week in November 2020 are 59 percent below normal levels. Historical trends show about 14 percent of airline tickets are sold 22 weeks in advance of travel. Current bookings for 1-7 November show that tickets have been sold to only 5 percent of the 2019 number of passengers.
- Passengers are booking closer to the time of travel. Bookings for travel 20 or more days in the future accounted for 29 percent of bookings made in May 2020, down from 49 percent in 2019. Similarly, 41 percent of bookings made in May 2020 were for travel within 3 days, more than double the 18 percent in May 2019.
“People are returning to the skies but the horizon of uncertainty of the Covid-19 crisis is extending. Forward bookings are down, and people are hedging their travel bets by booking closer to the time of travel. Airlines in the Northern hemisphere rely on a strong summer season and a predictable booking curve to get them through the lean months. But neither of these conditions are in place and airlines will need continued help from governments to survive a hard winter. Airlines will need much more flexibility to plan schedules around these changing consumer trends. Financial and operational flexibility equals survival,” said Alexandre de Juniac, IATA’s director general and CEO.
IATA highlighted four keys areas where governments could assist airlines:
- Extending the waiver from the 80-20 use-it-or-lose-it rule in the Worldwide Airport Slot Guidelines. In these extraordinary times, airlines need much more flexibility to plan schedules and business critical decisions should not be compromised by slot allocation guidelines designed for normal times. “There were good reasons why the 80-20 rule was waived for the summer season. Regulators should apply the same common-sense approach again and waive the rule for the winter season as well. Airlines need to focus on meeting what consumers want today, without trying to defend the slots needed for what their schedule might look like a year from now,” said de Juniac.
- Continued financial assistance in ways that do not increase industry debt levels which have risen sharply. Some governments are exploring measures including subsidising domestic operations and waiving airport and air traffic control charges.
- Extensions to wage subsidies and corporate taxation relief measures. The wage subsidy schemes have provided some $35 billion in relief to airlines. Tapering these more slowly would give airlines more time to recover and minimise job losses. Relief for corporate and indirect taxes such as VAT, passenger taxes or fuel taxes would support market stimulus.
- Avoiding increases in charges and fees. While airports and air navigation service providers have suffered revenue falls, steep increases in charges must be avoided during the restart period as this will severely impact airline financials and market recovery. Similarly, governments should cover the costs of new health measures imposed as a result of Covid-19.
“Each day sees more people traveling. That’s good for the economy. The numbers are moving in the right direction, but we are by no means anywhere near normal or sustainable levels of activity. Financial relief measures are still desperately needed. And policy-relief measures like a slot usage waiver remain critical. Governments need to grant that by no later than the end of July to provide at least that certainty for this beleaguered and battered industry,” said de Juniac.