Airlines need more government help dealing with the fallout from the coronavirus if they are to get through the winter doldrums, when revenues tend to wane, the International Air Transport Association (IATA) said Tuesday.
The key to survival during the winter is schedule flexibility at large airports and for that airlines say they need relief from use-it-or-lose- it slot rules – authorizations to takeoff and land at busy airports on a particular day during a specified time period.
Governments should extend the summer season waiver for complying with the rules so that airlines don’t feel pressure to defend slots by operating uneconomical flights when cash is short, IATA Director General Alexandre de Juniac said during his weekly briefing with reporters.
Under normal circumstances, airlines can lose allocated slots at congested airports if they don’t use them at least 80% of the time. For airlines, the winter season begins in late October. The IATA chief said governments need to grant the slot relief by the end of July so airlines have certainty for planning their winter flight schedules, aircraft and crews.
Without greater financial and operational flexibility afforded by governments, many airlines will not survive the worst crisis in aviation history, de Juniac said. He reiterated calls for governments to provide financial assistance other than public loans, extend workforce protection programs, and reduce taxes and fees.
“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,” de Juniac said. “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.”
Low Bookings
An uptick in travel business as the weather warms and governments reopen borders doesn’t mean the financial skies ahead are clear for airlines. Last week, IATA projected the industry would lose $84.3 billion in 2020 from the collapse of passenger traffic associated with efforts to contain the novel coronavirus. Passenger traffic plunged 95% in April compared to 20% in the aftermath of the 9/11 attacks and 12% after the SARS epidemic early this century. Carriers are collectively burning through hundreds of millions of dollars per day to stay in business.
Airlines have begun to reintroduce more flights into their schedules for the summer months as regional and national lockdowns are lifted, but the new passenger activity is still far below normal levels and industry officials say they are looking at a minimum of three years before finances stabilize at 2019 levels.
IATA warned that it’s difficult for most airlines to operate in the black during the northern winter, even in the best of circumstances. Last year, net profit margin for European airlines was 9% and 17% in the second and third quarters but -1% in the first quarter and 2% in the fourth quarter.
The trade group pointed to polling this month that showed travelers are being cautious about flying. Only 45% of travelers surveyed said they intend to book a flight within a few months of the pandemic subsiding, and 36% said they would wait six months. That is a significant shift from April, when 61% said they would be comfortable with air travel within a few months of peak pandemic and 21% responded that they would wait about six months.
Although June bookings have improved from April’s single-digit lows, they are down 82% year-over-year compared to June 2019. Long-haul forward bookings for the first week in November are 59% below normal levels. Passengers are also delaying booking decisions until closer to the time of travel. Bookings for travel 20 or more days in the future accounted for 29% of bookings made in May, down from 49% in 2019. Similarly, 41% of bookings made in May were for travel within three days, more than double the 18% of a year earlier, according to IATA.
Helping hand
If slots are lost, IATA Chief Economist Brian Pierce explained, airlines may not be able to restore long-haul routes and maintain connectivity between city pairs. Flight banks at hub airports require a certain number of slots on each end. Early morning arrivals, for example, enable passengers to connect to a large number of flights. If arrivals have to be rescheduled to a later time, as a result of a curfew, many connections will become impossible.
Source: IATA
The organization also reiterated policy proposals, with some modifications, that it said governments should adopt to protect a vital industry.
IATA says loans will add to airlines’ debt loads and make it difficult to return to profitability over the long term, so it is asking governments to consider subsidizing domestic operations, and waiving airport and air traffic control charges.
Wage subsidy programs have provided $35 billion in relief to airlines. The U.S. government alone provided $25 billion in grants and low-interest loans to passenger airlines. Extending payments directly to employees would give airlines more time to recover and minimize job losses, IATA said.
But airlines are already significantly downsizing, making many employees redundant. Deutsche Lufthansa on Monday said it expected to eliminate 22,000 jobs. British Airways is trying to reduce its workforce by 12,000 people, and American Airlines and United Airlines (NASDAQ: UAL) are streamlining middle management by 30% and are soon expected to announce reductions for front-line workers.
IATA also asked that governments waive corporate and indirect taxes such as value-added taxes, passenger taxes and fuel taxes as a way to stimulate the airline market.
Airports are reminding governments not to forget them when doling out aid for the aviation industry. Some of their requests mirror those of the airline industry, such as subsidies to help reestablish certain air routes, permission to defer required investments, and governments covering the cost of new health measures. But airport authorities generally oppose extending blanket waivers for slot rules. The Airports Council International (Europe) on Monday called for the quick return of unused takeoff and landing slots, and slots associated with airline bankruptcies, to avoid wasting airport capacity.
While acknowledging airports and air navigation service providers have suffered revenue falls, IATA cautioned against steep increases in airport and traffic control charges and fees while airlines are struggling to survive.
“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,” de Juniac said.
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