The aviation world is facing an existential crisis like never before as the COVID-19 coronavirus sweeps across the globe, infecting nearly 200,000 people and killing more than 7,000 as of Tuesday (March 17).
The crisis affecting the industry is worse than that experienced after the 9/11 terrorist attacks grounded flights for days and continues to be exacerbated by global governments like the US, which cut off international flights from Europe, which has been described by the World Health Organisation (WHO) as the “new epicentre” of the virus. Infectious disease experts are warning the US too could find itself as a follow-on epicentre if the country doesn’t do more to prepare for what is likely to be a sharp rise in cases.
Aviation trade groups like the International Air Transport Association (IATA), the UN’s International Civil Aviation Organisation (ICAO), airline alliances, Airports Council International (ACI World) and many others are calling for a concerted and coordinated effort by governments everywhere to implement relief measures to prevent the total collapse of the industry.
The respected aviation consultancy CAPA Centre for Aviation has warned in an advisory to its members that most airlines around the world will be bankrupt by May as a result of the near total travel slowdown due to the spread of the COVID-19 coronavirus and because of inaction on the part of governments. CAPA said Monday (16 March) that “many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants” and that cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full and some are even empty or so-called “ghost flights”.
“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying,” CAPA said. “Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon.”
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Airline alliances call for action
On Monday (16 March), airline alliances including oneworld, SkyTeam and Star Alliance issued a rare joint statement calling on governments to support the industry by easing the so-called 80/20 rules for airline slots that governs airlines. The rule mandates that airlines maintain 80 percent of their flights to airports if they wish to retain access to those slots.
Some global regulators like Hong Kong and Europe have indicated they will ease the slot rules, at least temporarily. The alliances said they welcomed the “moves in recent days by some regulators who have suspended slot regulations temporarily and urge others to follow suit promptly. They also request that regulators consider extending the suspensions for the entire operating season”.
IATA recently released a report that airlines around the world face as much as US$113 billion in revenue losses for global passenger airlines, but is expected to this week raise that estimate. “The impact is expected to have a ripple effect through the value chain that supports the airline industry,” the alliances said in their statement. The forecasted revenue loss scenario does not include travel restrictions recently imposed by the US and other governments.
The alliances also called airport operators to “evaluate landing charges and fees to mitigate the financial pressure faced by airlines due to a severe decline in passenger demand”.
Star Alliance CEO Jeffrey Goh said: “The unprecedented circumstances triggered by the coronavirus outbreak pose an existential threat not only to the airline industry but more generally to global trade and commerce, and social connectivity. As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”
Airlines cut capacity to the bone
Airlines around the world, especially in the Asia-Pacific region, have cut capacity drastically, grounded planes, asked or in some cases demanded that employees take unpaid leave and otherwise moved quickly to cut costs, including shedding employees, as travel demand plummets.
Hong Kong’s flagship carrier Cathay Pacific Group reported on 16 March that combined Cathay Pacific and Cathay Dragon traffic figures for February 2020 showed a 54.1 percent decline in revenue passenger kilometres (RPKs) compared to February 2019. Passenger load factor decreased by 28.6 percentage points to 53.1 percent, while capacity, measured in available seat kilometres (ASKs), decreased by 29.3 percent. The group also said freight volumes measured in revenue freight tonne kilometres (RFTKs), dell 6.9 percent compared to the same month last year.
Cathay Pacific Group Chief Customer and Commercial Officer Ronald Lam said: “We are facing an unprecedented challenge as the COVID-19 pandemic continues to cause widespread disruption to our operation and business. In February alone, we made a significant unaudited loss of more than HK$2 billion (US$257.4 million).”
“The situation has further deteriorated since February,” Lam added. “We have already announced around 65 percent passenger flight capacity reduction for March. Governments around the world have since introduced more travel restrictions, with the most recent ones starting to affect our major long-haul markets including Europe, the United States and southwest Pacific. Given the expected further drop in travel demand , we are planning to only operate a bare skeleton passenger flight schedule for April, which represents up to 90 percent capacity reduction. If we do not see a relaxation of travel restrictions in the near future, we expect the same arrangement will have to continue into May.”
“While our freighter capacity remains intact, the reduction of our passenger flights has had a significant impact on our overall cargo capacity as well as our ability to carry cargo to destinations only served by our passenger flights. However, we remain flexible in deploying additional cargo capacity, including mounting additional freighter flights as well as cargo-only passenger flights.
“The scale of the challenge we are currently facing is unprecedented and no one can predict when conditions will improve,” Lam said. “Our advance passenger bookings show no clear signs of recovery at this stage, and the gap in bookings compared to 2019 continues to widen. We already made it known last week that a substantial loss in the first half of this year is expected.”
As part of a way to deal with the expected losses, Cathay cut a deal with lessor BOC Aviation to sell six Boeing 777-300ERs for US$703.8 million and then lease back the planes, giving the airline group much needed cash.
In Singapore, flag carrier Singapore Airlines reported that its RPKs for February fell 17 percent because of the COVID-19 outbreak while its passenger load factor (PLF) fell to 69.1 percent. Low-cost unit SilkAir’s systemwide passenger carriage decreased by 37.8 percent against a 20.1 percent decrease in capacity. This led to a 17.2 percentage point decline in PLF to 60.6 percent. All route regions recorded declines in PLF. During the month, capacity to mainland China was significantly reduced as SilkAir suspended services to Chengdu, Xiamen and Shenzhen. Associated unit Scoot recorded passenger carriage decline of 25.9 percent against a capacity contraction of 20.4 percent, which led to a 5.9 percentage point decrease in PLF to 79.4 percent. All route regions registered declines in PLF due to a fall in travel demand. All services to mainland China were suspended from 8 February 2020.
“Since the start of February 2020, the SIA Group has progressively announced flight cuts across the network as it adjusts capacity to match demand changes arising from the spread of COVID-19 across the globe,” Singapore Airlines said when announcing the results. “Market conditions have continued to deteriorate in March and, with WHO declaring COVID-19 a pandemic and multiple countries issuing travel advisories and restrictions, travel demand is expected to weaken significantly in the near term.”
Qantas and Air New Zealand also announced capacity cuts and employee layoffs as their international and domestic businesses cratered. Qantas said it was grounding most of its widebody fleet and Air New Zealand said it was cutting its international capacity by 85 percent.
Association calls for cargo flight rules to be eased
Industry trade group IATA issued a statement highlighting the role of air cargo flights, calling the sector a “a vital partner in delivering much-needed medicines, medical equipment and in keeping global supply chains functioning for the most time-sensitive materials. This has been done through dedicated cargo freighter operations, utilisation of cargo capacity in passenger aircraft and with relief flights to affected areas.”
The association said the recent travel restrictions and collapse of passenger demand have severely limited cargo capacity and “IATA calls on governments to take urgent measures to ensure that air cargo will be available to support the global fight against COVID-19”.
“Over 185,000 passenger flights have been cancelled since the end of January in response to government travel restrictions. With this, vital cargo capacity has disappeared when it is most urgently needed in the fight against COVID-19,” said Alexandre de Juniac, IATA’s director general and CEO. “The world’s fleet of freighter aircraft has been mobilised to make up this capacity shortfall. Governments must take urgent measures to ensure that vital supply lines remain open, efficient and effective.”
IATA called on global governments to:
- Exclude air cargo operations from any COVID-19-related travel restrictions, to ensure life-saving medical products can be transported without disruption;
- Ensure that standardised measures are in place so that air cargo can continue to move around the world with minimal disruptions;
- Exempt air cargo crew members, who do not interact with the public, from 14-day quarantine requirements;
- Support temporary traffic rights for cargo operations where restrictions may apply;
- Remove economic impediments, such as overfly charges, parking fees, and slot restrictions to support air cargo operations during these unprecedented times.
“Air cargo carriers are working closely with governments and health organisations around the world to safeguard public health while also keeping the global economy moving. Today, as we fight a global health war against COVID-19, governments must take urgent action to facilitate air cargo. Keeping cargo flowing will save lives,” said de Juniac.
US bailout?
US airlines are seeking over US$50 billion in financial assistance from the government, more than three times the size of the industry’s bailout after the 9/11 attacks, according to a Wall Street Journal report. The exact form of the aid—and the amount—is under discussion with Trump administration officials and congressional leaders. A potential aid package could include government-backed loans, cash grants and other measures including relief from taxes and fees, according to an airline trade group and others familiar with the discussions.
