MIAMI – The International Air Transport Association ( IATA) cautioned that the airline industry is facing a difficult winter, urging policymakers around the world to continue providing relief measures as the COVID-19 crisis continues.
According to IATA’s press release, Airlines are expected to post a loss of US$84.3 bn in 2020. It is therefore understood that government financial relief is a lifeline to many airlines.
Nothing burns like the cold
The majority of airlines make their money in the northern summer season while the winter season is a struggle for airlines to stay profitable even in the best of times.
As an example, European airlines’ net profit margin for 2019 followed the normal seasonal pattern, standing at 9% and 17% in Q2 and Q3 (northern summer) respectively.
However, the profit margin for that year started at -1% in Q1 and finished the year at 2% in Q4 (northern winter). According to IATA, the winter season will be even more challenging amid the recovery from COVID-19.
Public opinion research on returning to travel in the first week of June 2020 has shown greater caution among travelers. Within a few months of the after the end of the pandemic, only 45%of travelers surveyed would fly.
More alarmingly is that a further 36% said that they would wait six months.
That’s a major shift from April 2020 when 61% said they would return to travel within a few months after the pandemic ended, with 21% saying they wouldd wait about six months.
Trends in an uncertain market
The results of the survey are corroborated in key passenger patterns that indicate continuing volatility in the market:
- Overall bookings are down 82% year-on-year compared to June 2019.
- Long-haul forward bookings for the first week in November 2020 are 59% below normal levels. Historical trends show about 14% 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% 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% of bookings made in May 2020, down from 49% in 2019. Similarly, 41% of bookings made in May 2020 were for travel within 3 days, more than double the 18% in May 2019.
Remarks by IATA Director General and CEO Alexandre de Juniac
“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.”
Four key areas for government assistance
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 subsidizing domestic operations and waiving airport and air traffic control charges.
- Extensions to wage subsidies and corporate tax 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 minimize 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.
Financial relief, slot usage waivers still desperately needed
IATA’s CEO concedes that more people are traveling each day, which is good for the economy, but cautioned that while the numbers are moving in the right direction, “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.