Brian Pearce, our Chief Economist has explained the current situation that the global air transport industry finds itself in.
First, let me reassure you that the global air transport industry is responsibly responding to this global pandemic. We are not public health experts, but airlines are following the best advice of experts—including the WHO—in adapting their operations to the challenges of the coronavirus. And we are—and will continue—helping in the response.
Air Cargo
The measures that governments have introduced to restrict travel are shrinking the size of passenger operations. That is also removing significant cargo capacity from the system—capacity that is vitally needed to help keep supply chains going, including the delivery of critical medicines and medical equipment.
That is what was behind our calls yesterday for governments to do all that they can to ensure efficient cargo operations. That includes exempting crew—who do not interact with the public—from quarantine, granting temporary traffic rights where needed, keep air cargo excluded from travel restrictions….and other practical measures to keep cargo moving at this critical time.
Relief Measures
In these extraordinary times, we have also asked governments to take some extraordinary measures.
One that you will have heard about is a waiver on slots—particularly the 80-20 use-it-or-lose-it rule. Demand patterns have shifted radically. And airlines should not be hindered by the 80-20 rule when adjusting their operations to the reality of today’s market. Governments have responded positively to this. Although we are concerned that the EU is only granting a waiver until June. It is unclear what demand will look like in June. So we are asking for this to be reviewed.
Similarly, we are asking governments to recognize this as an extraordinary situation with respect to passenger rights regulations—particularly EU 261. Cancelling flights is the reality of today—often times because of government restrictions. We continue to ask governments to understand that this is totally beyond the control of the airlines.
Bigger Measures
And there are other relief measures that will be helpful—reducing charges that airlines face at airports for example. These are all helpful. But against the scale of today’s crisis, these are not going to save the airline industry from financial peril.
On March 5th we estimated that industry revenues could take a hit of up to $113 billion as a result of what we thought then would be a worst-case scenario. We could not have foreseen the developments of the last days with massive restrictions on travel being put in place…and with no clear understanding how long they will remain in effect.
Brian presented the liquidity crisis that will impact large parts of the industry. Some immediately as we saw with FlyBe.
Governments have the financial means to avoid an industry calamity in three ways
- Direct financial support for carriers to compensate for reduced revenues, and therefore support liquidity due to travel restrictions imposed as a result of COVID-19;
- Loans, loan guarantees and support for the corporate bond market by the Government or Central Bank, either directly to the airline or to commercial banks that may be reluctant to extend credit to airlines in the present situation in the absence of such a guarantee.
- Tax relief: Rebates and/or suspension on all employer imposed payroll taxes paid to date with an ongoing review for the rest of 2020, deferral or reduction in income taxes to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other Government-imposed levies.
There is no one-size fits all solution. So, we will be writing to governments around the world to alert them to the dire situation of the industry and get them moving—in the circumstances of their country.
Time is of the essence. Governments cannot take a wait-and-see approach. We have seen how dramatically the situation has deteriorated globally in a very short time. They must act now and decisively.
Some of you may wonder why, given the broad economic impact of this crisis, governments should focus on airlines. It is because connectivity is crucial. The world will get through this crisis. And when it does it will need a functioning air transport sector. Without financial relief that is not guaranteed.
In normal times, airlines transport about 35% of global trade. And every job in air transport supports another 24 in the travel and tourism value chain—nearly 70 million jobs. Prioritizing air transport—helping airlines financially survive through these dark times—will position the world for the eventual recovery.
Resilience
And on that note, the last comment that I will make is that aviation is a resilient industry. With decisive action by governments we can get through this crisis and keep the world connected.
