Airlines worldwide look for survival measures

- A Monitor Desk Report 11 Apr, 2020 | 936 Views|-+
Dhaka: It’s not an exaggeration to say that the COVID-19 pandemic has thrown the global airline industry into a tailspin. The potent combination of trip cancellations and country-specific restrictions on international flights, has created a staggering impact, on the USD 880 billion global airline industry.

It is no surprise that the industry, clobbered hardest by the COVID-19 pandemic, is the one responsible for helping spread it to the four corners of the Earth. But the speed and depth of the nosedive which airlines have taken is nevertheless worrisome.

Nearly all countries have some type of travel advisory in place, with many encouraging people to avoid non-essential travel even before COVID-19 was officially considered a pandemic by the World Health Organisation (WHO).

COVID-19 has seriously disrupted the airline industry. Most countries have travel advisories - or outright bans - in place to restrict the spread of the virus.

The earliest impacts of these were felt in February, as flight capacity in and out of China dropped sharply around Lunar New Year. Also, the country’s sharpest year-over-year drop was recorded on February 17, 2020, with a 71 per cent drop in flights compared to the same date in 2019.

Most of the schedule passenger airlines around the world have cancelled all international flights, but some carriers are still operating flights, often to help stranded travellers return to their home countries.

Broadly speaking, countries around the world are taking similar actions to limit the spread of the virus and “flatten the curve”.

World leaders are being forced to take drastic, emergency measures to confront the worsening coronavirus crisis.

They are meant to keep people alive but are killing the global economy. And few industries have been hit as hard as airlines.

The International Air Transport Association says the industry stands to lose more than USD 250bn in revenue this year, and that is assuming things recover in three months.

An estimated 8,500 aircraft are sitting in storage around the world. According to an information in late March.

Many airlines worldwide face the threat of bankruptcy in coming months, if these declining trends continue. To hedge against these domino effects of the outbreak, US airlines are requesting upwards of USD 60 billion in bailouts and direct assistance from the government.

COVID-19 is throwing everything up in the air—including the fate of airline companies. It’s not yet clear when these stringent travel restrictions may be lifted, but one can only hope that these airlines do not have to continue to weather the storm much longer.

The losses for the wider global aviation-related industries from the coronavirus pandemic could exceed USD 2 trillion this year, with millions of jobs at risk in Asia-Pacific alone.

Looking means to survive

The situation is very grim, and all the airlines are looking for measures to survive this unusual and unprecedented crisis.

Hit hard by similar situation, global airlines of different regions, will have differing routes to survival. Access to ample funds of their own is a luxury few of them have in the months ahead.

Cash in hand and having a parent company with the means will be the easiest way for airlines to survive a post-virus business landscape.

There isn’t an airline on the planet that would be able to hunker down and survive the worst-case scenario for the COVID-19 pandemic - an 18-month-plus shutdown of much of the global aviation industry.

Of the 29 largest carriers by revenue, not a single airline can boast a cash ratio higher than one, meaning they’d all run short of money before satisfying their creditors.

Plenty of carriers are also scaling back capital expenditure by deferring the purchase of new aircraft.

Short-term measures

Almost all the airlines have started taking measures to survive the current predicaments and hoping for government support.

In Bangladesh, all the four airlines—both public and private—are now considering various options for survival. Except cancellation of overtime by Biman Bangladesh Airlines, no other action has been made public yet. All the airlines expecting bailout action by the government.

More Cathay Pacific workers are being furloughed and stood down in regions where flights have been reduced or halted entirely.

Cathay Pacific, based in Hong Kong, has cut capacity by 65 per cent in March and April, and anticipates more cuts in May. Korean Air has lopped 80 per cent of its schedule.

Chinese airlines can also count on generous government support. Most of the big ones are state-owned (China Eastern and China Southern. Beijing has already promised bail-outs to make up for their losses, estimated to be around $3bn in February alone.

Thai Airways is cutting salaries as it grounds all flights.

Philippines' largest airlines, including Philippine Airlines and Cebu Pacific, are appealing to the government for fee waivers and an emergency line of credit, among other forms of relief.

Malaysia Airlines is putting some of its grounded planes back in the skies to take stranded travellers home.

Singapore Airlines has secured up to USD 13 billion to survive the coronavirus crisis.

Japan's ANA will furlough nearly half its workforce on a rotating basis.

Some Indonesian airlines have begun laying off employees.

AirAsia is grounding most of its fleet.

More than a third of Jetstar workers have taken up temporary jobs elsewhere amid its temporary suspension of flights.

In the US

In the USA, the largest aviation market, the international seat capacity has dropped by over 95 per cent from a year ago and half the world's airplanes are in storage, new data shows, suggesting the aviation industry may take years to recover from the COVID-19 pandemic.

United Airlines says it is losing USD 100 million a day. Delta Air Lines says it is burning through USD 60 million a day. All the leading US carriers have applied for federal grants to cover payroll costs through September and some are likely to seek federal loans or loan guarantees.

Carriers including United Airlines has warned they are likely to emerge from the crisis smaller, and there are fears others may not survive.

Southwest Airlines said it intended to apply for US government aid to help it ride out the sharp drop in travel demand.

The stimulus package for airlines is worth up to USD 50 billion, half in loans and loan guarantees and half in payroll cash grants.

US airlines are cutting between 70 per cent and 75 per cent of domestic flights in April and about 80 per cent in May. For both months it is cutting nearly 90 per cent of its international flights.

US Transportation Secretary Elaine Chao said that the government should not ground domestic flights during the crisis and that it was up to the airlines to make commercial decisions on flight destinations.

In Europe

In Europe, British Airways has reached a deal to temporarily suspend more than 30,000 of its cabin crew and ground staff.

The airline, which has grounded most of its fleet due to the coronavirus, has said that a large majority of employees would be suspended for the next two months.

Explaining the decision, BA boss Alex Cruz said, "We need to act now to protect jobs and ensure that BA comes out the other side of this crisis in the best possible shape."

Under the jobs retention scheme, the government funds 80 per cent of someone's salary capped at a maximum of GBP 2,500 a month.

The union also said no BA staff would be made redundant during the coronavirus crisis.

BA has also reached a separate deal with its 4,000 pilots who will take a 50 per cent pay cut over two months.

EasyJet Plc laid off cabin crew for two months, after grounding its entire fleet, while staff at Virgin Atlantic Airways Ltd have signed up for eight-week breaks, extended sabbaticals or voluntary severance.

Lufthansa is talking to European governments about financial support. That may require relaxing EU state-aid rules.

KLM, the Dutch flag-carrier, said it would cut 2,000 jobs in the coming months. Lufthansa has suspended its dividend for 2019. It may sell some aircraft.

Norwegian Air Shuttle, has temporarily laid off half of its 11,000 workers. Scandinavia’s SAS is laying off 10,000 workers, 90 per cent of its workforce.

Budget carrier Ryanair is operating fewer than 20 daily flights, which is 99 per cent less than usual.

Polish national airline LOT is working on a rescue plan and will likely need state aid as air traffic has been suspended because of COVID-19.

Air New Zealand carried just 165 passengers on its 89 flights on Thursday, underpinning its decision to make further cuts to its schedule while the country is in lockdown due to the virus, Chief Revenue Officer Cam Wallace said on Twitter.

Government support

In different parts of the world, governments are promising bailouts to keep the industry afloat.

The government of Bangladesh has also announced incentive package for the affected aviation industry. But its size and nature is not yet known.

Emirates—the largest airline in the world- is to be given a capital injection by the Dubai government, in the aftermath of the coronavirus outbreak.

Dubai’s crown prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum says the government is “committed to providing full support” to the airline during the crisis. As part of this support, it will “inject new capital” into the carrier.

In the United States of America, President Trump signed into law, USD 61 billion in relief for the airline industry. The relief package includes a combination of direct grants and loans for the airlines.

India is planning a rescue package worth as much as USD 1.6 billion for the aviation sector, which has been battered after the coronavirus outbreak forced countries to close borders and brought air travel to a near-halt.

The Finance Ministry is considering a proposal that includes temporary suspension of most taxes levied on the sector, including a deferment of aviation fuel tax.

Chinese airlines can also count on generous government support. Most of the big ones are state-owned (China Eastern and China Southern). Beijing has already promised bail-outs to make up for their losses, estimated to be around USD 3bn in February alone.

Looking ahead

Over the next three months, the International Air Transport Association expects airlines to rack up losses of almost USD 40bn. It said carriers were burning through their cash reserves fast, mainly because of the multi-billion-pound cost of refunding tickets for cancelled flights.

The situation is really grim, very grim indeed. But there are people who are optimistic that there will be a full recovery and that virtually all governments will offer support packages for their aviation sectors.

The world has entered a period of virtually no international passenger flights (a reduction of 95 per cent or more). What we also don’t know is what shape the recovery curve will take once international travel starts to resume. The market may fully recover fast – with pent-up demand perhaps even leading to higher demand than pre-crisis – or the curve could be a gradual incline and take years to reach pre-crisis level.

While hoping for the best, airlines and governments need to be prepared for the worst. That requires building up liquidity and securing government support. This is not about the survival of the fittest airlines but about which governments will follow the likes of the US, India, Dubai and Singapore in supporting their airlines.

Not every airline will survive the pandemic. Europe has already seen one casualty. Flybe, a British airline with underlying financial-health issues, declared bankruptcy on March 5.

In the trade, there is optimism that airline industry will pull through. All that will only happen if the recovery is swift, however. The longer the pandemic lasts, less certain travel patterns are to revert to normal.

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