Grounded, airlines have no more cash to burn
April 29 2020 05:23 PM
Grounded aircraft operated by Virgin Australia Holdings stand on the tarmac at Sydney Airport.
Grounded aircraft operated by Virgin Australia Holdings stand on the tarmac at Sydney Airport.

Travel restrictions and confidence effects, compounded by a coronavirus-induced global recession have taken a huge toll on the global airline industry, which is estimated to lose up to $314bn in 2020.

The first large impact of Covid-19 on air transport is now visible on nearly 14,000 aircraft grounded and parked in airports around the world.

The revised IATA data for February shows that more than a thousand aircraft were parked that month, dwarfing the 737 Max grounding in 2019.

In March, airlines grounded 12,400 additional aircraft, with slightly more than half of the global fleet being in storage at the end of the month.

Deliveries also slowed to a trickle in March, as many orders were cancelled or delayed, according to IATA.

The global spread of coronavirus has had a widespread and devastating impact on the wider aviation industry.

As the Covid-19 pandemic progressed further in March, air transport came to a halt in most regions of the world and struggled to restart in markets affected earlier.

In consequence, seat capacity evaporated and plunged 53% month-on-month (55% year-on-year) in March, down from a revised 4.6% fall in February.

The industry-wide passenger load factor (PLF) declined to 75.9%, as demand fell faster than capacity in February. This outcome was mostly driven by carriers in Asia Pacific (-15.1ppts) and Europe to a lesser extent (-3.9ppts).

In seasonally adjusted terms, the PLF fell from 82.3% to 78.8% in February, since the flights that had not been cancelled often saw reduced passenger demand and empty seats.

In contrast, the industry-wide cargo load factor (CLF) lifted by 1.5ppts year-on-year, driven by the increase for Asia Pacific carriers (8.6ppts).

Load factors also rose in Latin America and Africa. In seasonally-adjusted terms, the surge in the CLF observed in January was partly unwound in February.

Industry analysts have warned global airlines may not survive a record cash squeeze in the second quarter, as revenues and traffic plunge because of the coronavirus crisis.

“The industry is in its biggest crisis ever—suffering even more than most other economic sectors. We were shut down by unilateral actions of governments. But the restart will require governments to work together. We need a strong International Civil Aviation Organisation -ICAO now more than ever,” points out IATA director general and CEO Alexandre de Juniac.

“In recent weeks we have heard that some states are finding it difficult to meet their funding commitments to ICAO. We understand that the demand on state resources is great. But I encourage them to prioritise keeping ICAO strong. At least 25mn jobs that depend on aviation—directly or indirectly—are at risk in this crisis. An orderly restart for aviation needs coordination that only ICAO can provide. This will be critical for the economic recovery from the Covid-19 crisis.”

On top of unavoidable costs, airlines are now faced with refunding “sold but unused” tickets as a result of massive cancellations resulting from government-imposed restrictions on travel.

Airlines have raised concerns that measures to slow the spread of the pandemic could blight profitability long after travel restrictions end.

On the other hand, the industry is now debating about conditions for a resumption of air travel as it is vital for restarting the global economy.

Next month, the European Commission will present a set of rules for the safe reopening of air travel when coronavirus pandemic lockdowns end, including social distancing in airports and planes.

EU Transport Commissioner Adina Valean said that some social distancing rules in airports and planes will have to be respected to guarantee the safety of passengers, adding that measures under consideration would include the wearing of face masks and disinfection of planes and airports.

“All this should be part of those guidelines and probably by mid-May we can put forward this strategy we are working on,” Valean said recently.

Valean said she expects social distancing requirements to remain in place for as long as there is no Covid-19 treatment or vaccine.

IATA chief de Juniac told Reuters recently that conditions for a resumption of air travel are likely to include a requirement to leave the middle seat vacant on flights.

Such a measure could also help to head off a potential price war as airlines try to recoup market share as they emerge from the crisis.

Travel and tourism are essentially shut down in an extraordinary and unprecedented situation created by the Covid-19 pandemic.

Due to continual groundings and uncertainty, airlines experience financial crunch and need urgent bail out or some forms of funding relief.

Governments must step in immediately to help cash-strapped airlines because they need working capital to sustain their businesses through extreme volatility.

Aircraft wheels may be down now, but they will keep their wings up, once we all get ready to sit, buckle up, and fly.

*Pratap John is Business Editor at Gulf Times. Twitter handle: @PratapJohn.

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