A most challenging year for aviation
December 30 2020 08:09 PM
American Airlines
American Airlines, Delta Air Lines, and United Airlines cautioned that furloughs will likely continue after March as travel demand isn't expected to pick up by the time the act's provisions expire

By Alex Macheras

 

Alex Macheras
US President Donald Trump has finally signed a long-awaited Covid-19 stimulus package and airlines are among the biggest winners. The US government is making $15bn out of the package's $900bn available to aviation sector companies, so they can bring back furloughed workers and restore air service to cities that lost airlines during the pandemic.
Airline workers were directly referenced by the president in his statement announcing that the bill would be signed after initially calling for Congress to revise its allocations, specifically to increase direct payments to Americans and reduce foreign aid.
Over 32,000 airline workers have been furloughed since March with airlines finding themselves overstaffed as less than one million daily passengers have taken to the skies for most of the pandemic, with the exception of the holidays. By accepting the aid, airlines will be required to bring back furloughed workers and also agree to similar conditions from the March Coronavirus Aid, Relief, and Economic Security Act regarding executive compensation and national air connectivity levels, among others.
American Airlines, Delta Air Lines, and United Airlines welcomed the news, but cautioned that furloughs will likely continue after March as travel demand isn't expected to pick up by the time the act's provisions expire. Globally, the world remains incredibly restricted in terms of air travel, almost on year into this global health emergency.
"The truth is, we just don't see anything in the data that shows a huge difference in bookings over the next few months," United CEO Scott Kirby and President Brett Hart wrote in a letter to employees. "That is why we expect the recall will be temporary."
Southwest Airlines celebrated the news as the aid allows the airline to maintain its 50-year track record of no furloughs or pay cuts for another year.
Now, airlines will apply for the aid, and bring back furloughed workers. Payments from the Treasury to airlines requesting assistance will begin no later than 10 days from last Sunday, the legislation states.
Elsewhere, low-cost airline Ryanair’s often outspoken CEO Michael O’Leary told the Financial Times his airline could benefit from the weaker players of the pandemic by taking on routes and airport slots abandoned by some of his rivals. He also forecast consolidation in the industry, placing more orders for the Boeing MAX jet he predicts will be a “game-changer” for capacity and fuel efficiency.
“We have consistently been planning for a reasonably quick recovery and constantly disappointed,” he told the Financial Times. “What has changed is the vaccines are arriving… The issue for our industry is, is that recovery in May or August? We just don’t know.”
The Boeing 737 MAX took to the skies again in the US this week following a grounding period of almost two years (prompted by two fatal crashes just 5 months apart). The 737 MAX crisis has so far cost Boeing at least $20bn, and the company has suffered immense reputational damage given the high-profile suffering of the MAX, a now ‘household name’ due to the two accidents.
Here in Doha, Qatar Airways Group Chief Executive, HE Akbar al-Baker, reflected on an unprecedented year, explaining: “This year has been unlike any other, with the Covid-19 pandemic impacting people and businesses all around the world. Aviation has been one of the most affected industries, with a unique set of challenges resulting from a more restrictive travel environment and subdued demand.”
“However, at Qatar Airways, we have never shied away from a challenge and I am immensely proud of our response. Firstly, we never stopped flying throughout the pandemic, fulfilling our mission of taking stranded passengers’ home on scheduled and charter flights. We were able to do this thanks to our varied fleet of modern, fuel-efficient aircraft that allows us to respond quickly to market changes, as well as the incredible efforts of our staff.
“Our fleet has also allowed us to rebuild our network from our lowest point in May, when we served 33 destinations, to over 110 destinations today and 129 by the end of March 2021. We have even launched seven new destinations during the pandemic to meet demand so that passengers can travel with an airline they can rely on.”
Al-Baker, like several other airline bosses, is hopeful that vaccine rollouts will bring an end to the pandemic and allow passengers to return to the skies in the capacity we saw just twelve months ago.
Industry revenue is projected to fall more than 65% year over year, and the airlines are missing out on a lot of revenue during the usually high-margin holiday travel season.
Business and international travel, which have historically been more lucrative for airlines, could take until 2024 or later to fully recover in some regions. And even as passenger traffic and revenue return, airlines will have to focus on repairing balance sheets that have been shrouded in crisis since March this year. The industry raised more than $50bn in equity and debt financing in 2020 to survive the pandemic, and it’s going to be a long path to returning to anything we associate as normal.
The International Air Transport Association (IATA) called on governments to add market stimulation measures to the support they are giving to keep aviation financially viable. Such measures would encourage travel while systematic testing protocols enable a safe re-opening of borders.
• Since the onset of the Covid-19 pandemic, governments have helped airlines survive the crisis with approximately $173bn in various forms of financial support.
• More support will be needed in the form of financial stimulus. Many of the support packages are running out, but industry losses continue to mount. Airline losses are now forecast to top $118bn this year and nearly $39bn in 2021. The industry is expected to continue burning through cash at a rate of almost $7bn per month in the first half of 2021.
• Financial support must come in ways that do not further inflate debt which has risen by 51.4% in the crisis to $651bn. To put this into perspective, total industry revenue in 2021 is expected to be $459bn.
“Financially viable airlines will be needed to lead the economic recovery from the depths of the Covid-19 crisis. Government support of $173bn has helped many survive. With potential to safely re-open borders and revive travel with testing, governments will need to add measures that stimulate demand. Such targeted initiatives will help generate revenues, avoid adding debt to airlines, and immediately generate economic activity across the value chain,” said Alexandre de Juniac, IATA’s Director General and CEO.
For airlines, light rays of recovery are beginning to shine far on the horizon, with vaccines being the most significant glimmer of hope, but there’s a long way to go, and I’ll be sure to keep you updated as the journey continues. Best wishes for the New Year.

* The author is an aviation analyst. Twitter handle: @AlexInAir



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