With airlines expected to post a loss of $84.3
billion in 2020, IATA has warned that the industry faces a hard
winter and called on governments around the world to continue
providing relief measures as the COVID19 crisis continues.
The bulk of airlines make their money in the
northern summer season, while the winter season, even in the best
of times, is a struggle to remain profitable.
For example, the
2019 net profit margin for European airlines followed the normal
seasonal pattern and was 9% and 17% respectively in Q2 and Q3
(northern summer). But it started at -1% in Q1 and finished the
year at 2% in Q4 (northern winter). The winter season will be even
more challenging amid the recovery from COVID19.
Public opinion research in the first week of June
2020 showed greater caution amongst travelers in returning to
travel. Only 45% of travelers surveyed intend to return to the
skies within a few months of the pandemic subsiding. A further 36%
said that they would wait six months. That is a significant shift
from April 2020 when 61% said that they would return to travel
within a few months of the pandemic subsiding and 21% responded
that they would wait about six months.
The survey findings are corroborated in key
passenger trends demonstrating continuing market uncertainty:
- 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; and
- 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.
“People are returning to the skies but the horizon
of uncertainty of the COVID19 crisis is extending,” said Alexandre de Juniac, IATA’s Director General and
CEO. “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
IATA has 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
“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
taxation 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 COVID19.
“Each day sees more people traveling. That’s good
for the economy. The numbers are moving in the right direction,
but we are by no means anywhere near normal or sustainable levels
of activity,” said de Juniac. “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.”