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Challenges For Airlines Under COVID-19

June 30, 2020

“It’s a new dawn, it’s a new day, it’s a new life”. These lyrics from the 1964 Feeling Good song seem highly relevant to the COVID-19 pandemic, which is forcing us to define a new normal. This is especially true for the global aviation sector, which was one of the industries hardest-hit by travel restrictions and lack of consumer confidence.

 

A huge plunge that will be worse than what the industry experienced after the 9/11 attacks in the US

While aviation historically supported 65.5M jobs worldwide, 3.6% of the world’s GDP (the equivalent of a country ranked 20th in size by GDP which is similar to Argentina or Switzerland)[1], passenger demand plummeted by almost 100% in Europe and USA year over year at the end of April 2020 as illustrated by the International Air Transport Association (“IATA”) report published on May 5, 2020.

Looking ahead, even when travel restrictions and lockdowns are lifted, consumer demand for air travel is expected to remain limited as almost 30% of respondents to a survey conducted by IATA last April indicated that they would wait six months to travel by air again, and 10% of the respondents were not expecting to travel for a year.

Airlines, face daily challenges, with almost 55% of global fleets currently grounded as of the end of April 2020, while 4.5 billion passengers were carried by airlines in 2019 and 4.7 billion were initially expected for 2020.

Nothing could prepare airlines for a close to 100% drop in passengers. And, according to two surveys released by IATA and Oxford Economics on March 26, 2020 and April 15, 2020, respectively, the industry should expect a prolonged decrease in flying. Consequently, IATA projects a potential revenue loss of $76 billion for European carriers and a 46% decrease in passenger demand this year as compared to 2019. A decline of this magnitude puts at risk about 5.6 million jobs and $378 billion in GDP. On the US side, Oxford Economics modeled a $519 billion decline in travel spending this year (out of which $97 billion are directly related to air transportation), which will result in a total economic loss of $1.2 trillion, 8 million travel industry jobs lost and a cumulative GDP impact of -$651 billion. This represents about 45% of the travel industry’s economic value last year in the US.

Almost all airlines are currently struggling with cash issues, racking up billions in debt to get through this situation, burning cash ($70 million a day for American Airlines and $30 million a day for Southwest at the end of April 2020), and already filing for bankruptcy, as Avianca on May 11, 2020. Airlines and stakeholders (governments, professional organizations, airports, travel retailers, operators) are trying to restore air connectivity as soon as possible. And, just as the 9/11 events led to new security regulations to ensure passenger safety, responding to the COVID-19 pandemic will lead to new hygiene safety standards for passengers, crews, airlines and all related operators. This challenge won’t be easy and will increase costs for both airlines and customers.

New hygiene standards post-COVID-19 to reduce the risk of onboard transmission

After travel restrictions and lockdowns are lifted, one of the key challenges for airlines will be to restore confidence and to remind travelers that flying is still the safest mode of transportation. IATA’s report from May 5, 2020, based on a survey of 18 major airlines representing 14% of global traffic, highlighted the fact that risk of transmission is low on-board aircraft. Indeed, for the period of January through March 2020, only three instances of suspected passenger to crew transmission were noted, four instances of pilot to pilot transmission, and none of passenger to passenger.

Airlines have already set up new post-pandemic standards, capitalizing on their previous experience with SARS to limit risk. Measures include: face coverage, deep sanitizing, social distancing, screening (temperature checks), limiting movement within the cabin during flight, simplified catering procedures that lower crew movement and interaction with passengers, and boarding and deplaning processes that reduce contact with other passengers.

These measures will require significant coordination between airport authorities, the TSA, airlines, and governments. In addition, each of us as potential passengers will have a role to play, and responsibility for, minimizing close contact and avoiding traveling while unwell (for example, airports currently don’t have the authority to force a passenger to go home if they have a temperature or to force them to wear a mask). Implementing social distancing and screening at the airport before boarding will cause longer lines and more time at the airport for passengers. This appears to be acceptable based on the poll taken in May 2020 by Aviation Week. Indeed, 48% of respondents declared themselves ready to accept 30-60 extra minutes before boarding, and 38% considered an extra 15-30 minutes acceptable.

All these measures will have a financial impact on airlines

Enhanced cleaning procedures will also significantly increase the turnaround time of an aircraft. Time is literally money in this industry, especially for low cost carriers, such as Ryanair, which had reduced its turnaround time to as little as 25 minutes for a short-haul flight. As such, airline profitability will be impacted as, in the meantime, these companies are engaged in massive price dumping to support the demand.

Similarly, restricting the use of the middle seat to create social distancing as was earlier suggested by the European Commission would raise costs by around 50% just to break even, due to a maximum load factor decrease to 62%, with average industry breakeven at 77%.

Ryanair, with last year’s highest loading factor in the industry (96%), immediately pushed back on this measure. Other major airlines in the US (with 84.6% average loading factor in 2019) and in Europe (with 81.7% average loading factor) also decided to not implement this measure.

IATA also criticized the seating reduction, as most authorities recommend three to six feet of social distancing, it could not be effective on an airplane as average seat width is less than 1.6 feet. Moreover, seats provide a barrier to air/disease transmission forward to aft in the cabin and air flow from ceiling to floor goes through high efficiency particulate air (HEPA) filters, reducing transmission.

This list of challenges is not exhaustive – additional costs will probably appear along with the implementation of new contactless technology for screening, baggage claims and similar. It will probably take up to five years for the industry to recover, but hopefully soon birds will fly high again as in the song. Be optimistic – the sky’s the limit!

 

[1] Source: Air Transport Action Group last available report published in October 2018




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