As Covid-19 continues to cripple aviation, airlines have been looking for ways to mitigate the impact the fatal virus has had on passenger demand. Commercial flights have declined by 55% during the final week of March 2020 compared to that of 2019. Some airlines have grounded the majority of their fleet, cut unnecessary routes and have made a proportion of their workforce redundant. In what should be a lucrative time for aviation given that summer is fast approaching, airlines are struggling to make ends meet due to the rising costs and low profit margins. In order to reduce the financial woes caused by Covid-19 airlines and regulators must work together.
Regulators Defer Payments:
The European Union recently approved a strategy devised by France to alleviate airlines’ cash flow problems caused by Covid-19. After verifying that it abides by regulation, specifically, “compensate...specific companies or industries for damage directly caused by exceptional occurrences,” the strategy was in motion. Normally such plans like the one above are prohibited as it borders upon the use of providing state aid, but since Covid-19 is classed as an ‘exceptional occurrence’ permission was granted. The plan involves deferring aeronautical taxes that should be paid through March and December this year, to allow airlines to pay the fees next year, over a 24 month period. The scheme is open to airlines that have an operating license in France.
Securing Extra Funding:
Singapore Airlines, a carrier that houses the second largest fleet of Airbus A380s stated that it had grounded over 90% of its fleet, an indicator that its future was looking far from certain. This was further compounded by a statement from the airline group which read, “It is unclear when the SIA Group can begin to resume normal services.” However, days after this statement, it was announced that the airline had secured $13 billion in funding, any uncertainty the airline had before was now certainly extinguished. Not only will this cash injection solve the carriers short term cash flow difficulties amidst the pandemic, but it will also put the airline in prime position afterwards. Securing this level of funding during such tough times is nothing short of a miracle, but proves that lenders believe the demand for air travel will return. Furthermore it acts as an incentive for other lenders, who want to remain as close to the competition as possible so will be more open to lending funds to their associated airlines.
Many commercial airlines have decided to offset the high costs associated with low passenger demand by using their grounded aircraft for cargo operations. American Airlines have opted for this change by ferrying much needed supplies to countries hit the hardest by Covid-19. Not only are they fulfilling their fiduciary responsibility but they are also generating revenue. Any revenue during these dire times is essential. The WSJ report highlights that, “Freight rates have increased significantly from Europe to China and Hong Kong.” If airlines can take advantage of this it represents a new revenue stream, which could prove to be vital. With the majority of businesses closing and social distancing in practice worldwide, supplies on a global scale have never been more crucial. If airlines can utilise their aircrafts to transport cargo it may help relieve some of the burden Covid-19 has had on aviation.
Without continued support from governments, regulators and lenders it may be difficult for airlines to adapt during these troublesome times. It must take a collective effort from all those involved to ensure that airlines stay afloat and don't face the fate seen with carriers such as Flybe. Adaptation is key to survival in any environment and it's important to remember that the darkness airlines currently face is only temporary. As Darwin famously said, “It’s not the fittest that survive, but those who can most adapt to change.”
Smith, J. (2020) ‘Passenger Airlines Start Shifting Idled Planes Into Freight Business’, WSJ, p. 1. Available at: https://www.wsj.com/articles/passenger-airlines-start-shifting-idled-planes-into-freight-business-11584737793.
Ash, L. (2020) ‘Singapore Airlines Finds $13 Billion In Funding’, Simple Flying, p. 1. Available at: https://simpleflying.com/singapore-airlines-13-billion/.
Boris, J. (2020) ‘EU Clears France To Defer Airline Tax Payments Amid Virus’, p. 1. Available at: https://www.law360.com/transportation/articles/1258834/eu-clears-france-to-defer-airline-tax-payments-amid-virus-.
Petchenik, I. (2020) ‘CHARTING THE DECLINE IN AIR TRAFFIC CAUSED BY COVID-19’, p. 1. Available at: https://www.flightradar24.com/blog/charting-the-decline-in-air-traffic-caused-by-covid-19/.