Airlines May Not Survive Without State Aid
Tue, April 20, 2021

Airlines May Not Survive Without State Aid

 

The airline industry is a significant contributor to economic development. / Photo by Giovanni Love via Shutterstock

 

The airline industry is a significant contributor to economic development. It has enabled easier and faster movement of passengers and goods and provided jobs to millions of people worldwide. It is one of the most global industries that connect people, businesses, and cultures across continents. The global outbreak of COVID-19, however, is causing havoc to the world’s airlines and airports.

 

Battered aviation industry

Airlines all over the world are forced to cancel their services as demand dries up and countries impose travel restrictions. The bosses of the biggest German airline Lufthansa and British airline EasyJet have, for instance, said that they may not survive without state aid if the COVID-19 pandemic will drag on. Their warnings came a few hours after the flag carrier of Australia Qantas canceled its international flights. India also announced its plan to roll out a rescue package for its battered aviation industry as it cut paychecks and grounded planes due to the pandemic.

Lufthansa’s chief executive Carsten Spohr said via BBC that they have already held talks with the government of Germany about offering special loans. He added that the longer the pandemic lasts, the more likely that the “future of aviation cannot be guaranteed” without help from the government. Spohr’s comment resonates with EasyJet’s Chief Executive Officer Johan Lundgren. He warned that the airline industry may go “bankrupt” without government support.

Lundgren added that if we consider their airline as one of the stable operators during normal times and if the pandemic will go on for an extended period, there’s going to be a failure in the aviation industry. As someone who has been working in the industry for the past 30 years, he said that he has “never seen anything like this.”

As of India’s Finance Ministry, it is planning a proposal of a $1.6bn rescue package for its aviation industry. The proposal includes the temporary suspension of taxes levied on the industry. In Australia, Qantas announced that they will send home about two-thirds of its 30,000 employees. Low-cost airline Jetstar, wholly owned by the Qantas Group, will likewise suspend its overseas flights from late March to at least the end of May.

Qantas chief executive Alan Joyce states that demand for travel has already “evaporated.” The Irish businessman went on to say they no longer have work for most of their workforce and so they have to make “difficult decisions” to ensure the future of the carrier. It was during the September 11 attacks when the aviation industry has encountered a big crisis as the pandemic. If one is not financially healthy into this pandemic, then they are “very vulnerable” today, said Flight International magazine’s Greg Waldron.

 

Airlines all over the world are forced to cancel their services as demand dries up and countries impose travel restrictions. / Photo by nikkytok via Shutterstock

 

Revenue of commercial airlines worldwide

German database company Statista published that worldwide commercial airlines generated US$322 billion in 2003, $379 billion in 2004, $413 billion in 2005, $465 billion in 2006, $510 billion in 2007, $570 billion in 2008, $479 billion in 2009, $564 billion in 2010, $642 billion in 2011, $706 billion in 2012, $720 billion in 2013, $767 billion in 2014, $721 billion in 2015, $709 billion in 2016, $755 billion in 2017, $812 billion in 2018, and $838 billion in 2019.

In 2018, American Airlines was the most profitable airline group in the world, generating $44.54 billion of revenue. Headquartered in Forth Worth Texas, American Airlines is the largest airline in the world as well. It reported a total of $37.5 billion income from its passenger travel segment and $3.22 billion from its loyalty travel segment.

The economic impact of the pandemic in the airline industry is most keenly felt in the Asia-Pacific market. The International Civil Aviation Organization (ICAO) revealed that there are around 70 airlines that have canceled their operations in all international flights to and from mainland China as of February 13 and 50 more airlines have limited their operations. The reason why the Asia-Pacific region is most hit is that China, where the outbreak began, contributed to about 60% of the traffic increase in 2019 but the same country was not able to fuel the growth in 2020. Airport growth and revenue generation are directly connected to traffic levels. Therefore, it is expected to see a decline in significant parts of airports in some affected markets.

Singapore Airlines (SIA) also said that it will be cutting 90% of the capacity scheduled up to the end of April after worldwide border controls were tightened. This move will result in the grounding of about 138 SilkAir and SIA aircraft from around the world out of their total 147 fleets amid the challenge that the group is facing since its existence. SIA added that when the international markets ban air travel and restrict the free movement of people, it is “more vulnerable” as an airline because it does not have a domestic segment like other airlines. It likewise announced that they are not yet sure when the SIA Group will start to resume their normal services again because of the uncertainty of when the border controls will again be lifted.

 

 

Ripple effect outside Asia

Aviation experts have also previously warned that the financial concerns that are experienced in the Asia-Pacific region may have the “ripple effect” outside Asia. ICAO also said in a statement that the impacts of the pandemic are expected to be greater compared to the 2003 SARS epidemic, considering the extent of global flight cancellations. It considered the load factors of the seasonal passenger.

In Italy, a decrease of approximately 4.7 million international tourist arrivals is expected this year because of the pandemic. Based on Statista’s estimate, the region of Veneto will have the highest drop of tourist arrivals with a decrease of 970,941 tourist arrivals. Other regions of destinations in Italy included are Umbria ( decrease of 65,553), Tuscany (-695,043), Trentino-South Tyrol (-458,423), Sicily (-157,785), Sardinia (-105,992), Piedmont (-128,006), Marche (-19,088), Lombardy (-673,079), Liguria (-155,419), Lazio (-672,820), Friuli-Venezia Giulia (-45,359), Emilia-Romagna (-246,145), Campania (-224,764), Calabria (-18,470), Basilicata (-10,474), Apulia (-58,821), Aosta Valley (-32,256), Abruzzo (-10,242).

As airlines may continue to suffer from the decrease in travel demand, so will other businesses that rely on airports and airlines for profit. May relief measures be provided to these airlines to help them survive during this difficult period.