May 6, 2021

Zambia Business Times

Your Financial News

Airlines Remain In Turbulence Zone

8 min read

Last February the supplement business in El Pais devoted its cover to the outlook for the airline industry. The article analyzed the good financial health of the airlines although it warned of the risks due to environmental pressure and the threat of low cost.

The forecasts were, however, very favorable: travelers grew, the capacity offered by companies and profits were expected for the whole of 2020 of more than 25,000 million euros. The coronavirus has turned all these forecasts into wrapping paper.

The pandemic has been a catastrophe for the sector only comparable to a world war. Its consequences, even today, for this industry remain unpredictable. So much so, that if it had been writtenA review of the article at the beginning of last summer when countries lifted the state of alarm and the lockdowns, would also have been useless because the second wave of the pandemic has put an end to the hope of a rapid recovery, and until at least 2024 it will not prepandemic activity will be resumed.

The airline sector will lose 118,500 million dollars (99,000 million euros) this year and 38,700 million dollars (32,000 million euros) in 2021. It will not be until the last quarter of next year when it will begin to see the light and return to profitability , according to the latest forecasts offered by the International Air Transport Association (IATA), in the report presented at the annual meeting held at the end of last November.

But even these forecasts are on the wire, according to the association that groups most of the world’s airlines, depending on factors such as the reopening of borders or the distribution of vaccines.

“The crisis has been devastating and unforgiving. In it the airlines have cut their costs by 45.8%, but revenues have fallen by 60.9%, and as a result the companies will lose 66 dollars (55 euros) for each passenger transported this year ”, says the CEO of IATA, Alexandre de Juniac, who ends with a lapidary phrase: “The history books will remember 2020 as the worst financial year for the sector”.

IATA Chief Economist Brian Pearce points out in the same vein: “The industry has suffered the biggest blow since World War II, with a catastrophic drop in demand, much greater than in previous crises such as the financial crisis of 2008 or the one caused by the terrorist attacks of September 11, 2001 in New York ”.

At the beginning of 2020, when the pandemic was a distant echo that came from China, the sector expected to grow 3.4% in the year. Nobody could think then, that just three months later that insignificant notice translated into some cancellations of Chinese airlines would become the worst nightmare in the history of the aeronautical industry, with more than 90% of the world’s fleets on the ground.

In 2020, airlines will reduce their revenues by 61%, from € 706 billion in 2019 to € 276 billion this year. Not even the cost cut in half (55%) that they have undertaken to solve the crisis allows them to survive, because they must face a 60.5% year-on-year drop in passenger traffic, to 1.8 billion in 2020, returning to the figures from 17 years ago.

The consequences of that stop in the skies are not only suffered by companies. Also your employees. The layoffs are estimated to affect 40% of the workforce or 46 million skilled workers in the aviation-related travel and tourism sector. That will eliminate around 1.5 trillion euros from world GDP, in which this industry has a global weight of 10%. .

Without the intervention of the state bailouts “large-scale bankruptcies would have occurred.” So far in the crisis, airlines have received state aid totaling 173,000 million dollars (145,000 million euros),in the form of capital injections, preferential loans and tax deductions. \

Consequently, airline debt has skyrocketed to $ 651 billion (€ 550 billion), increasing pressure in a sector where on average each airline has the cash to survive for just eight and a half months. In the second quarter of the year alone, when fleets around the world were grounded, the sector burned $ 50 billion of cash.

The CEO of Ryanair, Michael O’Leary, predicts the disappearance of the airlines with the most treasury problems, in particular the low cost ones, and a judicial front in the EU for what he understands as illegal state aid. Norwegian’s case, bordering on bankruptcy, may be the first warning.

Airports, the other side of the equation, fare even worse. Unlike airlines that ground planes, they cannot make up for the drop in revenue because as essential facilities they must remain open. Their latest estimates are that they will lose 4.6 billion passengers in 2020 and their revenue will decline by 81 billion euros, according to the Airports Council International (ACI).

Only airports in Europe are currently burning cash 350 million euros each week, although in the second quarter they were doing so at a rate of 600 million euros. The top 20 European aerodromes have so far reduced operating expenses by € 3 billion (-22%) and investments, crucial for the future, by € 2.6 billion (-37%).

Against this background, the general director of ACI Europe, Olivier Jankovec, believes that it is urgent that the States provide aid for the survival of the facilities, but warns that, after the pandemic, the new normal will lead to a complete reorganization of the sector, in which cooperation between airlines and airports will be required.

“Airports will face renewed competitive pressures as ultra-low-cost airlines will emerge as structural winners. There are more than 750 commercial airports in Europe competing for traffic, but only a dozen airlines are actively shaping the air transport market.

For too long, airlines have viewed airports as infrastructure that should be provided free of charge. But we have to be in this together.

On the manufacturers’ side, Airbus and Boeing also suffer, as commercial airlines have postponed aircraft receptions: only 800 new aircraft have arrived in 2020, roughly half the expected number.

The world fleet has been reduced by 5,200 aircraft to 24,500, and the average size of the aircraft is also decreasing as companies initially focus on short and medium haul trips, so capacity has been reduced to 3, 4 million seats available, 23% less than in 2019.

Airbus, with record losses of 2,686 million euros up to September, aims to reduce its total workforce by around 17,000 jobs (about 13%). Its rival Boeing lost 2.9 billion euros, and will cut 30,000 jobs.

If there is a unambiguous message from all the players in the sector and on which much of the hopes for its recovery are based, it is the safety of air transport against the coronavirus: traveling by plane is the safest method. And for this they wield several studies.

One carried out by IATA and the aeronautical manufacturers Airbus, Boeing and Embraer last October concluded that it is almost impossible to get coronavirus on a flight due to the ventilation systems that the devices carry.

The report highlights that 44 cases of Covid-19 have been reported since the beginning of 2020 in which transmission is believed to have been associated with a flight (including confirmed, probable and potential cases).

Since some 1.2 billion passengers have traveled during the same period, the risk of contracting the disease is one case for every 27 million travelers. That is to say that, always according to this research, there is twice the probability that a player hits the primitive lottery by playing a single bet (one in 13.9 million) than of catching coronavirus on an airplane.

Another study by the United States Department of Defense, which after six months of research on Boeing 767-300 and 777-200 aircraft, concludes that a passenger would have to fly 54 hours with a covid-19 patient to become infected on an airplane.

Similarly, the study by the consulting firm Oxera confirmed that of the weekly volumes of 409,800 passengers from the EU to the United Kingdom, only 0.01% of air travelers were expected to be infectious and transmit covid-19, which is the equivalent to one contagious person for every 10,000 travelers.

McMaster HealthLabs in Canada has also released its interim report on its study of COVID-19 in arriving international passengers, which again supports the figure that 99% of passengers were negative.

“Since we resumed air travel we have insisted a lot that the plane is a safe means of transport because it has a series of unique characteristics, added to the use of masks and other measures promoted by the airlines.

These investigations confirm, based on scientific evidence, what we have been affirming, that the risk of contagion on board an airplane is minimal “, recalls Javier Gándara, president of the Airline Association (ALA), which brings together about 80 airlines that They operate in Spain.

For this reason, all associations ask governments and supranational authorities such as the EU for a single protocol based on rapid tests such as antigens with which to establish safe and covid-19-free air corridors such as the one developed by the Agency for European Union Aviation Safety (EASA) and the European Center for Disease Prevention and Control (ECDC). It’s about lifting the restrictions

“Test technologies are evolving rapidly and we are ready to work with EASA, ECDC and national governments to implement the most efficient and effective methods to get Europe moving again,” says Montserrat Barriga, Director General of the Airline Association of the European Regions (ERA).

“Rapid tests for passengers to detect COVID-19 open the door to restart air travel by removing the quarantine. And the public agrees: around 65% of surveyed travelers suggest that the quarantine should not apply to passengers who tested negative, ”says Rafael Schvartzman, IATA Regional Vice President for Europe.

To date, 102 airports in Europe, accounting for 47% of passenger traffic on the continent, have built test facilities under the supervision of their competent aviation and health authorities. It is about proposing “covid-19-free flights” and quarantine-free air corridors on certain air routes, but the desire to resume traffic collides with the measures of new confinements such as the one decreed by the United Kingdom after Christmas.

“Rapid tests using the latest available technologies and meeting the detection and sensitivity criteria set out by the ECDC can help restore predictability, rekindle passenger confidence, and therefore restore air connectivity for European passengers. ”Says Thomas Reynaert, CEO of Airlines for Europe (A4E).

Europe’s aviation associations urge European states to work together bilaterally to replicate these initiatives and develop more air corridors without quarantine.

But the fragility of the sector and its dependence on the evolution of the pandemic has been revealed by episodes such as the ban on flights to the United Kingdom due to the new strain of the virus or restrictions on travel from Germany. Mass vaccination appears on the horizon as great hope for the skies to fill planes again.

“The impact of vaccines will begin to be seen in traffic throughout the second quarter. The crisis is deeper and more lasting ”, assures Manuel Huertas, president of Airbus Operations in Spain.

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