The bulk of airlines make their money in the northern summer season and struggle to be profitable in the winter season. 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).
Public opinion research in the first week of June 2020 also showed greater caution among 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 tally with passenger trends. Overall bookings are down 82% year-on-year compared with June 2019. And long-haul forward bookings for the first week in November 2020 are 59% below normal levels.
Trying to predict revenues will become more difficult too. 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 three days, more than double the 18% in May 2019.
“People are returning to the skies but the horizon of uncertainty of the COVID-19 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 equals survival.”
IATA 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 times.
- Continued financial assistance in ways that do not increase the sharply rising industry debt levels. Some governments are exploring such measures as 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 COVID-19.
“Each day sees more people traveling,” said de Juniac. “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. 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.”