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Airlines and airports seek support

Posted 17 March 2020 · Add Comment

As a result of travel restrictions due to the COVID-19 coronavirus outbreak, Europe's airlines and airports are seeking support from governments in the resulting downturn in traffic to help ameliorate the damaging economic implications for commercial aviation, as well as calling on regulators to provide clarity and guidance for cargo flights.


Courtesy Heathrow Airport


Commenting on the latest travel advice issued by the UK Government advising against all but essential overseas travel, Tim Alderslade, Chief Executive of Airlines UK, the industry body representing UK-registered airlines, said: “International passenger aviation from both the EU and UK has in effect been suspended until further notice.

"The decision is of no surprise given recent developments but clearly it will bring yet more devastation to the airline and wider travel industries, which were already reeling from the unprecedented impacts of this crisis and now face yet more uncertainty with demand set to plummet still further and with no end in sight for the foreseeable future.”

In a letter today to EU transport ministers and the EU commission, Jost Lammers, President of the Airports Council International (ACI) Europe, wrote ahead of tomorrow's  extraordinary meeting of EU transport ministers: 'The COVID-19 pandemic is impacting European airports in a dramatic way, with their situation deteriorating by the day. The absolute priority for them remains the protection of passengers and staff along with cooperation with public health authorities and industry partners. 

Preliminary figures show that passenger traffic at EU/EEA/Swiss and UK airports decreased on average by -54% last week (9th to 15th March), down from -24% the preceding week. We now estimate that these airports will collectively lose over 100 million passengers in the first Quarter of this year, compared to a business as usual scenario.

However, the situation keeps worsening. As more countries both in the EU and beyond are adopting travel & flight bans, the proposal for a ban on entry into the Schengen area and with most European countries likely to go into lock-downs similar to Italy, airlines are further accelerating drastic capacity cuts and route cancellations to limit their financial exposure. Some are even shutting down all operations.

This means that Europe’s airports are now bracing for a near total collapse of their traffic, connectivity and revenues. Indeed, the dramatic state of Italian airports gives an indication of what lies ahead for airports across the continent. Over the past days, passenger traffic at Italian airports went into a free-fall, decreasing by more than -90%.

For airports, falling passenger traffic immediately translates into lost aeronautical and non-aeronautical revenues which they rely upon to operate, maintain and develop their facilities. For now, ACI EUROPE’s revised forecast shows Europe’s airports losing €2 billion in revenue just in the first Quarter of the year (before even factoring in the ban on entry into the Schengen area). These losses will further deepen in the coming months.  

All European airports are currently rushing through extensive cost containment measures including unpaid leave for staff, temporary layoffs, corporate travel restrictions, ending consultancy and external contracts, closure of terminals where technically possible, reduction and suspension of investments.

Despite this, airports’ ability to mitigate revenue losses tend to be limited compared to other businesses given that:

-    Their cost base remains largely unchanged, as 80% of airports’ operational costs are fixed. Airports cannot relocate their assets to other markets, and they need to maintain most of their facilities open at all times – as they operate critical infrastructure.

-    Airports must keep servicing their debt – with capital costs typically accounting for 30% of their total costs.

The unprecedented shock to their traffic and revenues means that several airports are facing cash flow issues – and that an increasing number of them will face such issues in the coming weeks if the situation continues.

These cash flow problems risk becoming systemic for Europe’s airports and raise issues of business continuity, which must be addressed by the EU.

On that basis, the European airport industry urgently calls on the European Commission and EU/EEA States and Switzerland to adopt supportive measures targeted at:

i) Safeguarding airports’ operational & business continuity over the coming weeks and months by providing extraordinary and urgent funding and cash flow resources  where needed – not least to ensure those air services deemed essential under the current circumstances. This funding needs to be available under similar conditions as those that will be considered for airlines. 

ii) Preserving airports’ economic and financial resilience so as to allow airports to return to normal operations as soon as possible and support the recovery of the wider economy. Airports act as engine of local and regional economic growth and employment. Many of them are indeed the largest employment site in their region and/or country. This means that their own standing and capabilities directly support that of their communities. In this regards, it is essential for them to preserve their longterm strategic investment – including those relating to decarbonisation efforts.'

Commenting on the impact of the COVID-19 pandemic on UK airports, Chief Executive of the Airport Operators Association Karen Dee said: “Governments across the world are supporting their national aviation industries, as many parts of the global travel industry have come to a halt. As some airlines call on the UK Government to act similarly, we are clear that airports will shut down in weeks unless urgent action is taken to support the industry.
 
“The UK’s airports are critical national infrastructure, fulfilling a vital public service, and are on the frontline of the COVID-19 outbreak. It is essential that airport businesses remain operating and are able to weather this storm, so that they can provide the connectivity which drives growth, employment and prosperity after the crisis has abated.
 
“With travel bans proliferating and passengers being unwilling to fly, traffic through airports has plummeted. UK airports are taking immediate and drastic action to cut costs and are scaling back investments in light of the situation. Due to the fixed costs of operating airports, the Government will need to provide additional support.

“The Government must step in to see airports across the four home nations through the current crisis, and make an unequivocal commitment to doing whatever it takes to sustain the UK aviation industry.

“As part of this, the Government should also immediately:
•    Be prepared to provide/organise emergency financing as a measure of last resort.
•    Require banks to temporarily not enforce financial performance-based banking covenants.
•    Suspend business rates and other government and local government rates and taxes on airports.
•    Deferral of payments of all VAT, corporation tax and other taxes for the duration of global flight restrictions.
•    Share the employment cost of airport staff laid off throughout the crisis.
•    Suspend regulatory costs on airports where possible.
•    Indefinitely postpone major increases to those regulatory costs, such as the Next Generation Security Checkpoint.
•    Provide relief from airport policing costs.
 
“For the sake of the UK economy it is essential for the UK Government to catch-up to its peers across the continent and provide support to the sector and the wider economy through financing, guarantees, grants and tax relief.
 
“Finally, to help kickstart aviation again once the pandemic is retreating, the (UK) Government should suspend Air Passenger Duty for six months.”

Charlie Cornish, CEO of Manchester Airports Group (MAG), which owns and operates Manchester, London Stansted and East Midlands Airports, said: “The COVID-19 outbreak has led to a rapid and unprecedented reduction in demand for air travel in and out of the UK and MAG airports are seeing much lower passenger numbers as a result.

“We expect demand to return as the COVID-19 peak passes but this temporary and dramatic downturn requires us to act now to protect our position at this critical time.

“Over the next few days we will be consulting with our colleagues and unions and introducing measures to reduce our costs and preserve the Group’s resources at this critical time.

“These will include enforced annual leave, reduced working hours, temporary pay cuts and temporary lay-offs. Our Executive team is taking a pay cut with immediate effect and we have frozen recruitment and paused capital expenditure.

“These are difficult decisions for MAG and they have not been taken lightly. We recognise the impact they will have on our people and we will be consulting with our colleagues. Our aim will always be to protect jobs wherever possible, and we need to take these steps now to ensure the company’s future. 

“It is too early to predict with any accuracy the long-term effects of this crisis. We are seeing many of our airlines and supply chain partners make similar announcements and we are doing what we need to do in the face of an unpredictable and fast-moving situation.

“Over the past decades, the aviation industry has been one of this country’s success stories. We provide vital services to the economy and to regions dependent on air connectivity. Aviation is also essential to some of our most important industries and in forging trading relationships.

“I am in no doubt that this outbreak is the greatest threat the UK’s travel sector has ever faced. Government needs to take decisive action now to make clear its total and unwavering support for airports, airlines and other travel companies.

“The UK depends on air travel to supports its economy. The Government must stand behind the aviation industry to make sure it is still there and ready to help the economy recover once this is all over. 

“We will continue to monitor the situation and make further announcements on MAG’s operations as the COVID-19 situation develops.”


Courtesy MAG


In a statement released today, Heathrow said: 'The impact of Coronavirus is a significant challenge for the global aviation industry including Heathrow and our colleagues, airlines, suppliers and fellow airports. We are taking immediate steps to safeguard the financial resilience of our business including the protection of jobs, whilst providing relief to our airline partners and wider industry colleagues. This is a quickly evolving situation and we stand ready to take any further and necessary measures to support our colleagues and industry partners as this situation develops.'

Heathrow outlined immediate steps to safeguard the financial resilience of its business that include:

  • Pushing for the slot coordinator to suspend the 80:20 slot rules up until May to enable airlines to ground aircraft without being penalised 
  • Waiving aircraft parking fees which will allow airlines to hold grounded aircraft at Heathrow free of charge 
  • Cancelling executive pay and freezing recruitment over the coming months 
  • Maintaining a commitment to the 30 day prompt payment code with Heathrow's direct supply chain 
  • Encouraging the airport’s direct supply chain to also maintain their payment terms – an important measure to protect small businesses

The threat to jobs is a key concern and the UK's union for aviation workers, GMB, said the Government must step in after British Airways issued an HR1 consultation notice for redundancies without specifying the number of jobs at risk and that any Government bailout must come with guarantees from aviation employers that jobs and pay will be protected.

Nadine Houghton, GMB National Officer said: “British Airways appear to be putting all staff on notice of redundancy.

“That’s 30,000 people whose livelihoods are at immediate risk as a result of this global pandemic - with tens of thousands more supply chains and wider economy jobs in danger.

“It’s clear the Government must step in to save this crucial plank of the UK economy. Any state intervention must come with a rock solid commitment to save the jobs and pay all British Airways workers.

“We will need skilled aviation workers to reinvigorate the industry when we come out of this crisis.”

Meanwhile, the European Regions Airline Association (ERA) has been urging regulators to issue clarification and guidance for cargo flights, exempting crew from the restrictions placed on commercial aviation during these exceptional circumstances of COVID-19, as cargo flights must continue to fly to protect Europe’s supply chain.

As border closures in Europe continue to be announced in light of the COVID-19 crisis, severe capacity constraints are being seen within the aviation industry. However, legislation, directives and guidance aimed at air passenger operations and the protection of air passengers on commercial flights, does not specifically exempt cargo flights and cargo flight crews.

Whilst efforts to prevent the spread of the virus are essential, currently many European citizens are panic buying – a huge problem for societal separation as people fear the supply chain will shut down. Therefore, efforts must be made to keep the economy moving, to reduce, if at all possible, the enormous impact that COVID-19 is having and will have in the weeks and months ahead.

At this moment in time some states require that when a cargo flight returns to a country following minimal ground time as part of the turnaround process in a high-risk area, even if the crew do not leave the aircraft, effectively never leaving the territory of the aircraft registration and never entering the country in which they landed, they will now be subject to 14 days of mandatory isolation. If this is to continue, airlines will quickly run out of flight crew to continue operations.

Cargo airlines are doing everything possible to keep supply chains open, including to countries in full or partial lockdown. The airlines though are facing significant problems with different attitudes and interpretations of directives and guidance by individual member states and National Supervisory Authorities.

Andrew Kelly, ERA President, said: “This is a public health crisis and lives, health and safety must come first. Maintaining the cargo network will support the fight against COVID-19 and will significantly dilute the huge economic impact that we are all facing. It is absolutely vital that the economic supply chain continues throughout this crisis and this means that cargo aircraft, ships and trucks must be able to operate, with special precautions to protect crews and the general public.

"Action is required from the European Commission, EASA and national governments to ensure exemption for cargo flights and flight crews from restrictions that have been introduced solely to protect commercial air passengers."

 

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