Fasten seatbelts: Global airlines face unprecedented turbulence

Passengers facing cancelled flights and lockdowns are having trouble receiving refunds as airlines burn through cash.

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    Although airlines have cancelled flights due to the coronavirus, the prospects of them offering customers refunds for booked tickets are dimming due to their financial woes [File: Nick Oxford/Reuters]
    Although airlines have cancelled flights due to the coronavirus, the prospects of them offering customers refunds for booked tickets are dimming due to their financial woes [File: Nick Oxford/Reuters]

    Kuala Lumpur, Malaysia - Yeow Pooi Ling and her husband were looking forward to visiting family in Finland in May - a cooler respite from the year-round heat of Malaysia, and a trip that they had booked months ago. But the coronavirus pandemic has left them stuck with return tickets they will not be using.

    "We usually buy our air tickets early to secure the cheapest fares, which don't allow any refund or cancellation. My husband is now checking with the airline on our options," Yeow told Al Jazeera.

    Yeow is far from alone. Her predicament reflects the troubles that millions of other travellers around the world are also facing, just as redundancies and pay cuts place enormous financial burdens on household budgets everywhere.

    And government-mandated border shutdowns aimed at stopping the spread of the virus have dealt a hammer blow to airlines forced to ground their fleets. The global industry is bleeding billions of dollars in cash, with some carriers already facing bankruptcy and others seeking government help. United States Treasury Secretary Steven Mnuchin and United Airlines CEO Oscar Munoz have both said the crisis is worse than the one the aviation industry faced in the aftermath of the September 11, 2001 attacks.

    But the jury is out as to whether the assistance that governments are offering will be enough to save all the carriers facing financial hardship. And such measures are reopening the debate over whether public funds should be used to rescue companies and their shareholders.

    More than half of the world's fleet of passenger aircraft has been grounded because of travel bans, according to the International Air Transport Association (IATA), an airline industry group.

    "The industry's outlook grows darker by the day," Alexandre de Juniac, IATA's Director General and CEO, said in an April 14 statement.

    Burning through cash

    IATA estimated in late March that industry passenger revenues could plummet by $252bn, a 44 percent decline from 2019, assuming that travel restrictions will last for up to three months. In its latest assessment in mid-April, the association projected an even bigger loss in revenue of $314bn in 2020, a 55 percent year-on-year decline.

    The huge drop in expected revenues this year will likely wipe out much of the profits global airlines made in the last decade, Karsten Benz, professor for aviation management at Frankfurt University, told Al Jazeera.

    And the grounding of so many flights is threatening the livelihoods of tens of thousands of people in the airlines themselves and related industries.

    Virgin Australia
    Virgin Australia Airlines did not receive a bailout from the Australian government despite asking for funding [File: Loren Elliott/Reuters]

    IATA also predicts that global airlines could burn through $61bn of cash reserves in the second quarter alone, putting at risk 25 million jobs.

    One of the highest-profile airline casualties of the pandemic so far has been budget carrier Virgin Australia. The country's second-largest airline after Qantas said on Tuesday that it has entered into voluntary administration, a form of bankruptcy protection.

    The complete collapse of Virgin Australia would affect the 10,000 people directly employed by the airline, and potentially another 6,000 people indirectly. Management consultants at Deloitte who are acting as the airline's administrators have said they have no plans to make any of the staff redundant.

    But airlines on every continent have been laying off staff in the thousands.

    British Airways's (BA's) parent company, International Consolidated Airlines Group (IAG), said on Wednesday the United Kingdom's largest carrier plans to cut more than a quarter of its 45,000 employees. Earlier this month, BA reached a deal with its union to suspend more than 22,600 staff in one of the industry's biggest such moves since the coronavirus outbreak began in late December. 

    In another large-scale measure, Air Canada said it is temporarily laying off 16,500 of its staff, about half its workforce.

    The pain has spread to aircraft manufacturers.

    US-based Boeing, which was already suffering from the fallout of two fatal crashes involving its 737 MAX aircraft, said this month that it is planning to trim its workforce by 10 percent.

    And the CEO of its European rival Airbus, Guillaume Faury, said in a statement revealing a 49 percent plunge in earnings for the first quarter of 2020: "We are now in the midst of the gravest crisis the aerospace industry has ever known." The company had already placed about 6,000 workers on furlough.

    Governments to the rescue?

    Government intervention has helped to cushion the blow, though not for everyone.

    British Airways, for instance, is using a UK government job retention scheme to pay up to 80 percent of the salaries of its furloughed staff. And under a special deal, staff pay will not be capped at 2,500 British pounds ($3,102) per month, unlike the standard terms of the scheme.

    But in announcing the permanent layoffs, Chief Executive Officer Alex Cruz told staff: "There  is no government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely. Any money we borrow now will only be short-term and will not address the longer-term challenges we will face."

    Air Canada is also taking advantage of its government's wage subsidy programme.

    Singapore Airlines is receiving a $13bn lifeline from state investment firm Temasek.

    But no airline rescue package is as large as the one the US is rolling out for its carriers.

    Last month, the US Congress passed laws to set aside $58bn to support passenger and cargo carriers as part of a $2 trillion coronavirus rescue package to cushion US people and companies from the economic fallout of the outbreak.

    But will it be enough to see the US aviation industry through until business returns to normal?

    The $25bn in grants that are part of the package cover payrolls through the end of September. But there is no guarantee that the pandemic will be over by then, or that people will be willing to travel in the same numbers as before it began even if new infections have been completely halted by that date.

    United Airlines, for one, is warning its staff to brace for job losses if its planes remain grounded for a prolonged period.

    "If the recovery is as slow as we fear, it means our airline and our workforce will have to be smaller than it is today," the company told its staff in a letter on March 27.

    And in the case of Virgin Australia, that country's government has refused to throw the company a lifeline.

    Meanwhile, Virgin Group founder Branson asked the UK government for help keeping his other airline, Virgin Atlantic, in business.

    Customs officers in protective suits are seen near a Sichuan Airlines aircraft on the tarmac of Chengdu Shuangliu International Airport
    Customs officers in protective suits are seen near a Sichuan Airlines aircraft on the tarmac of Chengdu Shuangliu International Airport in Chengdu, China following a global outbreak of the coronavirus disease [File: Third party via Reuters]

    In an open letter earlier this month, Branson said the UK-based company would need British government support to "keep the airline going".

    He pointed to the 600-million British pound ($74m) loan the UK has extended to rival easyJet as a possible model for government support for his firm.

    But environmental and social activist group Greenpeace has harshly criticised state aid for British airlines, including easyJet.

    "Airline companies have always had strong links to the government, with a very strong industry lobby. Together with international agreements governing flying, this has enabled airlines and airports to avoid taxes (fuel tax and VAT, for example) and get state support," Greenpeace said in a statement.

    Wrong-way bets and refunds

    The recent crash in oil prices should theoretically be giving airlines some cheer. US crude prices briefly fell far below $0 earlier this month and remain around two-thirds below their level in February.

    But some companies had committed themselves to buying jet fuel when prices were higher on the assumption that prices could go higher still, a process known as hedging. But these hedges have now become wrong-way bets.

    "For those airlines that are hedged, the losses this year will be exacerbated," Brendan Sobie, founder of aviation analysis company Sobie Aviation, told Al Jazeera.

    "Keep in mind hedging is a normal strategy and a way to keep fuel costs relatively steady over the long run by enabling airlines to post gains when fuel prices are high while incurring higher costs when fuel prices are low," he said.

    Irish low-cost carrier Ryanair, which has grounded most of its aircraft through May, said this month that its profit for the financial year just ended on March 31 will be eroded by an estimated 300 million euros ($325m) of fuel-hedging costs.

    Australia social distancing
    A sign asking for people to observe safe distancing measures is displayed at a deserted Sydney Airport in Australia [File: Brendon Thorne/Bloomberg]

    And all the trouble that airlines are facing means the likelihood of passengers like Yeow and her family getting refunds for tickets is also a dimming prospect.

    Airlines globally have about $35bn worth of sold, but unused, tickets that are due for refund in the second quarter, according to IATA's estimates. But the industry cannot afford to refund these tickets because airlines urgently need to hold on to cash to pay salaries and other fixed costs, IATA's de Juniac said this month.

    Tan Kok Liang, President of the Federation of ASEAN Travel Associations, said airlines have a duty to provide refunds since the services that consumers paid for are not rendered.

    "Consumers bought tickets for flights they haven't flown on. Why can't they have the money back? You can't use these funds to run your operations," Tan told Al Jazeera. "This is not right. It's not helping to bring back consumer confidence when travel demand recovers."

    SOURCE: Al Jazeera News


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