What happens to airlines after the coronavirus crisis ends?

Sustainability

Emissions reduction goals have taken a backseat, for now, to the goal of handing out cash as fast as possible to keep the sector from imploding.

In the U.S., Democrats tried and failed to attach environmental conditions to the $61 billion bailout American carriers received from the government. IATA said it wants “minimum conditions and maximum speed” on rescue packages, and the group’s director general, Alexandre de Juniac, said they’ll return to environmental concerns “when we come back to normal waters.”

The European Commission is becoming increasingly alarmed that rescue packages are ignoring its European Green Deal priorities aimed at turning the Continent climate neutral by 2050.

U.S. and European airlines will face quite different taxation environments after the crisis.

Andrew Murphy, aviation expert at the green NGO Transport & Environment, feels airlines shouldn’t be let off easy, and that rescue packages should include stringent environmental conditions.

“Nine years airlines say, 'We fund ourselves,' and the 10th year they say, 'We need your money,'" he said. "And then another nine of ‘we fund ourselves?’ We can’t have that.” He added that airlines will be bailed out with taxpayers’ money, and airlines have a way to repay them, for example, with a tax on kerosene, as advocated by environmentalists and some European countries like the Netherlands.

The legislative environment is very different in the U.S., which means that U.S. and European airlines will face quite different taxation environments after the crisis.

“[U.S.] airlines have already been investing in newer, more fuel-efficient airplanes over the past 10 years,” said travel industry analyst and adviser Henry Harteveldt, president of the Atmosphere Research Group. “I think they would consider any government requirements that the airlines are responsible for carbon offsets to be something that they would object to.”

Coronavirus: Don't bail out airlines, say climate campaigners

By Roger Harrabin

BBC environment analyst

6 April 2020

https://www.bbc.co.uk/news/business-52190502?at_custom1=%5Bpost+type%5D&at_custom3=BBC+News&at_medium=custom7&at_custom4=EE05808C-784A-11EA-B46F-92063A982C1E&at_campaign=64&at_custom2=facebook_page&fbclid=IwAR0cHlUWxyhgHgWed2ULs6QofAHpJ9vl-TWcmZnh9iC9BaOcen5XamcMlmw

More than 250 trades unions and environment groups have signed an open letter opposing plans for bailing out the aviation industry.

The letter to governments demands that any bailouts lead to better labour conditions and a cut in emissions.

They say aviation should make changes already evident in other sectors amid the coronavirus lockdown.

Thanks to a long-standing treaty, international aviation has largely been able to make its own rules.

The campaigners say this must change now that firms are asking for new favours from governments

Their informal group is called “Stay Grounded”. Its spokesperson Magdalena Heuwieser said: “For decades the aviation industry has avoided contributing meaningfully to global climate goals and resisted the merest suggestion of taxes on fuel or tickets.

Bankruptcy risk

“Now, airlines, airports and manufacturers are demanding huge and unconditional taxpayer-backed bailouts. We cannot let the aviation industry get away with privatising profits in the good times, and expect the public to pay for its losses in the bad times.”

The aviation association IATA has conducted what it calls an “aggressive” global campaign aimed at persuading governments to introduce measures softening the effect of the virus emergency.

It’s asking for the immediate reduction of all charges and taxes; deferral of any planned increases in charges and taxes for 6-12 months; and the creation of funds to help airlines restart or maintain routes.

It says without such measures, many airlines will go bankrupt – leading to the loss of routes and damage to the economy, as well as thousands of job losses.

Duty freeze

Several nations have agreed to some of the industry's demands but in the UK the Chancellor Rishi Sunak has told airlines to look to its own shareholders to keep them running.

UK airports, meanwhile, are asking ministers to grant them a suspension of Air Passenger Duty and other measures when the crisis is over.

Stay Grounded has a very different recipe for a successful outcome at the end of the crisis.

It wants a focus on protecting workers not shareholders; making aviation firms contribute to emissions reductions by cutting air travel demand and strengthening low-carbon alternatives like rail travel; while imposing a kerosene tax and progressive levies on frequent flying.

Pablo Muñoz from the Spanish organisation Ecologistas en Acción, said: “While we are rightly focused on saving lives during the immediate health threat of, our governments have a choice: they can hand taxpayers’ money to corporations unconditionally, or they can seize the opportunity to start building an economy which doesn’t harm people or the planet”.

This touches on a much deeper debate about the nature of the post-Covid recovery. There’s a gulf between people who want to use the crisis for a green stimulus to the economy, whilst others warn that so much money will have been spent conquering the virus that there will be little left for clean energy investment.

IATA has been approached for a comment.

What happens to airlines after the coronavirus crisis ends?

The airlines that survive the downturn will look quite different from the ones that went into the crisis.

By SAIM SAEED AND TANYA SNYDER 4/2/20, 2:09 PM CET Updated 4/8/20, 4:51 AM CET

https://www.politico.eu/article/what-happens-to-airlines-after-the-coronavirus-crisis-ends/

The coronavirus may leave the global airline industry utterly transformed — smaller, leaner and deep in debt to the governments that bailed it out.

“Whenever you go through a disaster, it’s ultimately about what are the lessons that are learned and processes put in place to make sure this doesn’t repeat itself,” said John Grant, senior analyst at OAG, an aviation analytics firm.

Beyond tough business choices, the crisis has presented an opening for lawmakers and financial markets to make their own demands for an industry that’s repeatedly the brunt of consumer ire, including a long wish list of ways they should treat customers better, reduce their carbon footprint and adopt more sustainable business practices.

Grant said it’s an opportunity for the sector to slim down, given the number of bloated, unprofitable carriers. “Is it good to have so many airlines around the globe? Does it serve the consumer?"

The crisis is likely to result in a more consolidated, fiscally prudent industry. There will be “less competition, but a more sustainable industry that can work itself through these particular challenges,” he said.

Rethinking flying

Global air travel has been decimated as countries around the world enforce lockdowns and restrict travel. With no end in sight for either the pandemic or the recession that follows, even the mightiest of carriers like American Airlines and Lufthansa have been forced to seek help from their governments.

But a lot of those rescues will come with significant strings attached.

The U.S. coronavirus relief bill bans companies from giving raises to their top executives, buying back their own stock or paying dividends to shareholders for the five-year duration of the loan plus one year. That's a reaction to reports that U.S. airlines spent 96 percent of their free cash flow over the last decade on share buybacks rather than investing in the business or storing up money for a rainy day.

In Europe, struggling airlines like low-cost carrier Norwegian had to make a financial case to private banks in order to qualify for government aid. In the U.K., the government said airlines need to exhaust all other lines of credit before coming to the government for help — indicating that countries are not immediately rushing to the rescue and will do so with conditions attached.

In other cases like Italy and Belgium, governments are considering the re-nationalization of struggling airlines as their solution to the crisis.

Some experts say those conditions should be made permanent.

“There should be a long-term prohibition on buying back stock,” said Bob Crandall, former president and chairman of American Airlines. “That’s simply not a sensible strategy for an industry that undergoes cash crises from time to time ... Airlines should be required to build large liquidity reserves.”

According to industry analyst Bob Mann, airlines typically have between 9 percent and 15 percent of their 12-month expenses available in cash or cash equivalents on hand. Unlike charter carriers, which are required to hold onto the proceeds from a ticket sale until the flight is complete, commercial airlines use payments for future travel to pay for today’s expenses.

“This is fine as long as advance ticket sales proceed at the usual rate,” Mann said. “The problem occurs when either you have a decline — an unusual decline in advance ticket sales like we have today — or even worse, also like we have today, there’s a run on the banks, so to speak, and people say, ‘I’m not traveling next month; I want my money back.'”

Once air service claws its way back, customers could notice other changes, like reduced food and beverage service. “Airline service is premised on as many touchpoints as you can make with the customer,” said Gary Kennedy, formerly general counsel of American Airlines. “Now you want as few touchpoints as possible.”

Kenneth Button, a professor at the George Mason Schar School of Policy and Government and an expert on aviation policy and economics, anticipates U.S. airlines may ask Congress to change laws on foreign investment. “Now, foreign investors can hold a maximum of 25 percent of the voting shares,” he said. “Will we see a more flexible system in the future?”

It’s something the European Commission has also been considering. Non-Europeans can own up to 49 percent of an EU airline, but some policymakers and airlines see it as an inconvenient cap on investment, and one that may be an expensive luxury at a time when airlines need all the domestic and foreign financing they can muster. The Commission is expected to present a potential reform of ownership and control rules later this year.

Corona 'hangover'

Those new rules will apply to survivors — and it's not yet clear who will make the final cut.

Globally, airlines face a 44 percent collapse in revenue compared with 2019, a drop of around $252 billion, according to the latest figures from international airline lobby IATA. United Airlines CEO Oscar Munoz and President Scott Kirby told employees that they expect travel demand to “remain suppressed for months” after government bailout funds run out in September and “possibly into next year.”

IATA predicted a $76 billion loss in revenue for Europe this year. EasyJet grounded all its flights indefinitely; Lufthansa, Ryanair and Air France-KLM and British Airways are running only a fraction of their normal services.

That crunch won't last forever, but exiting from the crisis won't mean an immediate rebound.

Experts warn that it could take months for an airline to come back to life.

“There’s going to be waves of this disease going around the world indefinitely,” said Marisa Garcia, an aviation industry analyst and columnist for Forbes. In the short term, she said airlines might have to rethink the policy of squeezing more and more passengers on the same flight, suggesting that they may even leave the middle seat open to ensure distance between people while the disease still circulates — something Lufthansa has already begun implementing.

Airlines will be hoping for corporate travel to bounce back first.

“Business travel will come back when HR departments and corporate general counsels decide on a duty-of-care basis that they can relax their prohibition on travel, or actually come out and say, ‘It’s time to go travel again,’” said Mann. “Business travelers probably pay six to seven times the average fare on a typical flight ... So having them back on airplanes is very, very important; that’s where a majority of business revenue comes from.”

Even if the economy begins to recover in the third quarter of this year, as many economists predict, coronavirus fears could lead to a “long tail” or a “hangover” as travel struggles to regain its pre-crisis status, in the words of one industry adviser who spoke on condition of anonymity in order to avoid speaking for her clients. While cabin fever may have some running for the airport the moment travel restrictions lift, others will be more reticent. Restrictions may also lift gradually in different parts of the world and for different age demographics.

“It will take months until the global travel restrictions are completely lifted and years until the worldwide demand for air travel returns to pre-crisis levels,” said the Lufthansa Group, which decommissioned dozens of its jets on Tuesday.

Experts also warn that it could take months for an airline to come back to life. While essential maintenance is still happening daily on parked planes, they will all need to be brought back into flying condition before being put back into service. Airlines are being paid by the U.S. government to keep workers on the payroll but some are being offered buyouts — at a time when hiring new pilots is made more difficult by an ongoing pilot shortage.

Airplane manufacturers are also affected as carriers revise their growth plans.

Low-cost U.K. carrier easyJet is looking to “defer and reduce” its Airbus orders. Boeing was already battered thanks to the grounding of its Boeing 737 MAX following two crashes. That's turned into a "blessing in disguise" for airlines that didn't manage to get the airplanes delivered, as they now don't have to hunt around for expensive places to park them, one airline official told POLITICO.

Sustainability

Emissions reduction goals have taken a backseat, for now, to the goal of handing out cash as fast as possible to keep the sector from imploding.

In the U.S., Democrats tried and failed to attach environmental conditions to the $61 billion bailout American carriers received from the government. IATA said it wants “minimum conditions and maximum speed” on rescue packages, and the group’s director general, Alexandre de Juniac, said they’ll return to environmental concerns “when we come back to normal waters.”

The European Commission is becoming increasingly alarmed that rescue packages are ignoring its European Green Deal priorities aimed at turning the Continent climate neutral by 2050.

U.S. and European airlines will face quite different taxation environments after the crisis.

Andrew Murphy, aviation expert at the green NGO Transport & Environment, feels airlines shouldn’t be let off easy, and that rescue packages should include stringent environmental conditions.

“Nine years airlines say, 'We fund ourselves,' and the 10th year they say, 'We need your money,'" he said. "And then another nine of ‘we fund ourselves?’ We can’t have that.” He added that airlines will be bailed out with taxpayers’ money, and airlines have a way to repay them, for example, with a tax on kerosene, as advocated by environmentalists and some European countries like the Netherlands.

The legislative environment is very different in the U.S., which means that U.S. and European airlines will face quite different taxation environments after the crisis.

“[U.S.] airlines have already been investing in newer, more fuel-efficient airplanes over the past 10 years,” said travel industry analyst and adviser Henry Harteveldt, president of the Atmosphere Research Group. “I think they would consider any government requirements that the airlines are responsible for carbon offsets to be something that they would object to.”