The airline industry is expected to lose $252 billion in passenger revenue, according to IATA’s latest estimates on the impact of COVID-19.
The organization this week more than doubled its estimates from the original $113 billion predicted at the beginning of March.
The original sum did not take into account the widespread travel restrictions now in place across much of the globe, which if they last for three months, would represent a 38% fall in global demand, says IATA.
Little wonder then that airlines have been crying out for state aid and the U.S. Senate has just voted for a $58 billion rescue package, half of which comes in grants to pay the wages of three quarters of a million employees.
IATA followed up its latest gloomy estimates with a plea to the governments of 18 states across the Asia Pacific region to “provide urgent emergency support for carriers.”
Other governments, such as the U.K’s, have been less forthcoming, instead asking airlines to exhaust all other commercial avenues.
This comes after carriers such as Virgin Atlantic and EasyJet asked the their domestic government to step in with aid, while others such as British-Airways parent IAG said in mid-March that airlines need to "self help."
IATA has said that without financial relief airlines will go bust, potentially “en masse”, and that would affect the 65 million people employed across the value chain.
It is interesting to note IATA's mention of the value chain given that it has faced significant criticism in the past week from some areas of the intermediary community, seemingly for acting in isolation.
Value chain fallout
An open letter from online travel agency MisterFly to Alexandre de Juniac, CEO of IATA, published less than a week ago in French newspaper L’Echo, accuses the organisation of having left “the planet” because of its response to travel agents about the Billing and Settlement Plan (BSP).
The letter, from Nicolas Brumelot, co-founder and president of MisterFly, says that while the agency community is battling to keep up with cancellations and reimbursements, IATA is maintaining the March 31 deadline for BSP payments.
Talking about the resolutions travel agents must work abide by it goes on to say: “You therefore have the right of life and death over us. This is what is commonly known as a dictatorship.”
For its part IATA said in its initial response to agents that if the payment periods were extended, reimbursements would be delayed.
However, many agents are increasingly concerned that they no longer have funds coming in and that airlines will end up owing them money.
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The letter also reminds IATA of the European Commission’s direction for airlines to refund cancelled tickets in cash but says airlines are issuing non-refundable credit notes.
“As we are obliged to pay for the tickets when they are issued, you capture the cash that you then keep by all possible subterfuge.”
If further evidence is needed of how desperate the situation is for the whole travel value chain, both Amadeus and Sabre announced extensive cost cutting measures in the past few days because of the impact of COVID-19.
Sabre announced $200 million in cuts to mitigate the impact of the virus and, three days later, Amadeus announced its own measures, which include a €300 million cost cutting plan.
EU Travel Tech, a European lobbying organization, says it is will be fighting for state bailouts on behalf of its members (such as Amadeus, Travelport, Booking.com, Expedia Group, Skyscanner, Tripadvisor and eDreams ODIGEO), claiming the COVID-19 outbreak represents an "exceptional challenge across our society and economy."
Its member companies are involved in marketing, distribution and support travel suppliers - many of which are suffering a similar downturn in business as their airline partners.
An additional interesting element is put in the spotlight by IATA’s stance that global recovery will be constrained across most sectors “if we don’t have a viable aviation industry.”
Some in financial circles are pointing out that, even when times are good, airlines operate in a slim-margin, high-cost and highly competitive environment.
In his “Don’t Buy That” column on Seeking Alpha, investment specialist Ian Bezek adds that the airline industry is “susceptible to all sorts of various ills, including but not limited to natural disasters, terrorism, oil price shocks, and now, pandemics.”
The column also floats the question of whether airlines should be bailed out given that many have filed for Chapter 11 in the past and “emerged intact” with little or no impact on customers, according to Richard Squire, corporate bankruptcy law professor at Fordham University, quoted in Berek’s column.
Berek also references Jeremy Raper, a private investor, who says that governments are taking a tough on position on airlines and as Berek paraphrases “securing major chunks of flesh in return for capital.”
In a Tweet, Raper says that “many/most important airlines globally will end up with a government partner (maybe majority owner).”
The Italian government, for example, has already said that it will take control of Alitalia.
No one in the travel industry can predict where this will end up, it isn’t like anything we have seen before.
Calm, or otherwise, companies have to carry on, there will be more failures, there will be consolidation and there could even be a complete restructuring of the entire travel value chain.
The latter part is something that is already being talked about in hotel circles, following criticism of online travel agencies in Italy at the beginning of the country's lock-down and mass guest cancellations.