The impact of COVID-19 on the airline industry
Photograph: Arie Wubben
The pandemic has had a dramatic impact on businesses across the global economy. Restaurants once packed with patrons have been subject to stringent local lockdown restrictions or forced to close. The collapse of commodity prices has shaken the stability of former energy giants. Even retail companies, who once enjoyed the days leading into the holiday season have seen a dramatic drop in sales. All whilst governments and citizens alike respond to the most significant public health crisis in generations.
With few exceptions, there is no doubt that businesses around the world have been forced to endure a truly historic period in economic history. The experience of the airline industry, however, is rivalled by few. According to Standard and Poor’s (a global credit rating agency), the airline industry is believed to be the single hardest hit industry in the world. At the peak of the lockdowns, they measured that the probability of default across publicly traded airline companies reached 23%. Put simply, one in four airlines around the world were now at risk of bankruptcy.
The airline industry is certainly no stranger to difficult times. Airlines experienced the fallout in global travel after the 11 September 2001 and the Financial Crisis, weathering the storm with aggressive cost-cutting measures. But COVID-19 is an entirely different beast. The decline in travel has lowered global commercial flights an estimated 35-65% compared to 2019. With no end to the pandemic in sight, the survival of many airliners is likely an open question.
As of 8 October, there has already been an estimated 43 airliners worldwide that have ceased, or suspended operations compared to 46 in the whole of 2019. While that number may seem relatively low, the airliners hit hardest in 2020 are the larger carriers. Of the 43 airlines that have had major cutbacks thus far, 20 of them operate at least 10 aircrafts. Whereas in 2019, the major airliners requiring cutbacks stood at only 12. British airliners are no exception to this trend. In October International Airlines Group (which operates British Airways and Aer Lingus) announced that it was cutting flights by 30% through the rest of 2020 after it posted a £1.16 billion dollar loss in the third quarter.
Interestingly, there are several legal dimensions at play. Notably, the EU Slot Regulation (EEC95/93) which requires airlines to operate 80% of their airport slots or risk losing them, has already been relaxed by the EU Commission. In contrast, EU Regulation EC 261, which requires airliners to compensate customers for flights cancelled within 14 days or delayed by 3 hours has not been properly addressed. As of this writing, the EU Commission is believed to be evaluating different policy options involving EU Regulation EC 261, but no specific details have been announced.
Despite a provision that excludes cases “caused by extraordinary circumstances” the EU Commission clarified that airliners were still obligated to offer customers the choice of reimbursement or rerouting.
Many contend that suspending such customer compensation protections would unnecessarily infringe on the rights of travellers. But given the systemic challenges faced by the airline industry, all options bear consideration. Afterall, no customer compensation is better than no airlines at all.
Patrick Smith, LLB Law student at Queen Mary University of London