Still In Search Of Hope For Airlines

For now, airlines are preparing for a long, lonely fight for survival, a development that has prompted the question of capacity to hang on, WOLE SHADARE writes

 

Unforeseen crisis

An industry that is intimately familiar with failure confronts a crisis unlike any other. No amount of foresight could have prepared the industry for the COVID-19 crisis, even as operators say they have no idea when passengers will return. Many of Nigerian airlines started 2020 celebrating with promises that the year would be better than the previous year. Expectations were high. With so much out of their hands, airlines have focused instead on what they can control

Vanished optimism

Although many of the airlines do not open their books to scrutiny, the carriers were optimistic of a better 2020. But with air travel nearly shut down by the coronavirus, the airlines are now bleeding money and have dropped more schedules from their network.

Even as dramatically slash schedules, they are averaging an anaemic 25 passengers on each domestic flight and losing several millions of Naira a day as expenses like payroll, rent and aircraft maintenance far exceed the money they are bringing in.

Passenger traffic is down about 70 percent and half of the industry’s 70 airplanes are parked at airports.

Yet, devastating as the downturn has been, the future is even more bleak. With much of the world closed for business, and no widely available vaccine in sight, it may be months, if not years, before airlines operate as many flights as they did before the crisis.

Even when people start flying again, the industry could be transformed, much as it was after the Sept. 11 terrorist attacks.

 

Passengers disembarking from an Arik airplane

 

Airlines’ demise, losses

Airline executives need only look in the not-distant past to see how lesser crises sank carriers that were household names like Chanchangi, ADC, Virgin Nigeria, Bellview and IRS, among others. Air Peace and many other airlines in Nigeria have shown vulnerability just like many across the globe. The airline regarded as the biggest in the country per aircraft size just yesterday sacked over 75 of its pilots with promise to sack more in a bid to survive. More than half of the airline’s B737 aircraft have gathered dust at airports across the country following low passenger demand since domestic operations resumed on July 8, 2020.

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The current crisis could push some airlines into bankruptcy or make them takeover targets. In the United States, Southwest Airlines, which reported its 47th consecutive year of profitability in January, lost an average of $30 million to $35 million a day through June. American Airlines, the most indebted large company, got its own losses down to $50 million a day by the end of last month. Delta and United Airlines, which were riding high after several profitable years, are prepared for a full year with virtually no passenger revenue.

Fear of COVID-19 on planes

Consumer fears about catching the virus on crowded planes could lead to reconfigured seating. Carriers may initially entice wary travelers with discounts, but if they can’t fill up flights, they may resort to raising ticket prices. Raising ticket prices is not an option for many that have shown apathy to air travel because of the huge challenge the economic situation has had on their lives.

At this juncture, air travel becomes huge luxury to them. To get through the next few months, airlines have unsuccessfully lobbied for a huge federal rescue. The bailout is very slow in coming. A sum of N27 billion has been promised to the sector by the Federal Government. The Federal Government, in March, restricted local and international commercial flight services to slow the spread of coronavirus.

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The lock-down crippled the aviation sector. Industry estimates showed that the sector lost about N180 billion, with airlines being worst hit. Over 5,000 registered travel agencies furloughed their entire staff, while airlines retained only 20 per cent of workers at slashed salaries.

Delayed stimulus

Apparently to salvage the sector from collapse, Minister of Aviation, Hadi Sirika, had earlier said that the Federal Government was working on a bailout package for airlines and other operators. But Airline Operators of Nigeria (AON) said its members were not just requesting cash as bailouts from the Federal Government, but necessary support to enable them go back to operation and sustain their business.

The Chief Operating Officer of Dana Air, Obi Mbanuzuo, recently said Nigerian airlines were not necessarily asking for cash from the Federal Government, but the support that would enable them go back to operation as well as to ensure that they don’t lay off their staff. In addition, he said the airlines were seeking access to forex to help them pay for aircraft spares, conduct training overseas and maintain their aircraft.

Furthermore, he said the airlines also wanted the right pricing of aviation fuel now that the price of crude oil has plummeted in the international market, yet, marketers still sell the product at the old prices as if nothing has changed. “We don’t know what nature of bailout government wants to give the aviation industry, but contrary to those speaking against the bailout, we are not really looking for cash. The last bailout was done with the banks; some airlines are still paying for it. AON has made its position clear in the request it made to the government.”

“We are looking at the removal of VAT, we are requesting for availability of forex. There was an effort to remove VAT but it was not gazetted; they have removed duty on aircraft spares but you still pay Customs duty when you import aircraft.

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An airline operator who pleaded anonymity said, “It would be naïve to believe we or anyone for that matter can accurately predict the course of this crisis or the recovery. When we say plan for the worst and hope for the best, however, we really mean it.”

Alternative response

There are indications that airlines could slash more flights, but have not for a multitude of reasons.

Schedules are often set weeks in advance and many flight costs, including those for cabin crews and pilots, are fixed.

In addition, the federal stimulus passed in May requires that airlines continue minimum service, and there are costs associated with parking aircraft, too. Still, even with few passengers, airlines are earning some money from the cargo they carry in the bellies of their planes.

There’s little indication that a recovery is coming soon. Most industry analysts and executives expect years to pass before airlines fly as many passengers as they did before the pandemic. Even then, a rebound may come in fits and starts, propelled by medical advancements, an economic rebound and shifts in the public’s tolerance for risk.

Last line

Poll after poll has shown that the vast majority of people are likely to wait on the sidelines for quite some time. The airlines certainly need to get back into business but they’re going to be facing a public that’s going to be scared to travel

Wole Shadare