M&D WATCH CHALLENGES FOR AIRLINES UNDER COVID-19 BY PIERRE RAZZO - Issue II 2020 - Mazars USA
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M&D WATCH CHALLENGES FOR AIRLINES UNDER COVID-19 BY PIERRE RAZZO Issue II – 2020 Mazars USA LLP is an independent member firm of Mazars Group.
M&D Watch
“It’s a new dawn, it’s a new day, it’s a new life”. These lyrics from respectively, the industry should expect a prolonged decrease
the 1964 Feeling Good song seem highly relevant to the COVID- in flying. Consequently, IATA projects a potential revenue loss
19 pandemic, which is forcing us to define a new normal. This is of $76 billion for European carriers and a 46% decrease in
especially true for the global aviation sector, which was one of the passenger demand this year as compared to 2019. A decline of
industries hardest-hit by travel restrictions and lack of consumer this magnitude puts at risk about 5.6 million jobs and $378
confidence. billion in GDP. On the US side, Oxford Economics modeled a
$519 billion decline in travel spending this year (out of which
A huge plunge that will be worse than what the industry $97 billion are directly related to air transportation), which will
experienced after the 9/11 attacks in the US result in a total economic loss of $1.2 trillion, 8 million travel
While aviation historically supported 65.5M jobs worldwide, 3.6% industry jobs lost and a cumulative GDP impact of -$651 billion.
of the world’s GDP (the equivalent of a country ranked 20th in size This represents about 45% of the travel industry’s economic
by GDP which is similar to Argentina or Switzerland) 1, passenger value last year in the US.
demand plummeted by almost 100% in Europe and USA year over
year at the end of April 2020 as illustrated by the International Air Almost all airlines are currently struggling with cash issues,
Transport Association (“IATA”) report published on May 5, 2020. racking up billions in debt to get through this situation, burning
cash ($70 million a day for American Airlines and $30 million a
day for Southwest at the end of April 2020), and already filing
for bankruptcy, as Avianca on May 11, 2020. Airlines and
stakeholders (governments, professional organizations,
airports, travel retailers, operators) are trying to restore air
connectivity as soon as possible. And, just as the 9/11 events
led to new security regulations to ensure passenger safety,
responding to the COVID-19 pandemic will lead to new hygiene
safety standards for passengers, crews, airlines and all related
operators. This challenge won’t be easy and will increase costs
for both airlines and customers.
Looking ahead, even when travel restrictions and lockdowns are New hygiene standards post-COVID-19 to reduce the risk
lifted, consumer demand for air travel is expected to remain limited of onboard transmission
as almost 30% of respondents to a survey conducted by IATA last After travel restrictions and lockdowns are lifted, one of the key
April indicated that they would wait six months to travel by air challenges for airlines will be to restore confidence and to
again, and 10% of the respondents were not expecting to travel for remind travelers that flying is still the safest mode of
a year. transportation. IATA’s report from May 5, 2020, based on a
survey of 18 major airlines representing 14% of global traffic,
Airlines, face daily challenges, with almost 55% of global fleets highlighted the fact that risk of transmission is low on-board
currently grounded as of the end of April 2020, while 4.5 billion aircraft. Indeed, for the period of January through March 2020,
passengers were carried by airlines in 2019 and 4.7 billion were only three instances of suspected passenger to crew
initially expected for 2020. transmission were noted, four instances of pilot to pilot
transmission, and none of passenger to passenger.
Airlines have already set up new post-pandemic standards,
capitalizing on their previous experience with SARS to limit risk.
Measures include: face coverage, deep sanitizing, social
distancing, screening (temperature checks), limiting movement
within the cabin during flight, simplified catering procedures that
lower crew movement and interaction with passengers, and
boarding and deplaning processes that reduce contact with
other passengers.
These measures will require significant coordination between
Nothing could prepare airlines for a close to 100% drop in airport authorities, the TSA, airlines, and governments. In
passengers. And, according to two surveys released by IATA addition, each of us as potential passengers will have a role to
and Oxford Economics on March 26, 2020 and April 15, 2020, play, and responsibility for, minimizing close contact and
1Source: Air Transport Action Group last available report
published in October 2018
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M&D Watch
avoiding traveling while unwell (for example, airports currently FOR MORE INFORMATION CONTACT:
don’t have the authority to force a passenger to go home if they
have a temperature or to force them to wear a mask). PIERRE RAZZO
Implementing social distancing and screening at the airport MANAGER
before boarding will cause longer lines and more time at the
+1 646.789.2394
airport for passengers. This appears to be acceptable based on pierre.razzo@mazarsusa.com
the poll taken in May 2020 by Aviation Week. Indeed, 48% of
respondents declared themselves ready to accept 30-60 extra
minutes before boarding, and 38% considered an extra 15-30
minutes acceptable. VISIT US AT www.mazarsusa.com
All these measures will have a financial impact on airlines
Disclaimer of Liability
Enhanced cleaning procedures will also significantly increase Our firm provides the information in this e-newsletter for general guidance only, and does not constitute
the turnaround time of an aircraft. Time is literally money in this the provision of legal advice, tax advice, accounting services, investment advice, or professional
consulting of any kind. The information provided herein should not be used as a substitute for
industry, especially for low cost carriers, such as Ryanair, which consultation with professional tax, accounting, legal, or other competent advisers. Before making any
decision or taking any action, you should consult a professional adviser who has been provided with all
had reduced its turnaround time to as little as 25 minutes for a pertinent facts relevant to your particular situation.
short-haul flight. As such, airline profitability will be impacted as,
Mazars USA LLP is an independent member firm of Mazars Group.
in the meantime, these companies are engaged in massive
price dumping to support the demand. CONFIDENTIALITY NOTICE: The information contained in this communication may be privileged,
confidential and protected from use and disclosure. If you are not the intended recipient, or responsible
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distancing as was earlier suggested by the European
Commission would raise costs by around 50% just to break
even, due to a maximum load factor decrease to 62%, with
average industry breakeven at 77%.
Ryanair, with last year’s highest loading factor in the industry
(96%), immediately pushed back on this measure. Other major
airlines in the US (with 84.6% average loading factor in 2019)
and in Europe (with 81.7% average loading factor) also decided
to not implement this measure.
IATA also criticized the seating reduction, as most authorities
recommend three to six feet of social distancing, it could not be
effective on an airplane as average seat width is less than 1.6
feet. Moreover, seats provide a barrier to air/disease
transmission forward to aft in the cabin and air flow from ceiling
to floor goes through high efficiency particulate air (HEPA)
filters, reducing transmission.
This list of challenges is not exhaustive - additional costs will
probably appear along with the implementation of new
contactless technology for screening, baggage claims and
similar. It will probably take up to five years for the industry to
recover, but hopefully soon birds will fly high again as in the
song. Be optimistic - the sky’s the limit!
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