COVID-19 and the Impact on the Aviation Industry

From increased passenger flight aversion, to government imposed flight restrictions to and from quarantined zones, the COVID-19 public health emergency is now having a significant impact on the global air transport industry. We outline some recent reports from the aviation authorities and industry bodies on proposed measures to mitigate the impact of COVID-19.

Calculating the impact of COVID-19

In Europe, as of 9 March 2020, the Italian government declared that the whole of Italy is in isolation in attempts to control the spread of the COVID-19 virus. In Ireland, the Department of Foreign Affairs and Trade has changed the security status ranking of Italy to ‘do not travel’ and the Minister for Foreign Affairs Simon Coveney has recommended that Irish citizens do not travel to Italy. Ryanair and Aer Lingus have since suspended all Italian flights until 8 August and 3 April, respectively. This is an unprecedented action given that Europe advocates freedom of movement and access of its citizens, and facilitates interconnected travel in and through its member states.

At local level, the Irish Aviation Authority (IAA) is following public health advice from the Irish Health Service Executive for aircrew and personnel licensing with a general warning for crews. In response to the on-going uncertainty, the Commission for Aviation Regulation recently published advice on passenger and consumer rights with regards to potential flight cancellations, delays or re-routing. See here

Aviation specific guidelines

At an international level, the International Civil Aviation Organisation is working closely with the WHO, International Air Transport Association (IATA) and the Airports Council International. Together they have created a single source for aviation specific guidelines relating to COVID-19. The objective of the guidelines is to ensure there is an appropriate framework for planning and action at all levels in order to mitigate the effects of the virus. The guidelines can be found here

Financial fallout

While the priority is and remains public health, the final cost of the virus outbreak will be calculated at a later point. There is little doubt that it will have a financial impact this year. On 5 March 2020, IATA provided an update on its initial financial analysis on the aviation sector. Notably, it revised estimates for 2020 global revenue losses for the passenger business to a range of between US$63 billion and US$113 billion. Earlier estimates provided by IATA projected a lower level of revenue loss amounting to US$29 billion, however, this assumed a scenario that the impact of COVID-19 would be confined to the Asia markets. For obvious reasons, this rationale was later disapplied.

Challenging times

Alexandre de Juniac, IATA’s Director General and CEO acknowledged that “this will be a very tough year for airlines”. One example is the UK regional airline, Flybe Limited, which entered administration on 5 March 2020. The risk looms large for other airlines, who have reported increased financial and operational strain and it has been reported that stock prices on many major airlines have declined sharply. In the US, publicly quoted carriers’ first quarter earnings are expected to take a hit, although it is still hard to quantify the impact. Market analysts and commentators still maintain, however, that this is a resilient sector and change can be quick and fast. Consequently, it is expected that air carriers with healthy balance sheets and variety in their range of services and offerings should see positive change as we go through 2020.

Conclusion

As the situation develops we will continue to monitor the potential impact of COVID-19 on the aviation industry, from an operational, security and financial perspective. Dr Tedros, the Director General of the WHO, commented on 5 March 2020 that “this is not a drill” and while confident that the epidemic can be pushed back, this will be possible only where there is a collective coordinated and comprehensive approach by all governments. This sentiment is further echoed in his statement that “we’re all in this together, and we can only save lives together”.

As of 9 March 2020, the WHO has now published extensive advice and guidance to travellers on their website.

For more information or if you have any queries arising relevant to your organisation, please contact a member of our Aviation & International Asset Finance team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.