Commercial Aviation; Repercussions of the Virus

By Wajeeh Qureshi | April 1, 2020

Deserted airports, grounded aircraft fleet and only a handful of passengers; truly these are unprecedented times. In the past month or so, commercial aviation has battled arguably the worst crisis in its history.  Air travel is at an all-time low, with most airline carriers operating a limited number of flights (mostly domestic) either for delivering emergency supplies/equipment or transporting cargo.

Government intervention the way out?

The International Air Transport Association (IATA) has warned that the airline industry is expecting to lose more than $250bn in revenue this year. IATA has also reported that airlines could potentially burn $61bn of their cash reserves during the second quarter which ends on 30th June 2020. With major carriers –the likes of Emirates, Singapore, and Turkish Airlines- suspending flight operations for April, the global recession coupled with massive ticket refunds, has completely disrupted the industry worldwide. Just yesterday –UAE’s premier airline carrier- Emirates announced that it will be pumped with funds from the Dubai government to boost liquidity. The decision was applauded by the IATA that further urged governments around the world to follow suit; mitigating the damage caused to airlines. Alexandre de Juniac, IATA’s Director General and CEO stated: “Without relief, the industry’s cash position could deteriorate by $61 billion in the second quarter.”

Grounded Aircraft ©Unsplash

Vouchers over Refunds?

Another financial drain for commercial aviation is ticket refunds for cancelled flights. Customers are upset over long delays in receiving their refunds; most preferring refund rather airline vouchers. Though airline customers are legally entitled to receive refunds within seven days of cancellation, the recession has crippled most airlines’ ability to meet this deadline. IATA CEO has called governments to empower airlines by allowing the issuance of vouchers. He stated:

Canada, Colombia, and the Netherlands are giving a major boost to the sector’s stability by enabling airlines to offer vouchers in place of cash refunds. This is a vital time buffer so that the sector can continue to function

Signs of Recovery

China’s aviation industry is rebooting after the country faced complete lockdown and travel restrictions. Passenger numbers are steadily improving as domestic flights show an upward trend.

Ultimately the situation boils down to three possibilities. Either the government steps in to offer generous financial aid to assist airlines in overcoming the cash deficit, or airline customers are issued vouchers instead to reduce ticket refund liabilities. Whereas the last is a combination of the two; meaning that both governments and customers intervene to save airlines from imminent bankruptcy/massive loss.

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