Executive Summary
As we all know, the coronavirus outbreak has greatly impacted airline industries from all around the world. Countries on lockdown, strict travel restrictions, low demand for passenger travel as well as health concerns have all led even the largest airlines to the brink of bankruptcy. As of June 2020, few of the smaller airlines have already gone bankrupted. This is the reason why we’re seeing airlines taking drastic measures in order to soften the impact of the coronavirus pandemic as well as survive through this hard time. Airlines all around the world are finding ways to reduce their costs as most of their operations are suspended but there are still ongoing financial commitments that they have to worry about. All over the news, we are seeing airlines offering pay cuts to their employees, retrenching their staffs and personnel in order to reduce the cost and downsize their operations while focusing on cargo operation which proves to be one of the ways for them to gain revenue through this hard time.
Brief Introduction
The coronavirus pandemic has affected every industry that we can think of and airline industry is one of the industries that is hit the most. The reason of this study is to see what airlines can do to survive and see in depth on steps that airlines are currently taking to survive the impact of this coronavirus pandemic.
Statement of Problem
With certain countries imposing lockdown, or implementing strict travel restrictions, as well as fear of their own health, the demand for passenger travel has been really low. This causes the number of flights to drop as the number of passengers is severely dropping. For an example, according to the China Ministry of Transportation, during the 2020 40-day lunar new year travel period, the aviation sector only handled 38.4 million passengers, with is a steep decline of 47.5% compared to the same 40-day lunar new year travel period last year. Another example is, Australia’s two largest airport saw 17% decline in international passenger number compared to the same month last year. This severe drop in number of passengers, as well as countries imposing lockdowns, airlines are forced to cut capacities and suspend international operations.
Airlines are heavily reliant on revenue coming in from their flights and some airlines do not have the cash to survive during this slump of demand for passenger travel. This causes low or no revenue coming in for the airline industry, which forces airlines to take the necessary steps to survive the impact of the coronavirus pandemic and in the worst-case scenario, this will force few airlines into bankruptcy. As per June 2020, several airlines have already gone bankrupted:
– Flybe (UK): March 2020
– Trans States Airlines (US): March 2020
– Compass Airlines (US): March 2020
– Virgin Australia (Australia): April 2020
– Avianca (Colombia): May 2020
Questions are now being raised on whether airlines can survive the impact of the coronavirus pandemic as time goes on.
Literature Review
Steps taken by airlines to survive during this pandemic
Offer pay-cut
One way for airlines to reduce unnecessary cost during this coronavirus pandemic is by offering pay cuts to their employees. A real-life example of this situation is Air Asia, where the low-cost carrier has no revenue coming in ever since the outbreak. This is due to the fact that Air Asia has grounded almost 96% of their fleet since the end of March and even though most of their operations are suspended for the time being, the airline still has ongoing financial commitments such as fuel supplies, aircraft leases and many more. In order for the airline to survive during this coronavirus pandemic, they are doing everything they can to reduce costs and this has led to the higher ups of Air Asia Group Bhd to give up their salary while their staffs agree to take a temporary pay cut between 15% to 75% as the company tries to reduce the impact of the coronavirus pandemic.
Another example is Etihad Airways. Etihad Airways will extend the period of pay cut for their staff until September 2020 as the airline takes necessary steps to preserve their cash. The pay cut percentages varies as only 25% reduction is applied to junior staff and cabin crew while 50% reduction is applied to employees at manager level and above. However, housing allowance and other unidentified benefits will still be paid.
Lay off workers
Airlines are also forced to lay off their workers in order to reduce their expenses and cope with the impact of the outbreak. A real-life example of this is Air Asia, where they are laying off up to 300 employees in order to do reduce the impact of the coronavirus pandemic as well as to downsize their operations. They are expected to lay off 111 cabin crew members, 172 pilots and 50 engineers.
Another example of this is Qantas, Australia’s flag carrier, which will cut around 6,000 jobs across all part of their business in order for the airline to survive this coronavirus pandemic. Among the 6,000 jobs, it will include 1,450 office roles, 1,500 ground operation staff, 1,050 cabin crews, 630 engineering staffs and 220 pilots. A further of 15,000 employees will be without pay for the coming months especially those related with international operations since international travel is currently suspended. They are not expecting to resume international travel until July 21 but they are hoping that the states’ borders will be open as soon as possible to enable domestic travel as it can prevent them from laying off more workers.