The airline industry often finds itself on the corporate frontline when global disaster strikes. The 9/11 attacks, the Sars outbreak and the credit crunch all posed a serious threat to a sector that has always struggled to make consistent profits.
The coronavirus crisis marks another dangerous moment for airlines, which are already facing multibillion-dollar revenue losses as the disease hits demand.
Carriers around the world are cutting routes, freezing pay and using smaller aircraft to cope with a further slump in bookings. British Airways and Ryanair announced flight cuts on Monday , with BA dropping 432 flights between 16 March and 28 March, including one flight a day between London and New York as well as services to Italy, France, Germany and elsewhere in Europe. Ryanair, Europe’s biggest short haul carrier, said it was also cutting hundreds of services by cutting a quarter of its flights to and from Italy between 17 March and 8 April.
Globally, airlines took five years to return to profit after the 2001 terror attacks, losing more than $40bn (£30.7bn), mainly in the US, in that time. The industry plunged back into negative territory in 2008, losing an aggregate $8bn as the financial crisis struck.
My flight to Europe is cancelled. All I’m being offered is an alternative flight or vouchers. Is this legal?
No. But that hasn’t stopped a number of airlines doing exactly that. All flights on EU carriers within, or into the EU, and all flights leaving from an EU airport, are protected by the EU’s “denied boarding” rules, which require a full refund in seven days when flights are cancelled.
The problem for consumers is that enforcing these rights is proving very difficult. After initially promising to refund passengers within 20 working days, Ryanair has now said passengers should accept vouchers valid for 12 months, or wait until the Covid-19 pandemic is over for a refund.
Refunds at British Airways are only being processed by customer services which, of course, is impossible to contact. easyJet, initially only offered refunds through customer services but now has a web portal to request refunds.
Note: the EU cancellation rules do not apply to non-EU carriers where the flight started outside the EU – for example, a Korean Air flight from Seoul to London.
In the face of a no-refund policy, what should I do?
Taking the offer of replacement vouchers in the current climate is highly risky given the airline may not be around in six months. While some will be happy to accept vouchers, many will not.
Coby Benson of the specialist flight compensation lawyers, Bott and Co, advises passengers to submit their refund request in writing, using the following text:
I understand that my flight [fight number] on [flight date] has been cancelled and I therefore request a full refund pursuant to articles 5(1)(a) and 8(1)(a) of EC Regulation No.261/2004. You are reminded that the refund must be made within seven days. For the avoidance of doubt, I do not accept a travel voucher.
If the airline does not respond or does not agree then the passenger can either issue court proceedings or use Alternative Dispute Resolution.
If your flight cost more than £100 and was booked using a credit card, you can hold the card provider jointly liable. When things calm down we suspect many passengers will be forced down this route.
My flight operated as scheduled but I was unable to go on it. What then?
The fact that the government advised against all but essential travel means travel insurance policies should pay foreign trip cancellation claims provided you bought your policy before the pandemic was declared on 11 March.
Miles Brignall
This time, the industry has hoped to stay in the black overall, according to the International Air Transport Association forecasts. But an Iata spokesman said the organisation’s estimate of almost $30bn in lost revenues, made 11 days ago, was already seriously outdated, with the outbreak now affecting bookings in new regions of the world.
With fears growing that years of unusually rosy financial health could be ending, airlines called on Monday for the suspension of normal “use it or lose it” rules on valuable airport slots.
Iata said it was contacting aviation regulators worldwide and requesting the usual rules governing the use of takeoff and landing slots be put on hold.
About 43% of airline passengers worldwide fly from airports where airlines lose rights to takeoff and landing slots if they fail to use their allocation at least 80% of the time.
Regulators can waive the rules in exceptional circumstances, and some have done so already for airlines flying to China.
However, Iata’s director general, Alexandre de Juniac, said: “Iata research has shown that traffic has collapsed on key Asian routes and that this is rippling throughout the air transport network globally, even between countries without major outbreaks of Covid-19.
“We are calling for regulators worldwide to help the industry plan for today’s emergency, and the future recovery of the network, by suspending the slot-use rules on a temporary basis.”
De Juniac said airlines were “on the frontline of the challenge” to prevent the spread of Covid-19 while keeping the global economy functioning.
Iata said one carrier had taken a 26% reduction in passenger numbers across its entire operation, and a major carrier had reported bookings to Italy collapsing to zero and customers demanding refunds.
Among the latest efforts to cut staff costs, the US carrier United Airlines on Sunday said it was offering pilots partially paid leave, and Emirates joined Cathay in encouraging its staff to take time off.
The German airline group Lufthansa has grounded a number of large planes and said on Monday it was extending flight cancellations to Iran and China routes until late April. The Dutch carrier KLM has extended its flight ban to China.
The spread of outbreaks to Italy has significantly worsened carriers’ outlook. BA’s owner, IAG, reported on Friday that it could no longer offer profit guidance for the year after the drop in bookings following the quarantining of parts of north Italy. EasyJet has also cancelled hundreds of flights to Italy.
Airline shares have plummeted since last week, with easyJet falling 30%, IAG slipping 32% and both United Airlines and Lufthansa down a quarter.
According to Andrew Lobbenberg, a HSBC analyst, while Air France-KLM had warned of a €200m (£171m) hit from coronavirus until the end of May, “the widening of the outbreak across Asia and into Italy makes the company’s estimate redundant. It is very hard to assess how long and how significant an impact we should expect.”
Andrew Charlton, an aviation analyst, said airlines were having to react on three levels. “The first is their staff … they can’t risk flying them somewhere where they might get sick. The second is the market. Demand for Venice and Milan has fallen through the floor, and there’s no point in trundling around with empty aeroplanes. The third is watching out for if a pandemic is declared – there will be all sorts of legal obligation to what they can and can’t do.”
He said airlines were at risk. “It’s a question of how much cash reserves they have, how agile they can be … On the upside, fuel prices are falling, interest rates are low and governments are looking at what they can do. But we shall see if smaller airlines can survive.”
John Strickland, an analyst with JLS Consulting, said: “Airline revenue management staff will be looking by the hour at booking trends, to see where demand is dropping.”
On Monday BA announced it would waive fees for customers changing flights, in an attempt to boost public confidence for future bookings.
However, Strickland said airlines’ ability to react was more limited than in previous crises. “This is not a situation where airlines can stimulate demand – they simply have to acknowledge it.”
IAG said it hoped to redeploy some aircraft serving China and Italy for other routes around the world, but Strickland said not all would be able to do so: “There are limits to redeployment – you need a lead time of six to eight weeks to get a decent level of bookings to make it worth flying. It’s not a simple matter.”
Given the potential for outbreaks to spread geographically in that time, he said it was “almost crystal ball gazing” for airline planners now.
