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The airline industry has been severely impacted by the Covid-19 pandemic. Most airlines have grounded nearly all of their fleets and many are operating passenger planes as freighters instead. Executives are working with governments and suppliers to respond to the dynamic situation. A data-driven flight plan is proposed to help airlines emerge stronger by considering different demand and market scenarios. Governments around the world are providing different levels of support to local airlines through employee assistance, loans, and other means.

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53 views4 pages

EktaGupta

The airline industry has been severely impacted by the Covid-19 pandemic. Most airlines have grounded nearly all of their fleets and many are operating passenger planes as freighters instead. Executives are working with governments and suppliers to respond to the dynamic situation. A data-driven flight plan is proposed to help airlines emerge stronger by considering different demand and market scenarios. Governments around the world are providing different levels of support to local airlines through employee assistance, loans, and other means.

Uploaded by

Ekta Gupta
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Airline Industry

The airline industry has been hit extremely hard by the Covid-19
crisis. With bizarre consequences, many airlines have grounded all, or
almost all, of the planes in their fleet. Several are now flying
passenger aircraft as freighters. Most of the commercial, network, and
operations teams are still scrambling to repatriate passengers and
decide which flights to keep. Meanwhile, executives are in touch with
governments, employee representatives, and suppliers to formulate
responses under very dynamic circumstances.

When flying through such turbulence, it’s critical to focus on the


horizon. Therefore, they propose a data-driven, action-oriented, and
digitally supported “flight plan” to help airlines emerge stronger from
the COVID-19 crisis.

This flight plan for the new normal takes into account various air
travel demand scenarios (which are in part a function of the duration
of the COVID-19 Crisis) and airline market structure scenarios
(shaped by, for example, airline failures, government intervention,
and consolidation).

They have been considering many scenarios by observing the crisis.


For example, they are tracking the spread of the virus by country and
determine the responses by governments, including the type and
duration of travel restrictions and the specific conditions under which
they might be relaxed. They are also monitoring indicators that
measure consumer sentiment, such as internet searches. Also, they
expect that governments might begin imposing specific limitations for
inbound and outbound passengers, including requirements before
boarding such as mandatory health screenings or certificates or
medical reports.

In some scenarios the positions in terms of liquidity and balance sheet


strength. Then, factor in potential government support as well as any
given company’s ability to adjust the cash-out.

Governments may well want to support investment in their own


country’s airline while ensuring that they do not support (whether
directly or indirectly) airlines elsewhere. They may also need to
consider the question of fairness when multiple airlines in a particular
country require support. And beyond government support and market
concentration (as a result of some airlines failing because they could
not gain support from governments or other investors), there might be
some consolidation opportunities, particularly as the industry
rebounds.

They expect the changes in regions, and the countries within them, to
differ significantly, largely because of the variation in governments’
responses to the crisis and the types and levels of support they offer.
For example, in Europe, several countries have announced support for
airline employees, which are helping companies to drastically reduce
their employee costs. Similar support has been, or likely will be,
offered (whether to employees directly or to companies) in the Middle
East and some Asian countries. The US is offering a rescue package
for all carriers that comprise a mix of payroll grants and loans.
We also expect airlines to differ within each region in terms of
financial health, probability of benefiting from government support,
and both willingness and ability to participate in consolidation or
fragmentation.

SUCCESSFUL FLIGHT PLAN

Though it is sufficiently dynamic to adapt to new circumstances, it


offers stable guidance when it comes to fundamental, structural
changes in the size and shape of an airline.

 Temperature and symptom screening


 Use of masks and PPE (Personal Protective Equipment)
 Physical distancing
 Cleaning and disinfecting infrastructure
 COVID-19 testing and antibody testing
 Immunity passports
 Measures to assist contact tracing
 As well as measures related to pilot and crew members and their
layover experience.

In such turbulent times, it is vitally important that industry players are


agile and holistic at risk management, including accounting risk, in
parallel with direct economic risks. Driven by the European Securities
and Markets Authority and other global regulators, there is a pressing
need to focus on transparency in financial reporting and market
disclosures. Airlines are in need to appropriately assess how fleet
groundings, travel bans, economic uncertainties and market volatility
may affect accounting conclusions. Such considerations may include
change in depreciation methods, revision of future salary assumptions
in existing liabilities, impact of extension in loyalty points expiration
dates, re-assessment of forecasted fuel consumption and volumes of
fuel hedged, re-assessment of existing operating leases (terms,
payment schedules, option to purchase, sub-lease etc.), revision of
aircraft maintenance and overhaul cost, among others.

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