Airlines will eventually be downsizing amidst temporary present situation

Downsizing is inevitable for all local airlines as it may take 3 years or so for air travel demand to return to pre-covid numbers, said Roberto Lim, Air Carriers Association of the Philippines (ACAP) executive director. 

ACAP members include Philippine Airlines, PAL Express, Cebu Pacific, CebGo, and  Philippines AirAsia.

In an online forum named "Wednesday Roundtable", Lim said that the situation is only temporary but airlines will indeed be facing huge and numerous challenges ahead due to the plummet of air travel demand globally brought by lockdowns and travel fears of the CoviD-19. Who is not afraid anyway?

The coronavirus situation has forced airlines to suspend commercial flights and ground aircraft as countries have imposed their own lockdowns. In spite of a force majeure situation, fixed costs of airlines continue to run like but not limited to leases, navigational fees, landing fees, and all other recurring costs, putting the airlines deeper in debt.

While the suspension was for 2 months, the effects were devastating as airlines were not generating revenue while fixed costs kept running. The only way for airlines to generate revenue to pay-off these fixed costs is to continue flying.

Downsizing is inevitable

It would take 2 to 3 years before the air travel demand may return to pre-covid levels, hence, it would be necessary for airlines to downsize at this point in order to manage fixed costs. Overcapacity may lead to even more loses. This may also mean downsizing the fleet which will eventually lead to downsizing of manpower. 

Unfortunately, pilots, cabin crew, and ground personnel are usually directly impacted by fleet downsizing. Every aircraft usually corresponds to a certain number of crew and personnel needed to operate it, depending also on the utilization of the aircraft but normally, the number of crew and personnel needed per aircraft are computed based on maximum utilization.

Most airlines are doing their best to to take care of their direct employees, resorting to every solution and measure in order to keep them on board. According to Lim, there are around 25,000 direct employees (excluding outsourced) serving the local airlines. Including those from outsourced companies, there are around 100,000 airline personnel.

To prevent loses from mounting however, airlines would need to streamline its operations in order to survive this crisis and to manage all costs properly through necessary cost cutting measures.

Many global airlines have already resorted to downsizing measures like the Lufthansa group which is decommissioning 40 aircraft. United Airlines is also retiring its Boeing 777 fleet in order to cut costs and to streamline operations.  

Government assistance

Lim said that the airline industry is lobbying for the inclusion in the stimulus program to help the airline industry which is facing a huge crisis right now. While airlines would usually resort to credit lines, many private entities are not extending these due to the present situation.

ACAP has requested the Philippine government for credit guarantees. This also includes credit facilities and waiver of navigational fees. These are necessary in order to buy the airline more time since air travel demand is not guaranteed to go up anytime soon and there is just so much uncertainty in the industry.

Despite resumption, domestic flights face huge challenges

While travel restrictions have been eased as a result of the declaration of the General Community Quarantine (GCQ) over Metro Manila, airlines still face challenges ahead despite the resumption of flights. A huge challenge pointed out by Lim are the Local Government Units (LGU) of some areas under GCQ status. These are the ones who are thinking twice about allowing flights, particularly from Metro Manila to fly in and out.

Airlines are a vital artery that spurs economic activity due to trade and tourism according to Lim. Most cargo are transported from one place to another via air, particularly for an island like the Philippines which is an archipelago.

Domestic travel will play an important role in the airlines' recovery as international travel are still dependent on each country's policies. If LGUs do not easen travel restrictions, airlines would be forced to ground their aircraft even longer which will eventually lead to more loses.

Coordination with government authorities as resumption of flights begin

Lim said that airlines work in close coordination with the government authorities Civil Aviation Authority of the Philippines (CAAP) and the Manila International Airport Authority (MIAA). More than just submitting their planned routes, destinations, and frequencies, airlines also submit their biosecurity measures in order to ensure the safety of all passengers amid the CoviD-19 pandemic.

The survival of our airlines will really depend on consumer demand and from this day on, health security will be a main concern among passengers nowadays. 

Airlines also follow the International Civil Aviation Organization (ICAO) roadmap to recovery which include security measures at place before boarding, and International Air Transport Association (IATA) biosecurity measures which make flying safe, according to Lim.

While this situation may be temporary, the recovery period may take time and airline long-term strategic planning will definitely shift. Global airlines are all downsizing which is necessary for their survival.

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