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The COVID-19 pandemic has created headwinds for the airline industry. Out of health concerns, customers were canceling international air travel to China and other affected countries in Asia as early as January 2020. Since then, travel restrictions imposed by governments around the world as well as suspension of nonessential travel by businesses and organizations have led to a sharp drop in air travel. These developments could also have significant implications for civil aviation programs.
The International Air Transport Association, an airline industry group, projected on March 17 that the industry’s losses globally due to COVID-19 would exceed $113 billion—more than 19% of the annual revenue—and warned that numerous airlines around the world were running out of cash. Many passenger carriers have canceled services in the face of reduced demand, and have sought to conserve cash by offering voluntary leaves of absence, placing workers on furlough, and grounding or accelerating retirement of some aircraft.
Cargo airliners are not subject to travel restrictions at this point. However, a considerable proportion of air cargo normally moves in the bellies of passenger aircraft. While this accounted for a modest 1.6% of airlines’ total revenue in 2019, cancellations of passenger flights may disrupt air cargo flows. Some airlines have indicated they will convert otherwise unused passenger planes into cargo planes to meet shipper demand. On March 17, Fedex, a major air and ground logistics company, suspended its earnings forecast for 2020 but did not offer an estimate of the financial impact of COVID-19. Package carrier UPS told investors on March 3 that its financial results for the current quarter “would be impacted” by COVID-19, but offered no details.
A U.S. industry trade association, Airlines for America, said on March 16 that “U.S. carriers are in need of immediate assistance as the current economic environment is simply not sustainable,” and called for the federal government to provide grants, loans, and tax relief to both passenger and cargo carriers. Separately, the Federal Aviation Administration (FAA) has temporarily waived minimum slot-use requirements that required airlines at slot-controlled airports to use their slots at least 80% of the time or risk losing them. This benefits airlines that otherwise might have been disadvantaged as a result of canceling flights at the three slot-controlled airports—Ronald Reagan National Airport in Washington, DC, and LaGuardia Airport and John F. Kennedy International Airport in New York.
Impact on Funding of Civil Aviation Activities
The reduction in air traffic as a consequence of the COVID-19 pandemic is likely to have significant effects on the amount of funds available for civil aviation infrastructure and activities.
Source: Rachel Y. Tang