Summer traffic will disguise how deep the crisis in European aviation really is, says IATA's Director General Alexandre de Juniac. In our interview he also talks about state intervention, bankruptcies and wearing masks.
Was a global pandemic something you had on your personal top five list of potential threats for the industry?
Yes, the potential for a pandemic is one of the black swans that can have the biggest impact on air traffic. Wars, spikes in the oil price, economic collapse, ecological or environmental events and some kind of systemic safety or security issues are also possible scenarios, all of which have ocurred to a greater or lesser extent over the past decade-and-a-half. The question is not if but when such things happen. And airlines need to be ready to respond with agility if they are to survive. But aviation is a resilient industry. We have bounced back from challenges before, and we will do so again, even if Covid-19 is the greatest challenge we have ever faced.
Air traffic is slowly picking up again, people are travelling again. Are the first signs you see encouraging?
It is encourageing to see traffic returning, but we should not get too excited. Any increase looks impressive when you are recovering from a 90 percent loss in traffic. But the latest figures show that Europe is still more than 60 percent down. International traffic is 85 percent down. And there is pent up summer demand for holidays. Once that bubble bursts, we can expect to be in for a hard winter. Continued regulatory and financial support for aviation from governments will be needed.
Longer waits at the airports, temperature checks, wearing masks and so on… doesn’t all that make flying less comfortable for passengers?
I recently took my first trip to Paris by plane since the lockdown ended. Wearing a mask, keeping a distance and avoiding contact does make travel different. Many of the amenities that we have come to take for granted have been suspended. But the level of cooperation among travelers was very high. So the processes worked. With time, travelers will become more used to these measures, although we hope that they will be temporary. And airports and airlines will become even better at managing people flows.
In many countries we see a new spike in new Covid-19 infections. Do you fear there could be second lockdowns and more complete flight stops?
We are working closely with governments to try and prevent that. We believe that the measures we have put in place – coupled with swifter, more reliable testing and government tracing schemes – offer reassurance that air travel is safe, and an extremely minimal vector for transmission. The key is a risk-based approach, with governments making more targeted action to track, trace, isolate and treat cases, rather than a blanket shut-down.
A quarantine requirement has almost the same effect as completely shutting your borders.
What would that mean for the industry?
We have seen the impact of lockdowns and quarantine: it kills air travel. A quarantine requirement has almost the same effect as completely shutting your borders. Of course, governments must take the decisions they consider necessary to keep their citizens safe. But this must be done with full knowledge of the economic, social and broader consequences to the overall well-being of the population. What we are working to achieve with governments is a variety of policy options so that the binary choice of to lockdown or to be completely open is replaced with a sliding scale of appropriate measures which can preserve air connectivity.
Even without a big second wave IATA estimates airlines will lose almost 420 billion dollars in revenues this year and sustain losses of 83 billions. When do you expect the industry as a whole to be back in the black?
We don’t look more than 12 months ahead on our profit forecast. For sure, the industry will not be in the black in 2021. Traffic returns to 2019 levels in 2022/23 so that is the nearest realistic possibility of a return to profit for the industry as a whole. Of course, there will be considerable regional and national variations underneath this overall prediction.
There’s a saying: Never waste a good crisis. Aren’t some CEOs exaggerating the depth of the crisis in order to be able to get rid of some unfavorable contracts and surplus personnel?
How can a 90 percent collapse in passenger demand be exaggerated? This has become an existential crisis for many airlines. Some have been given direct financial aid by their governments to stay afloat, but in many cases this has been in the form of loans, which will be a millstone round the neck of the industry for many years. CEOs have a duty to preserve the viability of the airlines they work for. No-one wants to see their workforce cut and their network shrunk. But this is the reality of the situation the industry is in. At some point, demand will return – the priority for CEOs is to keep their airline in a viable shape to be able to respond to that demand when it comes.
A lot of carriers rely on strong summer revenues to keep going during the winter.
We have already seen some airlines go bankrupt, but not as many as one might expect. Why?
In many cases this is due to the economic support given by governments, and we are grateful for that. But as I mentioned, the debt burden is growing very significantly, and the industry is by no means out of the woods. The Winter period is traditionally much lower in profitability than the Summer. A lot of carriers rely on strong summer revenues to keep going during the winter. Those summer revenues will not be there this year. So I expect it will be a hard winter for many airlines and we have not seen the end of the crisis.
What type of airlines are most vulnerable in your opinion?
There is no single business model that has been more vulnerable than others in this crisis. Every airline, whether full-service, low cost, legacy or charter, has been severely impacted. We have seen bankruptcies from all kinds of carriers and no carrier is immune from this crisis.
Will some regions suffer more than others?
All regions are suffering. Traffic will return a little faster in domestic markets and long-haul international is likely to be the last sector to fully recover.
Does the disappearance of some airlines also open up opportunities for newcomers?
Aviation has always been a dynamic industry and the barriers to entry – especially since markets were liberalized – are quite low. I am proud to have overseen an increase in the number of low-cost airlines that are IATA members, for example. There has been a virtuous circle of strong competition leading to lower fares, giving more people than ever before the opportunity to get on a plane and enjoy the freedom to fly. As long as the regulatory system is still in place to encourage air connectivity, I expect that there will be ambitious, visionary aviation leaders looking to new opportunities.
That sends an important signal.
Many airlines have received some form of state aid in the last few weeks to cope with the crisis. On the one hand this is very welcome and necessary. On the other hand it means airlines are now a lot more dependent on the goodwill of politicians. Isn’t that a great danger?
In general I have been encouraged by the response of governments. It shows that they value aviation and the benefits it brings. It is a shame that it has taken a crisis of this magnitude to remind governments of aviation’s importance, but as I said, we are grateful for their support. But there are challenges ahead. There is a danger that politicians may think the worst is over, which as I already mentioned, is far from the case. We will need a slot waiver to be granted for the winter season, for example. Further economic assistance will probably be needed. Where governments have taken direct stakes in airlines, it is important that management are still given the mandate to manage. It was important that the German government, for example, has been clear that its involvement in Lufthansa is intended to be temporary, and that its shares will be sold. That sends an important signal.
Airlines have to take many measures to protect passengers and employees. How many extra costs does that create?
There are two important points to make here. Firstly, of course airlines are taking the steps necessary to protect their staff and passengers. But secondly, there are clearly established international guidelines, set out by the WHO, that state that governments need to bear the cost of additional health measures. So between airlines’ own efforts (for example increased santization of the cabin) and government financial support for measures such as temperature screening and testing (where necessary), the costs will be born.
You argue that Governments should pay for these costs. But isn’t it in the own interest of airlines?
As I say, this is a collaborative effort. There are clear lines of responsibility between the role of airlines and the additional measues mandated by governments. The priority is to keep people safe and we support these additional temporary measures. In the long-term, we hope that as COVID-19 is brought under control, these measures can be progressively withdrawn.
The challenge will be to preserve this level of cooperation.
What did IATA learn from this crisis?
I think the pandemic has reinforced some things that we have always stressed. Firstly, it has demonstrated beyond all doubt the social and economic impact of aviation. The shutdown of the industry threatens 25 million jobs that are dependent on air transport. We can only hope that many of these can be saved through economic recovery and government help. The second is that aviation is a global industry. No-one can escape the impacts of a global pandemic, and it requires a coordinated, global response. Governments can close the industry down unilaterally but it can only restart through cooperation. Whether it is the granting of a global airport slot rule waiver, harmonizing health measures, re-opening borders, or ensuring that essential cargo supplies can get through, it requires coordination between governments, and between government and industry, to maximise the effectiveness of the response. The ICAO Takeoff Guidance was an excellent example of this cooperation. We still see some differences of approach from some governments but in general the consistency of the government measures has been strong. That could not have happened without the intense work of industry and governments working together. The challenge will be to preserve this level of cooperation and harmonization. The pandemic may spike or recede at different rates in different countries, the economic or political situation may tempt governments to take uniliateral steps. We need to concentrate harder than ever on making the case that a harmonized global effort is in everyone’s best interests.
* Alexandre de Juniac (58) has been Director General of the International Air Transport Association IATA since he took on the role on September 1, 2016. He has almost three decades of experience in both the private and public sectors. This includes senior positions in the airline and aerospace industries and the French government. De Juniac served as Chairman and CEO of Air France-KLM (2013 to 2016) and prior to that as Chairman and CEO of Air France (2011-2013). Before he worked at French aerospace, space, defense, security and transportation company Thales 14 years. De Juniac has also held positions in the French government.