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Summary
- The second lockdown announced by the government would restrict all domestic and international air travel and would allow only essential ones.
- Airline industry groups like Airlines UK and Airport Operators Association have approached the government to support the industry through the crisis period.
- The aviation sector and the related supply chain activities support nearly 1.6 million jobs in the UK, contributing nearly 4.5 per cent to the economy.
The UK airline industry is in deep crisis after the government announced a second month-long lockdown earlier this week. The second lockdown, which will be implemented from Thursday, would mean thousands of booking cancellations for all the airlines and a refund burden worth millions of dollars. The industry, which was deeply battered by the first lockdown, has now approached the government for a relief package to protect jobs and companies from falling into a deep financial crisis.
This second lockdown, however, may not turn out to be as bad as the previous one, because the government has made it clear that duration will not be extended, which will allow the airline companies to reschedule bookings. The industry is a large contributor to the British economy, which directly and indirectly supports nearly 1.6 million jobs in the country. The total business activity is nearly 4.5 per cent of the country’s GDP.
The industry’s demand for government support also stems from the fact that stimulus support for the aviation industry has already been given by other European governments, and within the UK the government has provided additional support to the train and road transport sectors apart from the job support scheme.
Current state
The aviation sector in the UK has suffered heavy losses because of the coronavirus pandemic. The sudden drop in the number of air travellers after the outbreak and the subsequent lockdown, followed by the enhanced safety regulations meant that the revenues of airline companies fell sharply through the year. The situation was not only perilous for the airline companies, but airports and other supporting logistics companies have also suffered heavy losses because of the first lockdown.
Since the lockdown was opened, air traffic in the UK has only marginally improved. The fear among the people of catching the deadly infection has kept most of them from travelling by air, whereas the extensive safety protocols imposed by the government has made flying a very cumbersome process for those who want to fly. The air corridor scheme which was introduced soon after the first lockdown was relaxed did bring relief to the industry, but with this second lockdown, the benefits from the scheme would also extinguish.
Besides, several thousands of jobs have also been lost in the industry this year. There are several thousand more who now face a threat over their jobs during this second lockdown. The government though has announced that there will be an extension of the scheme, but that may be too little too less to support the industry.
Impact of Lockdown 2.0
Immediately after the lockdown is implemented, the number of people travelling by air will come down, and it will remain low till the lockdown ends. However, this time around, the industry is much better prepared to deal with the situation. All the major airline companies have raised additional funding to support themselves from the damage caused by the first lockdown. This money will also help them to an extent to withstand this second phase of the lockdown.
As the government has allowed several establishments to remain open during this second lockdown, it is likely that aircraft maintenance and hanger operations will continue, which will keep several people in their jobs.
Airlines refusal to refund fares
Following the announcement of the second lockdown, air travellers who have already booked their travel with major British carriers are now in a difficult position regarding refunds of cancelled tickets. Sources said that British Airways and EasyJet, two of the largest companies in the UK, have said that they will be making refunds, but Wizz Air and Ryanair have said that they will not be making any refunds.
During the first lockdown, the government had asked the companies to refund the ticket fares though the airline companies were not so keen. This time, however, the burden of refunds may not be that large as there is enough scope for rescheduling.
Share price performance of IAG
Last one-month performance (Source-Thomson Reuters)
As on 03 November 2020, the shares of International Consolidated Airlines Group SA (LON:IAG) have been trading at GBX 98.80 per share (12.23 PM GMT+1), gaining 2.47 per cent over the previous day’s close.
The company had raised nearly €2.6 billion in September from the sale of shares to jump-start its operations after reporting a half-yearly loss of about €2 billion for H1 of 2020. The company has also affected a few big-ticket management reshuffles over the past few months.
Share price performance of EasyJet
Last one-month performance (Source-Thomson Reuters)
As on 03 November 2020, the shares of EasyJet plc (LON:EZJ) have been trading at £520.60 per share (12.22 PM GMT+1), gaining 2.80 per cent over the previous day’s close.
EasyJet suffered a revenue decline of 73 per cent for the quarter ending 30 September, despite that it had a strong cash position. The net debt of the company stood at £1.1 billion, and it was holding cash, and cash equivalents of around £2.3 billion.
