UK government refuses blanket bailout for airlines

UK chancellor Rishi Sunak has written to airlines telling them to find funding elsewhere and only turn to the government as “a last resort”.

The country’s travel industry has been pleading with the government to provide some form of financial support to survive a drop in demand following the outbreak of the coronavirus. Many airlines are only operating a tiny fraction of their usual capacity, including Virgin Atlantic, Ryanair, Easyjet and Norwegian. British Airways owner IAG has culled about 75 per cent of capacity across its airlines.

But in a letter to aviation bosses, Sunak said airlines should first look to raise money from shareholders, with the government only prepared to step in on a case-by-case basis once they had “exhausted other options”.

Industry body the International Air Transport Association (IATA) said that for the aviation industry, the situation is “apocalypse now”, with CEO Alexandre de Juniac saying “there is a small and shrinking window for governments to provide a lifeline of financial support to prevent a liquidity crisis from shuttering the industry”.

According to IATA’s latest analysis, annual passenger revenues will fall by US$252 billion (£215 billion) if travel restrictions across the globe remain in place for three months – a 44 per cent decline compared to 2019. This is double the organisation’s initial estimate of a US$113 billion revenue hit that was made before more countries started closing their borders.

IATA said around 2.7 million airline jobs are at risk and that each role supports another 24 in the tourism sector.

De Juniac said: “Travel restrictions and evaporating demand mean that, aside from cargo, there is almost no passenger business. It did not seem possible, but in a matter of days, the crisis facing airlines worsened dramatically.”

He added that travel will be needed to aid the world’s recovery when the pandemic is over. “Airlines are an economic and employment engine. This is demonstrated even as passenger operations shrink, as airlines continue to deliver cargo that is keep the economy going and getting relief supplies where they are needed most. The ability for airlines to be a catalyst for economic activity will be vital in repairing the economic and social damage that Covid-19 is now causing.”

Nick Wyatt, head of travel and tourism at data and analytics firm GlobalData, commented: “It is now almost inevitable that the airline industry will require some degree of government intervention, so the chancellor’s stance is a big gamble.

“Airlines are a key part of a developed economy, driving connectivity that allows a country to compete on the global stage and also employing thousands of people. It is therefore puzzling that Sunak is saying to them that they should seek support elsewhere. If such help is not forthcoming, then it seems the government will act on a case-by-case basis, which may take time – time the industry does not have.

“Other governments are being more proactive, further calling the UK’s stance into question. Airlines [featured] in the United States’ US$2 trillion stimulus package and countries that do this will retain a strong airlines industry post-COVID-19.

“The impact of COVID-19 is like nothing we have ever seen before. Airlines are capital intensive and are burning through cash while very little revenue is coming in. The severity of the cash flow issue is acute and while some airlines are reasonably well-equipped to deal with this, many are not. While there are certainly question marks over the dividend policies and share buyback schemes of some airlines, the current situation is a recipe for failures and government intervention is required.” 

The situation has also hit airports, with Gatwick having to shut parts of its terminals and lay off staff and Carlisle Lake District airport having to completely close down to passenger flights. While many, such as Heathrow, are using the spare runway capacity to encourage airlines to increase their cargo operations, the financial impact has still been severe.

Karen Dee, chief executive of the Airport Operators Association (AOA) has accused the government of ‘U-turning’ on earlier proposals to provide a support package for airlines and airports.

“Our industry will now have to fight on its own to protect its workforce and its future.

“With passenger numbers approaching close to zero, UK airports have seen a major drop in revenue. They are taking unprecedented steps to safeguard airport staff and operations through this crisis, which could include in some cases considering shutting down for a period of time. This could have major impacts for UK communities and businesses.

“Even amidst the crisis, airports are continuing to provide lifeline services to the Highlands & Islands communities and the UK Crown Dependencies and freight services to ensure vital supplies (including medical supplies) arrive in the UK. They are also the base of operations for UK Search and Rescue operations, for offshore oil, gas and wind farms that provide vital energy supplies and they play a critical role in the management of UK airspace.

“All of that is now put at risk by the government’s decision. While countries across Europe have recognised the vital role airports play and are stepping into the breach, the UK government’s decision to take a case-by-case approach with dozens of UK airports is simply not feasible to provide the support necessary in the coming days. Not only does the decision today leave airports struggling to provide critical services, it will hamper the UK recovery.”

However, the news seemed to be welcomed by Airlines UK, the industry body representing carriers. CEO Tim Alderslade said: “We welcome the announcement that government will enter into negotiations with individual airlines seeking additional bespoke support, recognising the fundamental importance of the aviation sector to the UK economy and the particular challenges faced by airlines in the face of travel restrictions that have all but eliminated airline revenue, but not airline costs, which are substantial and not solely restricted to wages.”

Updated 27 March 2020: This story was updated to include analysis from GlobalData head of travel and tourism Nick Wyatt.