Travel ban hits aviation sector

Jan 1, 2021 | News

ISLAMABAD:
As the coronavirus outbreak made headlines, countries across the globe initiated lockdowns and suspended international air travel in 2020 in a bid to curb the spread of the virus, delivering a heavy blow to the aviation industry.

In the aftermath of the pandemic, the world saw massive worker layoffs and salary cuts as businesses struggled to stay afloat. All airlines across the globe suffered billions of dollars in losses.

According to a report released by the International Air Transport Association (IATA), the airlines were set to end 2020 with losses of $118 billion.

IATA released the report on November 24, 2020 on the worsening losses faced by the aviation industry during the outgoing year due to the pandemic. It predicted that losses would continue, however, the figure would come down to $38 billion in 2021.

Restrictions on flights also caused losses to the tourism industry as IATA predicted a 66% drop in revenue in 2020, which was the largest fall in revenue since the World War II. IATA also forecast a decline in total employment in airlines to 1.9 million in 2020.

On the other hand, there is a silver lining as air cargo is expected to grow from 54.2 million tons in 2020 to 61.2 million tons in 2021. The increase is attributed to the delivery of cargoes containing equipment, vaccines and other material related to combating the Covid-19 pandemic. IATA saw a quick recovery for the airlines in 2021.

The assessment was made in November and unfortunately after that a new variant of the coronavirus emerged, which is said to be more contagious. Once again, in an effort to curb the spread of the virus, various airlines suspended flights to and from the UK.

If the surge in Covid-19 cases continues, there may be more restrictions on international air travel, which will reduce chances of recovery for the industry.

Pakistan could not escape the crisis as restrictions hit local airlines’ revenues. Pakistan International Airlines (PIA) had recovered losses in 2019 as revenue jumped 42.5% but the pandemic caused losses again, which jumped to Rs400 billion with annual interest payments at Rs24 billion.

Owing to the virus outbreak, PIA suffered a loss of Rs416 million on a daily basis whereas the Civil Aviation Authority (CAA) sustained a daily loss of Rs259 million due to suspension of domestic and international flights.

Overall, PIA incurred a loss of Rs31.9 billion in 2020 as it was unable to sustain its earnings. Normal operations were suspended in the first week of March and from last week of the month there was complete suspension.

Earlier, the management had set a revenue target of Rs194.5 billion and operating profit target of Rs0.3 billion. Later, it revised the revenue target downwards to Rs94.5 billion and estimated an operating loss of Rs31.9 billion.

As global flights were suspended, airlines also lost business from Umrah and Hajj season. Flights to Europe were suspended in the wake of a probe into licences of PIA pilots. PIA has hired a consultant and an interim response has been given to the European Air Safety Agency (EASA).

Due to the poor financial health, the government has approved layoffs in the national flag carrier. It has finalised a plan of restructuring to cut the number of employees from the current 14,500 to 7,500.

It has planned rightsizing through the segregation of 4,000 non-core employees and a voluntary separation scheme (VSS) for 3,000 employees. VSS will cost around Rs12.87 billion with payback in two and a half or three years.

Published in The Express Tribune, January 1st, 2021.

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