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Mon, 3 August 2020

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Explained: the Covid crisis facing UK aviation

Explained: the Covid crisis facing UK aviation

A British Airways plane lands at Heathrow in London, as new quarantine measures for international arrivals come into force at the beginning of June | PA Images

11 min read

The aviation industry is in crisis. Even as flights resume to destinations considered safe, industry figures expect to lose around £1bn a month throughout the summer. With tens of thousands of jobs across major airlines and the manufacturing supply chain under threat, will UK aviation ever be the same again?

The UK aviation industry was one of the first sectors to be hit by the coronavirus crisis, as the disease rippled across the globe at the beginning of 2020. Countries imposed lockdowns, passengers stopped flying to areas with high levels of the disease, and then in March, near complete shutdown as the UK locked down and the Foreign Office advised against all non-essential foreign travel.

With the exception of repatriation flights, emergency supplies and some freight, the skies emptied.

“It was unprecedented, demand just collapsed, effectively there was no demand. People just stopped wanting to fly,” says Tim Alderslade, chief executive of Airlines UK. The industry talks of previous crises – 9/11, the 2008 financial crash, the eruption of Icelandic volcano Eyjafjallajökull in 2010 – but this, they say, is “substantially worse”.

The Airport Operators Association say passenger traffic is down 98-99% on this time last year. ABTA, who represent travel agents and tour operators, estimate that up until the end of May about 3.5 million ATOL protected bookings were impacted, worth around £7bn – a figure that will increase by about £1bn a month throughout the summer.

Even as travel opens up to destinations considered safe, such as France, Italy, Greece, Spain and Germany, industry expect to run less than half their usual flights this summer. They now say it is likely to take three years for the sector to recover.

With tens of thousands of jobs across major airlines and throughout the aerospace manufacturing supply chain now under threat of redundancy, policymakers across the political spectrum are asking: how should – and can – the sector be saved?

The UK has the third largest aviation sector in the world, behind only the US and China. Huw Merriman, the chair of the Transport Select Committee, is clear that it should be one of the Government’s major priorities, with his committee publishing a strongly worded report on the impact of Covid-19 on aviation in mid-June.

“There’s strategic importance on aviation. So, yes it’s worth £28bn, yes it supports 330,000 jobs but each of those jobs also supports 4.7 additional jobs, so it has additional impact into the supply chain,” Merriman says.

However, it is not just leisure and business travel that concerns the Transport Committee – aviation plays a large role in the UK’s trading position, with 40% of all non-EU imports coming into the UK via Heathrow airport, mostly in the hold of passenger planes.

If the passenger planes don’t restart, the cost of goods could go up for UK businesses and exporters. “If we want to talk about these big deals and future trade, we’ve got to have an aviation sector that can actually deliver it,” explains Merriman.

In a perverse way it is perhaps actually safer for people to go abroad to those countries than staycation on home beaches

Fellow Transport Committee member Gavin Newlands is concerned in particular about the impact on the wider manufacturing supply chain – 700 jobs with Rolls Royce in his constituency are already under threat, some of the 6,000 across the country the aerospace manufacturer say may be lost.

“Once these skills go, once the work is offshored, those skills and those jobs probably won’t come back to this country,” Newlands says. “We’ve been a strategic leader in this sector for decades and we face a real possibility of losing that leadership within the sector if we let those jobs go without a fight.”

As well as investment in R&D in the manufacturing supply chain, Newlands believes the most important thing for the industry is to get planes flying again.

The aviation industry and the Transport Select Committee are unanimous in their frustration with the Government’s previous blanket 14-day quarantine policy, which they say lacked nuance or an evidence base.

Merriman explains: “If you look at the cohort who travelled in a comparable period last year, 97% of those destinations have a lower R rate than the UK has, and 80% of that figure has an R rate of less than a quarter of ours. You can actually say that in a perverse way it is perhaps actually safer for people to go abroad to those safer countries than staycation on home beaches.”

If and when travel opens up to destinations deemed “safe”, airlines are hoping to re-build some capacity over July into August, with bookings and traffic to travel sites spiking last weekend as announcements were trailed in the papers. However, while some will be “desperate” to get away after lockdown, measures will be needed to rebuild consumer confidence that it is safe to travel.

'PROHIBITIVE'

Due to the near impossibility of two metre distancing on aeroplanes and in airports, industry has been working with government on specific hygiene guidance for travel, published last month. Face masks will be mandatory on planes, and encouraged in airports, with signage in UK airports providing information about Government guidance.

Hand luggage will be checked into the hold on most airlines, passengers will be asked not to linger by boarding gates, and once sat on the plane, will be asked to stay in their seats throughout the flight. Hand sanitiser will be available, and regular deep cleaning will take place. Airlines and airports are in also conversations with government about temperature checking upon arrival.

Industry figures say that airline travel is no riskier than other forms of transport, and the hygiene measures such as masks will be already be commonplace across the UK. However, they believe the Government need to make a “media moment” out of any air bridges announcement to boost consumer confidence.

Luke Pertherbridge, head of public affairs at ABTA, would also like to see both industry and the FCO playing a larger role in encouraging travellers to ensure they are properly insured for catching Covid abroad.

“We know one of the big challenges that the sector faces is around travel insurance. Firstly around 20% of the British public don’t take travel insurance when they travel abroad, secondly quite often price is the main driver,” he warns. Some insurers also now offering cancellation cover in case of self-isolation curtailing holiday plans – however, this will come at a higher cost, although Petherbridge believes not “prohibitively high”.

As well as working to “correct consumer assumptions about what represents value”, he would also like to see travel insurance tax dropped from 20% to 12%.

There will be thousands of jobs lost in our sector unfortunately. What we want to be able to do is keep that to the minimum

However, even as some destinations open up, many others perhaps wont for several more months – including large markets like the US – and industry is aware of the ongoing risk of a second wave or local lockdowns.

“We are going to be one of the last industries to properly restart,” warns Tim Alderslade. Karen Dee, chief executive of the Airport Operators Association adds: “it will take some years to recover to pre-Covid levels.”

Dee, like most of the sector, accepts this will mean job losses, some of which have already been announced. “There will be thousands of jobs lost in our sector unfortunately. What we want to be able to do is keep that to the minimum… we want to keep these highly skilled jobs in the economy.”

The industry, the Transport Committee and Mike Kane, shadow aviation minister, all say they were led to believe there would be a specific aviation support package at the beginning of the crisis, but this did not come to fruition, apparently nixed by the Treasury.

A Department for Transport spokesperson said the Department had “acted quickly to provide the aviation industry with an unprecedented package of support”. However, the Transport Committee and the aviation sector would like to see targeted support for the industry going into the next phase of the crisis, including the extension of the job retention scheme beyond October.

Other measures proposed by the Transport Committee include a six-month suspension of air passenger duty to stimulate consumer demand (the UK currently has the second highest departure tax in the world) and applying business rates relief to airports in England and Wales (the devolved administrations in Scotland and Northern Ireland having already done so).

The UK has traditionally led on aviation safety standards around the world, and now the Transport Select Committee have also called on the Government to agree international passenger health standards for aviation to boost consumer confidence.

“If you look back when after people stopped flying after 9/11, you needed to get the reassurance back into passengers that it was safe to travel. And that was done by increased security, that bought people back,” Merriman explains.

“What will bring people back to flying is if there is one, internationally recognised standard… I’d like to see the Government at the highest level, the prime minister taking a lead in those discussions so the UK can say again it is at the forefront of aviation design and safety”.

Kane agrees. “People losing their summer holidays will be a terrible blow after what most families have had to go through in the last three or four months, they need some confidence that when they get to the destination they can enjoy the destination and then get back home safely. If we don’t get those measures of confidence, then we won’t see the industry reactivate,” he says.

We cannot punish people who work in aviation now on the back of this pandemic because we don’t think the industry is clean enough

After the collapse of Flybe earlier this year, the Government promised a review into regional connectivity, something both the Airport Operators Association and parliamentarians now want to be bought forward as part of the recovery strategy.

“If there is a long-term downturn in aviation, it will be regional connectivity that goes first. For your big carriers, their domestic operations are by far their least profitable, so if they’re wanting to fly less and save money, it’s almost certainly their domestic operations that will go. That will have a real impact on local jobs,” says Newlands.

This is partly due to the strict international regulations governing airport slots, where airlines have to use 80% of the slots they have at airports or lose them. After some airlines were flying empty flights at the start of the crisis in order to keep their slots, this was waived for the summer period.

While positive for airlines, the picture is more mixed for airports, Dee explains, as they only get paid based on the flights that actually take place, and around 70% of airport costs are fixed no matter how many people are flying.

Airlines UK has warned that if that waiver is not extended through to winter, and without other support or close-to-normal numbers of passengers, some airlines may feel forced to focus activity on more valuable and competitive slots in larger airports, pulling out of regional ones. The Transport Committee has recommended that the Government and Civil Aviation Authority should now be working internationally to review the slot allocation.

Merriman says this could bring “opportunities” for the aviation sector as well: “BA currently have 51% of all slots at Heathrow, we need to look at whether BA are going to continue to need all of those slots, and how we bring new entrants into the market,” he explains.

However, Kane warns against new entrants being able to buy up older, higher polluting models of aircraft, something he says “we have to avoid at all costs.”

Newlands agrees. “I certainly think we’d be remiss if we didn’t take this opportunity to try and make the industry greener. A lot of the older, higher polluting aircraft have been parked up for good now, and it’s the greener, newer aircraft that will be flying more now,” he says.

While Labour is calling for any sector support package to be predicated on six tests including the sector “building back greener, going further and faster”, Kane says this should not be at the expense of jobs. “We cannot punish people who work in aviation now on the back of this pandemic because we don’t think the industry is clean enough”.

The industry, unsurprisingly, agree, with Alderslade pointing out that they have already committed to being net-zero by 2050. “We don’t need this pandemic to incentivise green growth, we know that dealing with our emissions is our licence to hopefully be a growing sector in the next few decade.”

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