Airlines, suffering from fewer passengers due to Coronavirus, want relaxation of 80% slot “use it or lose it” rule
Date added: March 3, 2020
The airlines are feeling the effect of the Coronavirus. It is largely by air travel that the virus has spread so widely, and so fast, to dozens of countries. But the impact of the virus is to reduce air travel, either by people being prevented from flying, or others choosing not to put themselves at risk. So flights are being cancelled, and airlines are worrying about their profits. Currently in the UK, and Europe and internationally at large enough airports, the slots are allocated – and there is a “use it or lose it” rule. If an airline does not use 80% of its slots, it risks losing them. Slots can be hugely valuable, at an airport like Heathrow. In the UK the slots are administered by ACL (Airport Coordination Limited). Airlines are now asking that the slot use rules should be relaxed, even just temporarily while the world waits to see how widespread the Coronavirus becomes. IATA has said it was contacting aviation regulators worldwide and requesting the usual rules governing the use of takeoff and landing slots be put on hold. That has been allowed occasionally in the past. Airlines often “cheat” on the 80% rule, flying small planes, or “ghost planes” to keep up the figure. . Tweet
Airline industry braced for major threat from coronavirus turmoil
BA to drop 432 flights; Ryanair says it will cut a quarter of its flights to and from Italy
The airline industry often finds itself on the corporate frontline when global disaster strikes. The 9/11 attacks, the Sars outbreak and the credit crunch all posed a serious threat to a sector that has always struggled to make consistent profits.
The coronavirus crisis marks another dangerous moment for airlines, which are already facing multibillion-dollar revenue losses as the disease hits demand.
Carriers around the world are cutting routes, freezing pay and using smaller aircraft to cope with a further slump in bookings. British Airways and Ryanair announced flight cuts on Monday, with BA dropping 432 flights between 16 March and 28 March, including one flight a day between London and New York as well as services to Italy, France, Germany and elsewhere in Europe.
Ryanair, Europe’s biggest short haul carrier, said it was also cutting hundreds of services by cutting a quarter of its flights to and from Italy between 17 March and 8 April.
This time, the industry has hoped to stay in the black overall, according to the International Air Transport Association forecasts. But an Iata spokesman said the organisation’s estimate of almost $30bn in lost revenues, made 11 days ago, was already seriously outdated, with the outbreak now affecting bookings in new regions of the world.
With fears growing that years of unusually rosy financial health could be ending, airlines called on Monday for the suspension of normal “use it or lose it” rules on valuable airport slots.
Iata said it was contacting aviation regulators worldwide and requesting the usual rules governing the use of takeoff and landing slots be put on hold.
About 43% of airline passengers worldwide fly from airports where airlines lose rights to takeoff and landing slots if they fail to use their allocation at least 80% of the time.
Regulators can waive the rules in exceptional circumstances, and some have done so already for airlines flying to China.
However, Iata’s director general, Alexandre de Juniac, said: “Iata research has shown that traffic has collapsed on key Asian routes and that this is rippling throughout the air transport network globally, even between countries without major outbreaks of Covid-19.
“We are calling for regulators worldwide to help the industry plan for today’s emergency, and the future recovery of the network, by suspending the slot-use rules on a temporary basis.”
Iata said one carrier had taken a 26% reduction in passenger numbers across its entire operation, and a major carrier had reported bookings to Italy collapsing to zero and customers demanding refunds.
Among the latest efforts to cut staff costs, the US carrier United Airlines on Sunday said it was offering pilots partially paid leave, and Emirates joined Cathay in encouraging its staff to take time off.
The German airline group Lufthansa has grounded a number of large planes and said on Monday it was extending flight cancellations to Iran and China routes until late April. The Dutch carrier KLM has extended its flight ban to China.
The spread of outbreaks to Italy has significantly worsened carriers’ outlook.
BA’s owner, IAG, reported on Friday that it could no longer offer profit guidance for the year after the drop in bookings following the quarantining of parts of north Italy. EasyJet has also cancelled hundreds of flights to Italy.
Airline shares have plummeted since last week, with easyJet falling 30%, IAG slipping 32% and both United Airlines and Lufthansa down a quarter.
According to Andrew Lobbenberg, a HSBC analyst, while Air France-KLM had warned of a €200m (£171m) hit from coronavirus until the end of May, “the widening of the outbreak across Asia and into Italy makes the company’s estimate redundant. It is very hard to assess how long and how significant an impact we should expect.”
Andrew Charlton, an aviation analyst, said airlines were having to react on three levels. “The first is their staff … they can’t risk flying them somewhere where they might get sick. The second is the market. Demand for Venice and Milan has fallen through the floor, and there’s no point in trundling around with empty aeroplanes. The third is watching out for if a pandemic is declared – there will be all sorts of legal obligation to what they can and can’t do.”
He said airlines were at risk. “It’s a question of how much cash reserves they have, how agile they can be … On the upside, fuel prices are falling, interest rates are low and governments are looking at what they can do. But we shall see if smaller airlines can survive.”
John Strickland, an analyst with JLS Consulting, said: “Airline revenue management staff will be looking by the hour at booking trends, to see where demand is dropping.”
On Monday BA announced it would waive fees for customers changing flights, in an attempt to boost public confidence for future bookings.
However, Strickland said airlines’ ability to react was more limited than in previous crises. “This is not a situation where airlines can stimulate demand – they simply have to acknowledge it.”
IAG said it hoped to redeploy some aircraft serving China and Italy for other routes around the world, but Strickland said not all would be able to do so: “There are limits to redeployment – you need a lead time of six to eight weeks to get a decent level of bookings to make it worth flying. It’s not a simple matter.”
Given the potential for outbreaks to spread geographically in that time, [spread by air travel, by the aviation industry] he said it was “almost crystal ball gazing” for airline planners now.
Wikipedia: A landing slot, takeoff slot, or airport slot is a permission granted by the owner of an airport designated as Level 3 (Coordinated Airport), which allows the grantee to schedule a landing or departure at that airport during a specific time period.
Landing slots are allocated in accordance with guidelines set down by the IATA‘s Worldwide Airport Slots Group. All airports worldwide are categorized as either Level 1 (Non-Coordinated Airport), Level 2 (Schedules Facilitated Airport), or Level 3 (Coordinated Airport).
The current airport slot allocation framework in the UK is governed by EC Regulations which apply to the location of capacity at congested airports throughout the EU.2 Under the current framework, a slot is essentially a right to take off or land at a given airport at a given time.3 Slots are allocated through an administrative process rather than through an auction or market mechanism. In the UK, Airports Coordination Limited (ACL) manages this allocation process, independent from government, airlines and airport operators.
To comply with the “use it or lose it” rule, many airlines resort to artifice—flying smaller planes than necessary in order to spread capacity across their slots, for example, and even running empty “ghost” flights to ensure that the runways are busy at the appointed time. So instead of slots being recycled from established carriers to new ones, they are clung to. One analysis showed that only 0.4% of London Heathrow’s total slots and 0.7% of Paris Charles de Gaulle’s were allocated to new entrants during the period under study [The Economist – https://www.economist.com/leaders/2017/11/16/the-system-for-allocating-airport-slots-is-broken ]
What is ACL ?
“Airport Coordination Limited (ACL) is an independent organisation which provides data collection, schedules facilitation and slot allocation services at UK airports and elsewhere, in accordance with national and European Regulations and the IATA Worldwide Scheduling Guidelines.
“ACL was the world’s first independent organisation responsible for slot allocation and its business model, organisation and structure has been copied by many other newly-formed coordination agencies in Europe and Worldwide.
“ACL is a private body carrying out a public function. It contributes to the debate on issues of national policy, within the scope of its responsibilities, and it is called upon from time to time to submit its views on aviation policy issues and to participate in consultation procedures.”
Ryanair boss appeals ‘for calm’ as coronavirus sparks fresh wave of flight cancellations
Regulators are being asked to suspend slot rules amid the outbreak
By Oliver Gill (Telegraph) 2 March 2020
Ryanair boss Michael O’Leary has appealed “for calm” as coronavirus rips through the aviation industry.
Airlines fear they will be stripped of their lucrative take-off and landing slots if they cancel flights as demand plunges as new cases of the epidemic emerge across Europe.
With the value of the world’s biggest airlines plunging by billions of pounds amid the outbreak, the industry’s global lobby group has called on regulators to suspend slot rules.
One pair of taking off and landing slots can be worth tens of millions of pounds at popular bases such as Heathrow.
Rules stipulate that airlines must operate at least 80% of their allocated slots, or lose them in the following year.
However, the ongoing Covid-19 epidemic has had a “severe impact of air traffic”, the International Air Transport Association (IATA) said.
Ryanair and Europe’s biggest airline Lufthansa are the latest to warn that demand for services to Italy have plunged.
Both airlines said short-haul services to Italy will be cut by up to a quarter.
Mr O’Leary said: “There has been a notable drop in forward bookings towards the end of Mar, into early Apr. It makes sense to selectively prune our schedule to and from those airports where travel has been most affected by the Covid-19 outbreak.
“This is a time for calm. We will make sensible cuts to our schedules over the comings weeks to reflect weaker bookings, and changing travel patterns.”
Meanwhile, British Airways said on Monday that it had begun cancelling flights between London and the US amid falling demand.
“We will be contacting customers on cancelled flights so we can discuss their travel options, including rebooking onto other carriers where possible, full refunds or booking with BA for a later date of travel,” the airline said.
On Friday, owner IAG said it had been inundated with calls about coronavirus from customers worried about the status of their flights.
The run on the FTSE 100 company’s shares continued on Monday. After having around £2.5bn wiped off its stock market value last week, IAG stock slid around 8pc on Monday. Other airlines also struggled; both easyJet and Ryanair were 4pc and 6pc lower respectively.
Low-cost airline Norwegian staged a small recovery on Monday, however, after being one of the hardest hit last week.
Investors punished Norwegian, sending its shares to an 11-year low, amid fears it was facing a fresh cash flow crisis. The airline hit back at speculation that it was on the brink of breaching banking covenants – an event that could see its banks take control of the debt-laden company.
Bernstein analyst Daniel Roeska said that although Norwegian’s current programme of cost-cutting may be enough to see it through the current difficulties, “corona[virus] depletes demand and that creates a cash flow crunch at Norwegian”.
IATA director general Alexandre de Juniac said: “Traffic has collapsed on key Asian routes and that is rippling throughout the air transport network globally, even between countries without major outbreaks of Covid-19.
“There are precedents for previous suspension of the slot use rules and we believe the circumstances again calls for a suspension to be granted. We are calling for regulators worldwide to help the industry plan for today’s emergency, and the future recovery of the network, by suspending the slot use rules on a temporary basis.”
Airports urged to ease international slot rules amid virus crisis
By Patrick Hatch (Brisbane Times) March 3, 2020
Sydney and Melbourne airports and the federal government will consider letting airlines suspend flights while the coronavirus crisis guts travel demand, without the risk they will lose their scarce international traffic slots.
The International Air Transport Association on Tuesday called for the immediate suspension of airport slot rules to allow carriers more flexibility as the health crisis spreads beyond Asia and into Europe.
Carriers must operate at least 80 per cent of their allocated international airport slots, or face losing rights to the landing time and capacity in the next corresponding season. But regulators can relax that rule in exceptional circumstances.
IATA said the COVID-19 was having such a significant impact on its members that the use-it-or-lose-it rule should not apply for the next “slot season”, through to October.
“Traffic has collapsed on key Asian routes and this is rippling throughout the air transport network globally, even between countries without major outbreaks of COVID-19,” said IATA chief executive Alexandre de Juniac.
Qantas, Jetstar, Virgin Australia and Tigerair have all been hit by the coronavirus and cut capacity into Asia, on the Trans-Tasman routes and across their domestic networks. IATA expected global air traffic to fall this year – the first decline in more than a decade.
A spokeswoman for the Department of Infrastructure, Transport, Regional Development and Communications said the government was considering IATA’s request, which had also been made by Sydney Airport’s slot manager and supported by a number of Australian and international airlines.
A Melbourne Airport spokesman said it was working with airlines to “support their businesses during this challenging time”. The airport had flexibility in its system that allowed it to preserve existing agreements with incumbent airlines “that we can revert to when it’s appropriate to do so”, he said.
Sydney Airport meanwhile was “supportive of any practical measures that can assist the industry through this period and that assists with the return to normal operations as quickly as is reasonably possible”, a spokeswoman said.
Regulators have been waiving slot rules on a rolling basis for flights into China and Hong Kong. IATA said airlines could not plan ahead without knowing if these waivers would continue through the northern hemisphere summer.
Total international air traffic into Australia has fallen by about 10 per cent year-on-year due to the virus outbreak, driven by sharp declines from China and Hong Kong, according to aviation data group OAG.