National Post (National Edition)
WILL OTTAWA FLY TO THE RESCUE OF AIRLINES?
The pandemic has left a multitude of unknowns in its wake. In a yearend series, the Financial Post explores some of the most intriguing.
The rollout of vaccines that inoculate against COVID-19 is injecting hope that next year will bring recovery in many sectors of the economy. The aviation sector, however, stands out as one in which nobody expects a rebound in 2021 — even with two vaccines now approved by Health Canada.
“It may get marginally better, but we are still going to be down massively compared to 2019,” said aviation consultant Robert Kokonis, managing director of Airtrav Inc. “It's going to be a very long five-year climb out of the depths we find ourselves in.”
The impact on global travel caused by the coronavirus pandemic decimated
airlines, airports and surrounding industries around the world. But adding to the Canadian aviation sector's woes is that ground has been lost to international competitors, in large part because there's been little direct government support in Canada, industry executives say.
Talks between the federal government and major airlines shifted behind closed doors as 2020 wound down, and while the Liberals' fall economic statement promised some assistance, including a $206 million budget to support regional air transportation, airlines in other countries have received more than $200 billion in combined aid, said Mike McNaney, president of the National Airlines Council of Canada.
McNaney, whose association represents some of the country's largest airlines including Air Canada and WestJet Airlines Ltd., said Canada has not only been an “outlier” when it comes to direct financial aid to airlines, but also lags other countries in the rollout of government-funded rapid testing and adjustments to quarantine restrictions that have severely curtailed business travel.
“We are now losing market share,” he said, adding this is going to put Canada “at a disadvantage” as vaccination becomes more widespread and recovery gets under way in global aviation.
In 2019, the Canadian airline industry was flying high, carrying some 80 million passengers and employing around 630,000 people, according to McNaney, who worked at WestJet for 14 years before taking the job at the trade association.
“None of these numbers reflect our current reality,” he said. In the June-to-August period, usually the industry's strongest season, air passenger traffic was down nearly 90 per cent compared to the same period in 2019. “As we look to 2021, it's not just about recovery now for the sector — it's about ensuring permanent damage isn't inflicted,” McNaney said.
Added pain is coming from fee increases, as ancillary businesses from airports to flight navigation providers try to make up for their revenue shortfalls.
NAV Canada, which provides air traffic control and navigation services to private carriers, increased its fees by an average of 29.5 per cent in September, a move that caused WestJet to add between $4 and $7 to ticket prices, despite concerns it would further crimp travel.
Daniel-Robert Gooch, president of the Canadian Airports Council, said despite all the measures taken including loading on additional debt and taking advantage of all rent relief and some deferrals offered by the government, airports won't be able to offset losses expected in 2020 and 2021.
In September, the airports informed the federal government they anticipate $4.5 billion in lost revenue by the end of 2021, with debt levels increasing to $2.8 billion. That forecast represented a 30-per-cent deterioration from earlier expectations.
“With fewer travellers, the model's not working right now,” said Gooch.
The downturn has led to the suspension of some regional routes, particularly to and from eastern Canada, while Porter Airlines has temporary suspended all flights until at least Feb. 11.
Kokonis said possible scenarios include: the crisis forcing airlines to merge in order to survive; some airports restructuring or going out of business; and hotels sitting empty so long their owners convert them into apartments. Then, when people start flying again, the domestic industry will be too small and uncompetitive to fill the demand.
Aviation in the United States and Europe “has not contracted as much as Canada,” said Gooch. “Other countries are going to be much better prepared to meet that pent-up demand.”
For months, industry watchers have been calling for more direct government aid for the sector. In addition, they say, a government-funded, co-ordinated rollout of rapid testing in airports across the country that could be used to reduce quarantine times would be a shot in the arm for the aviation industry and particularly business travel.
There is also talk of creating a uniform COVID-19 “passport” of sorts — most likely electronic or touchless — to ensure passengers boarding planes have been vaccinated or tested for the virus.
The Canadian industry is already co-ordinating with international counterparts through The International Air Transport Association's “travel pass” initiative, which aims to create a digital platform for passengers.
“One common standard … that's crucial to get people going again,” said Kokonis.
Mark Agnew, senior director of international policy at The Canadian Chamber of Commerce, said governments also have a role to play in creating common standards for data storage of testing and ultimately vaccination information.
“Going it alone on a data platform for travellers will only create headaches,” he said, adding the International Chamber of Commerce and the World Economic Forum have already begun work to develop such platforms and help reopen borders.
While it isn't clear to what extent business travel will recover, Agnew said more co-ordination and consistency at Canadian border points, such as who is exempt from local quarantine rules, would give companies more confidence in making decisions about how, when, and where employees travel.
“Differing interpretations are creating challenges,” he said. “The company may have been told in advance that a certain thing should happen, but then the border officials will instead execute a different decision.”