COVID-19: Economic policy responses to the global health crisis

Angela Gittens by Angela Gittens | Mar 18, 2020

As a matter of priority, airport operators remain first and foremost concerned with protecting the health and welfare of travelers, their staff and the public, and reducing opportunities for transmission of communicable diseases. In this context, it is important for national governments to work together with industry partners in full recognition that “business as usual” no longer applies.

The fast spread of COVID-19, compounded by travel restrictions, represents an exogenous shock that has led to a severe drop in airport traffic and economic activity. The aviation industry continues to contract, and we will likely see declines for the first half of 2020 in terms of passenger and air cargo traffic of nearly 90% for some major markets. With little flexibility in operating expenditures coupled with capital costs that are largely fixed, this represents an unprecedented challenge for the airport industry’s financial viability.

The financial shortfall will be significant and unlike anything we have ever seen for businesses involved in the aviation ecosystem. Current simulations point to airport industry losses of at least $20 and $25 billion (in US Dollars) for 2020. Many businesses, large and small and involved in airport businesses or not, could go bankrupt. There is a likelihood of a broad-based recession for 2020.

The combination of the espoused measures for self-quarantine and major travel restrictions causes significant economic disruption and impacts both consumer and business confidence. As we have witnessed, aviation is highly impacted by the crisis.

Exceptional circumstances call for exceptional measures

Still, there is light at the end of the tunnel amidst the present economic downturn. We have seen a level of containment of the outbreak in mainland China and the same will occur in other countries if adequate measures are implemented per the recommendations of public health authorities, including the WHO. Aviation  is characterized by its resilience and will bounce back despite this unprecedented decline. Aviation continues to be the hallmark that connects people, places, culture and commerce.

Governments continue to make efforts to prop up economies during the COVID-19 outbreak to circumvent the disruption to commerce and daily life. Central banks are using monetary policy to provide liquidity and cheap credit to sustain businesses across many industries especially since many of them are experiencing a sharp decline in cash flows. Major economies are also putting together fiscal stimulus packages aimed at putting money back into the hands of consumers and businesses to accelerate further spending. However, the stimulus may have a moderate impact on consumer spending over the near term, especially in cases where governments have implemented self-quarantine measures. Notwithstanding, governments must act decisively to avoid a deep recession.

Global policy responses for the airport industry and the aviation ecosystem

While there is a general sense across the aviation community that we are all in this together during this time of crisis, no measure or relief package should benefit one actor at the expense of another one. It is important to outline the fact that airports are businesses in their own right – They have significant costs to bear, debts and other obligations to fulfill, and services to deliver even during a time of crisis.

Airports are also important engines of economic growth, wealth creation and employment. Because COVID-19 represents an exogenous shock to the industry and broader economy, precautionary measures to close borders represent an additional shock to the airport business.

Thus, exceptional circumstances call for exceptional measures. In order to alleviate the financial shortfall of airports, ACI World recommends the following policy measures and relief package in this time of crisis:

Protection of airport charges

Airports will need to keep charging for services rendered and any mandatory alleviation of airport charges or introduction of blanket discounts will place airport operators in greater financial distress.

Airport revenues – from charges on airlines and passengers and from commercial activities – are directly linked to the level and evolution of traffic. Aeronautical revenues from airport charges paid by airlines and passengers for the use of airport facilities and services are instrumental to recover operating expenses as well as the large capital costs incurred by airports. But aeronautical revenues alone are insufficient to recover the cost base for airport facilities and services. Commercial revenues play a key role to bridge the gap between airport costs and aeronautical revenues. The decline in passenger numbers and the loss of consumer confidence has meant a significant drop in revenues from parking, retail concessions and food and beverage, for instance.

Airport operators are currently experiencing unprecedented declines in aircraft movements and passenger traffic, which significantly hinders their ability to meet their operating costs and their fixed capital expense obligations. The financial sustainability of the airport industry is under threat. Thus, suspending the collection of charges or granting blanket discounts would make this situation even worse for airport operators.

Ensuring access to finance

Governments should take steps to ensure that airport operators facing short-term liquidity problems have access to finance, whether through government loan guarantees or support on loan premia.

Alleviation of airport slots usage requirements

Temporary suspension of airport slot usage requirements – Recognizing the ripple effects of pursuing disparate approaches across different countries and airports, ACI World urges a harmonized approach through a global temporary suspension of airport slot usage requirements until 30 June 2020. ACI favors an ongoing flexible reassessment of the situation based on data-driven evidence.

This would enable carriers, especially network airlines, to adjust their schedules in a sustainable way and for airports to protect connecting traffic at hub airports and help safeguard connectivity worldwide. Along with the global temporary suspension, carriers are required to return slots within 24 hours of removing flights from booking systems. Receiving more realistic flight schedules will also enable airports to take necessary measures to reduce operating costs proportionately.

Concession fee payments to governments

Waive concession fees for airports – Governments need to consider, on a case-by-case basis, to waive or postpone airport rents and concession fees applicable to airport operators, irrespective of their ownership status, given the financial stress they are experiencing. Such waivers could be a one-time waiver for a certain period of time, without the requirement for airports to pay back the waived amounts later.

Depending on local circumstances, airport operators are also are required to deliver on capital expenditure projects as part of their regulatory obligations or concession agreements within a given fiscal year. Naturally, a relaxation of these conditions needs to be considered by governments taking into account these exceptional circumstances, as many airport operators have no choice but to immediately put a hold on construction projects for both technical and financial reasons.

Tax relief for the aviation sector

Suspension of national, regional, local taxes specific to the aviation sector – inclusive of those levied upon airports – Developing consumer confidence and stimulating demand are fundamental to kickstart the industry during the downturn and thereafter. Aviation is already a significant taxpayer to local, provincial and national authorities around the world via passenger duties and passenger-based taxes, domestic value-added tax (VAT), customs or immigration and other miscellaneous levies.

ACI World believes that national authorities have now a key role to play to ensure the sustainability of the entire aviation ecosystem by granting relief on airport taxes, on passenger-based taxes, and on taxes on air transport in general to incentivize the return of passenger confidence to travel.

Government assistance

In some circumstances, seeking government assistance to help offset losses incurred by the sharp drop in travel due to the continuing outbreak can be an appropriate measure. Provision of government funding through grants and subsidies that can be used to cover operating expenses, and mainly wages to airport staff to safeguard the labor force and hence continuity of airport operations once the crisis is over.

Ensuring the continuity and sustainability of airport operations worldwide

The policy responses outlined above are targeted towards ensuring continuity and sustainability of airport operations. Despite the current uncertainty over how long the crisis will last, and irrespective of the damage that will be later quantified, both the industry and Governments should strategically approach the prospective recovery pragmatically and in partnership.

The adverse impact of COVID-19 on aviation ecosystem should be borne equitably among all stakeholders, and all solutions should be fair, reasonable and proportionate to the current situation.

Angela Gittens

Angela Gittens

Director General, ACI World
Angela Gittens began her tenure as Director General of ACI World in 2008. She was formerly airport CEO for Miami and Atlanta and Deputy at San Francisco International Airport. In other roles, Gittens led HNTB Corporation’s airport business and strategic planning practice and, at TBI Airport Management, she oversaw the transition to private ownership of London Luton Airport and managed operations contracts at several airports in the US and Canada. She is a Fellow of the Royal Aeronautical Society, and has served on numerous aviation industry boards and committees.
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