This paper sets out A4E’s position on extending the slots use waiver from the summer season to the winter season (25 October 2020 to 27 March 2021). The industry remains in an unprecedented crisis and will incur historically large losses in 2020. With operations nowhere near normal levels, the winter season will be highly challenging. Airlines generally struggle to remain profitable in winter, with most profits made during the peak summer months. Under the normal slot allocation process, airlines are required to plan and finalise their winter schedules by August, allowing airports and coordinators to plan operations accordingly. With weak and unpredictable passenger demand, differing epidemiological situations across States, and uncertainty over how the virus will evolve and how States will react, the aviation industry will continue to need flexibility during the recovery phase to ensure optimal use of available airport capacity. Adjusting capacity and frequency of operations to demand will ensure that essential air services can be provided in a sustainable way to support severely affected economies and that consumer confidence can be rebuilt. The slots use waiver should therefore be extended to the winter season and a decision taken by the end of July at the latest.
Flexibility to Manage an Unprecedented Crisis
The COVID-19 outbreak forced air transport in Europe to a standstill, with 90% of flights grounded for months. The timely waiver of the 80/20 slots use rule for the summer season (29 March to 24 October 2020) allowed airline schedules to be adapted in response to the collapse in passenger demand and wide-ranging travel restrictions, without the risk of losing long-term access to key European airports.Regulation (EU) 2020/459 This flexibility was essential to manage a volatile situation and mitigate the effects of the crisis.
While EU Member States have begun to lift travel restrictions, the aviation industry remains in an unparalleled crisis. The economic impact on all stakeholders in the industry has been severe. Airlines are projected to incur losses of €82 billion globally in 2020, the worst year on record. Europe is one of the most affected regions, with losses estimated at an unprecedented €19 billion. The impact of the global financial crisis in 2008–09, estimated at €27.5 billion ($31 billion USD), pales in comparison.
Starting operations again from virtually zero will be challenging. The industry will need continued support and relief measures during this time. In this context, it is vital that it can respond to actual demand and the lifting of border restrictions to provide essential air services in a sustainable way.
Planning in the Dark
The industry faces a high level of uncertainty in planning its future operations. Bookings are at historical lows, down 82% globally in comparison to June 2019. Revenue passenger kilometres (RPKs) had fallen by 95% in April 2020, compared to 20% after the 9/11 attacks and 12% after the SARs outbreak in 2003–04. Recent industry surveys indicate that 45% of passengers intend to travel within the next 1-2 months compared to 60% in previous surveys. Overall, 50% of passengers said they would wait 6 months or longer before travelling again.For further details, see IATA’s economic analysis from 16 June 2020.
Airlines lack visibility on future demand to plan their schedules. Forward bookings for the beginning of the winter season in November 2020 are 59% below normal. 14% of airline tickets would usually have been sold at this point. This is further complicated by the fact that passengers are now booking closer to the date of travel. In May 2020, 29% of bookings were made 20 days or more in advance of the flight, while 41% of bookings were made for travel within 3 days. This compares to 49% and 18% respectively in May 2019.
There are no signs that travel will resume quickly during the summer or reach levels close to normal operations in winter. In the absence of a vaccine, continued uncertainty about travel restrictions, quarantines, and the risk of a second wave, will significantly affect consumer confidence and demand. Passenger load factors are likely to remain below the breakeven level of 75-80% for the foreseeable future. This is compounded by the fact that the industry makes most of its profits during the summer season. In 2019, the profit margin for European airlines was 9% and 17% in Q2 and Q3 respectively, compared to -1% in Q1 and 2% in Q4.
Matching capacity and frequency of operations to actual demand will make the best use of available infrastructure in these difficult circumstances. Getting through a winter season that is challenging at the best of times will depend on how responsive airlines and their industry partners can be. Forcing airlines to operate flights in order to retain slots for when the recovery picks up will be financially and environmentally unsustainable. An extension of the slots waiver will ensure optimal flexibility, help to restore air connectivity for severely affected economies and rebuild consumer confidence.
The Wider Economic Benefits of a Waiver
Robust schedules in a stable slot planning environment will provide the highest level of air connectivity between cities, regions and countries that can be delivered under the circumstances. Restoring a sustainable level of air connectivity will support trade, investment, tourism and employment in different sectors and benefit European economies.
It will also be important for European airports and the services they offer to consumers and businesses. A slots waiver for the winter season will allow airlines to start offering tickets for sale for the following season earlier than otherwise in the knowledge that they will retain historic slots for the winter 2021 season. Tickets are normally offered up to 11 months in advance of travel. If historic slots were to be lost in the absence of a waiver, airlines would most likely not assume the risk of offering tickets for sale until the initial slot allocation for that season was made, given the high level of uncertainty. For the winter 2021 season, this would be in June 2021. It would likely require a much higher level of rescheduling than normal. This would delay the restoration of air connectivity and slow the recovery in both the tourism sector and the wider economy, which would affect all stakeholders.
The absence of a waiver and flexibility during the recovery phase also holds the risk that connections between airport or city pairs could be lost. 94% of these connections are indirect globally, even if the majority of passengers travel on the most popular routes. With a much-reduced flying programme this winter, airlines may have no choice but to protect slots at level 3 (coordinated) airports and scale back activity at level 1 (non-coordinated) and level 2 (schedules facilitated) airports.Level 1 refers to airports where there is adequate capacity to meet demand. Level 2 refers to airports where there is a potential for demand to exceed capacity at certain times, requiring more formal cooperation. Level 3 describes airports where demand exceeds capacity in a given period, which cannot be resolved through cooperation between airlines in the short term. These airports require a formal process to allocate capacity and coordinate schedules. This would delay the recovery in the regions and for airports in those regions. It would further harm economies, consumers and the industry if any of these connections, which have been built up over years, would be compromised in the current circumstances. By contrast, a waiver could help to stimulate flights and support the recovery in the regions, as slots utilisation at level 3 airports would no longer need to be considered.
The Need to Extend the Waiver in a Timely Manner
Against this background, there is a clear and obvious need to extend the slots use waiver to the winter season from October 2020 to March 2021. However, a decision needs to be taken sooner than foreseen in Regulation (EU) 2020/459, which requires the European Commission to report on the situation to the Council and the European Parliament by September.
Under the normal allocation process, airlines are required to finalise their schedules for the winter season by August. The initial allocation has already taken place based on slot usage during the 2019 winter season. Slots not intended for use must be returned by 15 August, which are then re-allocated by coordinators. The allocation process is then finalised by 31 August, which serves as the baseline date for historic slots (HBD).
The industry needs clarity on the extension of the waiver as soon as possible and at the latest by the end of July. A timely decision on the waiver will help airlines to build robust schedules, help coordinators to manage capacity and allow airports to plan their operations with some predictability. This, in turn, will help to achieve optimal use of available capacity.
It must also be recognised that airports and coordinators, in close consultation with airlines, may need to manage capacity reductions caused by mandatory health requirements, such as physical distancing, which could be interpreted differently across jurisdictions. This could lead to longer turn-around times and reduce the overall number of flights that can be accommodated. Such temporary reductions will only be possible if an extended waiver is in place, allowing airlines to adjust schedules in response.
The Commission should make use of a Delegated Act under the urgency procedure set out in Article 12b of the Regulation to this end.
Ensuring That the Waiver Meets its Purpose
A4E recognises that industry partners affected by the slot waiver want to ensure that it meets its purpose and helps to support the recovery. We believe an extension will provide certainty and much-needed flexibility for a season that will challenge all stakeholders.
In this spirit, A4E is committed to providing traffic and usage data to the Commission to support its assessment and supports the following measures:
- Slots not intended for use in the upcoming season should be returned as soon as possible for reallocation;
- Slots for cancelled flights during the season should be handed back no later than two weeks prior to the date of planned operation in order to benefit from the alleviation;
- Alleviation should also be considered for slots that are returned less than two weeks in advance owing to (new) government restrictions that prevent a planned flight from operating;
- Slots that are newly allocated for the winter season should not be subject to the waiver and must be operated in order to achieve historic status;
- The waiver should not apply to slots held by an airline that is planning to exit an airport permanently during the winter season with no intention to operate the slots it has been allocated for that season, although slot transfers should still be permitted.
- Consideration should be given to granting any EU waiver on a reciprocal basis vis-à-vis third countries. This would ensure that EU airlines are treated fairly in global markets, allow EU airlines to better match capacity and demand in all markets, and encourage key jurisdictions, such as the United States, to grant a waiver on the same basis.