As truly international industries, both aviation and travel have been seriously impacted by the coronavirus (COVID-19) health crisis. With over 100,000 cases confirmed globally, the death toll exceeds 4,000 and some countries such as Italy have taken extreme measures to contain the virus. Meanwhile passenger numbers are plummeting, flights are being cancelled and airlines admit to operating 'near empty' flights to preserve landing slots.
The UK airline Flybe went into administration on 5 March and we wait to see if there are any other major casualties within the sector. IATA has estimated that the outbreak could cost airlines up to US$113 billion in revenue – an increase on a previous estimate of $30billion - as a result of cancellations, global flight restrictions and reduced passenger demand. However, the industry has proven resilient during times of crisis; following the SARS and Avian Flu pandemics, international passenger traffic bounced back within a year.
Our aviation team takes a look at some of the issues facing aviation and travel businesses in light of the coronavirus outbreak and offer advice to businesses who find their operations affected.
The care and assistance costs incurred by airlines in relation to schedule reductions resulting from COVID-19 are likely to be substantive. Unhelpfully – but not surprisingly – existing European Court of Justice decisions do not help as to whether delays and cancellations caused by the outbreak amount to an 'extraordinary circumstance'. To avoid these EU261 claims, airlines are now cancelling flights in sufficient time to avoid falling within its remit. However, care and assistance obligations - such as rerouting passengers disrupted by schedule rearrangement - still apply. The UK CAA has reminded airlines of these obligations while also noting, as the UK's National Enforcement Body, that they would regard Government advice against all but essential travel to a destination, or disruption arising from other regulatory or third party action such as airspace closure, as capable of constituting extraordinary circumstances, in which case the compensation obligation would not apply. However, we expect there will inevitably still be many claims that will need to be dealt with. We may have to wait until there is an ECJ ruling on the first one to know the full position on it.
Airport slots and grandfathering rights
IATA has requested that regulators worldwide suspend rules surrounding the use of airport slots for the 2020 season. The rules currently governing slot allocation mean that airlines must operate at least 80% of their allocated slots or they risk losing their slots in the next equivalent season. IATA has stated that the exceptional circumstances and dramatic reduction in flight travel caused by the COVID-19 outbreak provide an argument for waiving these rules. Airlines risk operating low capacity or empty aircraft for the sake of maintaining their slots which will not only have a financial burden on the airlines but an unnecessary environmental impact. The UK Government has been encouraging both the UK slot coordinator, ACL, and the European Commission to relax the rules given the adverse environmental consequences of flying unnecessarily empty aircraft and, on 13 March, the European Commission (EC) published a proposal to amend the slot allocation regulation: this would deem that all slots allocated for March up to June 2020 were operated, as well as those to and from China and Hong Kong. Slots which an airline does not in fact use need to be made available for reallocation in the meantime, but with the downturn in demand it seems unlikely that there will be many carriers looking to take them up.
The supply chain
Away from the frontline of airline operations, the outbreak and fall in customer demand has caused material disruption to the aviation and travel supply chains. From fewer on-board catering and ground handling requirements, to package holiday hotels not being booked or holidays being cancelled entirely, the ripple effect down the supply chain is, and will continue to be of some magnitude.
Wherever you are in that supply chain, your rights and obligations are likely to be contained in your contracts and you should be reviewing those to understand what your position is. Some questions you may wish to consider are:
- What are your obligations to supply if there is less (or no) customer demand?
- Do you have any rights to still be paid even if volume has dropped?
- Do you have any rights to recover your 'standing army' costs while you are not able to perform?
- Could this outbreak amount to a force majeure event? What are the consequences if it is? This will depend on the wording of the clause but if the current situation is a force majeure event, it may give you some relief from performance if that is needed. It could also give you or your customer a right to terminate after a certain period, which may or may not be what you want.
- Do you, or your customer, have other rights to terminate the contract? Or do you need to start renegotiations?
There are many other issues that businesses will be facing at the moment and some of these have been considered in our other briefings. Take a look at our COVID-19 homepage for more guidance.
We don't yet know how long this position of uncertainty will last or what the next few weeks or months will hold in terms of advice on travel. Check back for regular updates and, in the meantime, get in touch with our Aviation and Travel teams to find out more about how we can help you.
Last reviewed: 16 March 2020