More than half of airlines and air freight companies expect to further reduce their workforces over the next 12 months, according to a survey of industry chief financial offers conducted by the International Air Transport Association.
Respondents to the Airline Business Confidence Survey indicated that the scope of their business operations was likely to be smaller due to the pandemic in the near-term and therefore airlines would need to focus on cutting costs further.
On the other hand, 19% are expecting employment to improve when operations resume as they are currently working with the minimum labour force.
While 45% of respondents to this quarter’s Business Confidence Survey reported a reduction in their staffing level in Q2 2020 due to cost cutting initiatives following the pandemic, 52% of the respondents reported no change in their workforce.
For the latter group, government assistance, including furlough programs supported this employment outcome. As a result, the backward-looking index remains below 50 threshold level for the second consecutive month.
The majority of respondents (77%) saw their profits decline in Q2 – a slightly lower share than the previous April survey. On the other hand, 19% of respondents reported an improvement in profitability, underpinned by the strong demand for air cargo.
As the belly capacity disappeared with the grounding of much of the passenger fleet, cargo yields soared. As a result, some airlines quickly shifted their focus to the cargo business in the absence of passenger flights. Repatriation flight revenues also supported some airlines in the period of almost full grounding.
Forward looking profitability expectations strengthened compared to April, but respondent expectations are still in contractionary territory. The majority (68%) expect a deterioration or no improvement in profits over the year ahead as a result of border restrictions being lifted only slowly and the restoration of passenger confidence to travel taking some time.
On the other hand, around one third of those surveyed expect to see an improvement in profitability as passenger flights resume.
The July survey shows that almost all respondents (96%) experienced a deterioration in passenger demand in Q2. Given the widespread and large scale aircraft grounding – apart from some domestic and repatriation flights – this comes as little surprise.
For the next twelve months, respondents have mixed views; 50% expect passenger demand to either decline further or remain stable, while the other half expect passenger demand to increase.
The latter represents a significant lift in sentiment compared with the April survey where just 12.5% expected to see an improvement and the forward-looking weighted-average score of the index improved as a result.
Nonetheless, those expecting to see a recovery in demand remain cautious and mindful that the situation will be challenging.