Canadian airlines are waiting for an industry-specific aid package promised by the Government of Canada, but in the meantime are adopting the emergency wage subsidy to help keep flight attendants and pilots on payroll even though the vast majority of flights have been cancelled until at least June.
Airlines are grappling with an unprecedented drop in demand for passenger travel as the government fights the coronavirus by imposing travel restrictions and border closures.
Passenger revenue is expected to drop by US$64 billion in North America and US$314 billion globally in 2020 compared to last year, according to updated estimates from the International Air Transportation Association, which represents 290 airlines comprising 82 per cent of global air traffic.
With new estimates predicting domestic air travel won’t recover until summer and international travel until the end of the year, Canadian airlines are advocating behind the scenes for government aid — quickly.
The National Airlines Council of Canada has been pressing for measures including liquidity, a break from fees such as airport rent and taxes, and updated regulatory measures that could simplify operations in the short term.
The NACC, which represents Air Canada, WestJet Airlines Ltd., Transat AT and Jazz Aviation LP, has emphasized how critical air connections are, not only for transporting cargo during the pandemic but also for resuming the economy once the crisis abates.
Individual airlines have been reluctant to discuss specific requests publicly lest they strike the wrong message with officials holding the purse strings.
But the industry is eyeing the US$25 billion aid package the United States announced for 10 of its major carriers earlier this week. That relief package intends to cover salaries until September, includes grants, low-interest loans and equity warrants that give the government the option to buy the airlines’ stocks. Airlines have agreed not to cut jobs or pay for the duration of the aid.
If Canada adopts a similar strategy, Air Canada could be eligible for more than $1 billion in aid on top of the wage subsidy, Scotiabank analyst Konark Gupta noted to clients this week.
“We believe any substantial incremental financial aid, depending on the terms, could potentially lift investor sentiment as concerns have risen about AC’s balance sheet coming out of this downturn, particularly given uncertainty around the extent of COVID-19 impact,” Gupta noted.
Air Canada already plans to adopt the emergency wage subsidy covering up to 75 per cent of salaries to a maximum of $847 per week for at least 16,500 of its employees.
WestJet also intends to use the wage subsidy for the 6,400 workers it previously laid off. This week, the Calgary-based airline also sent layoff notices to 1,700 pilots effective May 1 or June 1, planning to keep them on payroll under the wage subsidy program as long as it’s in effect. WestJet will not top up the remaining 25 per cent for inactive employees, spokeswoman Lauren Stewart said in an email. It will have 569 pilots left after June 1.
On Friday, Transat A.T. Inc. also said it plans to use the wage subsidy to rehire 4,000 employees it had temporarily laid off after halting all flights.
While the wage subsidy expires in June — for now — load factors are expected to be significantly lower than normal for the remainder of 2020 with travel restrictions expected to stick around until at least fall, National Bank analyst Cameron Doerksen noted to clients this week.
“Even if restrictions are eased, quarantine rules may make international travel for all but essential travel impractical,” Doerksen noted. “We wonder how many people will be willing to travel internationally given that most international events such as festivals, sports, and conventions have been cancelled until at least the fall. Furthermore, will tourist sites even by fully open by the summer?”
As airlines deal with these existential questions, they continue to look to the government for support.
“Once the government-imposed travel restrictions are lifted, we have every intention of recalling our employees as soon as it’s feasible, but have been clear that we will need economic support from the Government of Canada to preserve our business and ensure Canada’s air transportation industry survives this pandemic,” holiday travel airline and tour operator Sunwing Airlines Inc. said in a statement this week.
• Email: [email protected] | Twitter: theemilyjackson