Weathering the Covid-19 Storm in Switzerland

Much of the focus throughout the Covid-19 pandemic has been on the adverse effect on daily lives, with shops and stores closed along with places of work for businesses large and small. Many of those however, in one way or another (and often without realising it) rely on aviation and air transport. Yet the airline world has been on the end of sometimes intense activity from the climate change movement, with frequent calls for it to be shut down.

The current health emergency has brought about just that – the almost complete cessation of a once thriving industry. Again however, the publicity has been aimed at airlines as, with their income streams removed completely, many have sought government help to remain in existence. Some have already gone; Flybe in the UK, Miami Air in the USA and Colombia’s Avianca, one of the oldest and most long-established air carriers in the world, entering bankruptcy within the last few days.

The airline industry is noted for its financial instability; one year an airline is profitable, the next posting heavy losses. This is often the subject of mainstream news commentary but one aspect often overlooked is the place every aircraft needs to start and end every journey – the airport. Large or small, passenger and cargo, business or private weekend flying, every aircraft needs an airport. Yet airports are businesses just like any other and all rely not only on the airlines that fly to them but also the shops and stores found in their terminals. Airports also rely on a huge number of usually unseen and unnoticed supply industries so not only airports themselves – and the people directly employed at them – have been affected by the near halt of commercial flying, but thousands and thousands of jobs are at enormous risk.

KJM Today took a look at the Swiss capital city Zurich’s airport to note the effect there.

Zurich is normally one of Europe's busiest airports

Key traffic figures March 2020

The effects of the coronavirus pandemic were starkly visible in March 2020:

890,134 passengers passed through the airport, corresponding to a decrease of 63.2% compared to last year.

Local passengers decreased by 60.6% to 656,399 in March 2020.

The transfer rate is at 26.0% in the month under review (-5.0 percentage points vs. previous year) and transfer passengers decreased by 69.2% to 230’910. In March 2020, air traffic movements decreased to 11,135 (-49.5% vs. previous year). The average passenger per movement figure decreased to 97.6 (-21.6% vs. previous year). The average seat load factor is at 56.5% (-19.0 percentage points vs. previous year). In March 2020, a total of 25,491 tons of freight were transported at Zurich Airport. This corresponds to a decrease in freight volume of 39.6% compared to last year. In the first two weeks of April, the number of air traffic movements and passengers further decreased with a reduction of more than 95% compared to the previous year.

The repatriation flight program organised by the Federal Department of Foreign Affairs (FDFA) has been maintained and certain international routes are still being flown, including amongst others, to Frankfurt (Lufthansa), London (SWISS), Helsinki (Finnair) and Amsterdam (KLM). Ambulance flights are also carried out, and logistics chains are being maintained with cargo flights.

Left - Happier times. Right - empty halls

Declining Revenues

The impact of the COVID-19 crisis has led to substantial revenue declines since mid-March for the airport. The airport’s board and management believe however that the airport operator, Flughafen Zürich AG, with a strong balance sheet and the steps taken to reduce the operating expenses and the investment program, is in a robust position to weather the prevailing situation. This is further expressed by the rating agencies Standard & Poor’s and fedafin AG, which both confirmed the AA rating of Flughafen Zürich AG recently. If additional capital should be required, the options of the Swiss capital market will be considered first. Flughafen Zürich AG currently believes that it does not have to apply for a bridging loan from the Swiss government although Chairman of the Board Andreas Schmid stated, “We welcome the intention of bridging loans from the Swiss government for the Swiss aviation industry. This will ensure that the temporary crisis in the global aviation market does not result in a structural and long-lasting damage to the regional and national economy”. In the current and extraordinary situation, securing liquidity has been the top priority. Comprehensive measures to safeguard this and reduce costs have already been decided and implemented, short-time working has been introduced and investment planning is being adjusted on an ongoing basis. As a further measure, the suspension of dividend payments to shareholders will be proposed at the company’s forthcoming Annual General Meeting.

Schmid continued, “Flughafen Zürich AG is a solid company with a long-term focus. In the sense of responsible corporate governance, we consider it crucial to maintain our liquidity position in order to be able to overcome the crisis financially secure and entrepreneurially”.

Once thronged with passengers, Zurich's departure gates are like airports everywhere, currently devoid of flyers.

Building for the Future

Switzerland’s biggest construction project is also nearing completion at the airport. With the terminal on one side and an area known as The Park on the other, The Circle is a development that encompasses corporate headquarters, a hotel and retail facilities as well as healthcare. As both investor and client, THE CIRCLE is being built as part of a co-ownership structure: Flughafen Zürich AG holds 51 % and Swiss Life AG 49 %. Following six years of project development, marketing and planning, construction work began on 5 January 2015.

Given the current situation, there are now fewer people working on the building site than there would be in normal circumstances, and their health is the top priority. Some suppliers are also unable to operate at present. Certain facilities will therefore be subject to around 2 or 3 months’ delay. However, the building should be completed this year – one reason being that the University Hospital of Zurich healthcare centre aims to commence operations as soon as possible. The public facilities will be opened gradually, starting in autumn.

Located directly in front of the terminal on the right, is The Circle.

KJM Today also spoke to Raffaela Stelzer, the airport’s Senior Spokesperson.

KJMT: The Covid-19 pandemic has adversely affected air travel in a way that has never been seen before. Obviously passenger and cargo aircraft movements have dropped dramatically – this has an equally obvious effect on the numbers of people working directly for the airport. How many people have either been temporarily laid off or lost their jobs already?

RS: So far we have not had to announce any layoffs due to the current situation. However, our 1,700 employees are on short-time work and we have taken further comprehensive measures to safeguard liquidity.

KJMT: How many were employed directly before the pandemic?

RS: The number of employees (number of full-time positions) at the Flughafen Zürich AG are 1,909 (end of 2019).

KJMT: What of people indirectly affected; approximately how many people earned their living in supply industries?

RS: Around 280 companies employ about 27,000 people at Zurich Airport.

Just one flight displayed on a departures board normally full of gate and time details.

KJMT: In the UK, Prime Minister Boris Johnson has just announced a 14-day quarantine period will now be imposed for all people arriving by air. This obviously will affect further demand for travel and many airports have flights to the UK, especially the London airports – despite the drop in demand, London has continued to see limited services. Is this likely to drop still further?

RS: Swiss International Air Lines currently flies to London several times a week.

KJMT: With so many airliners parked, an obvious purpose for some of them is to modify them to carry cargo especially that which can be strapped to seats normally used for passengers. Medical supplies are especially important and although we have now seen this happen, it took a while. This is something that needs to be government-led but do you think it could have been done more quickly?

RS: This development was also noticeable at Zurich Airport. An increase in the number of all-cargo flights has been noted here.

KJMT: How long do you think it might be before things begin to ease?

RS: This depends how fast countries will reopen their borders. We assume that over the next [few] months considerable restrictions in international travel can still be expected and also that traffic figures at the end of the year will continue to be significantly lower than last year. Nevertheless, in the coming days and weeks, various countries in Europe will gradually relax their entry requirements. This will lead to an increased demand for air travel. SWISS for example therefore plan to substantially expand its services with the June timetable, in line with the respective entry requirements and will offer around 140 weekly flights from Zurich Airport to about 30 European destinations.

KJMT: How long might it take for air travel to recover to the point where it was until the start of 2020?

RS: Unfortunately, it is not possible to make a clear statement in this regard at present. We assume that, even after the slow normalisation of public life in Switzerland over the next few months, considerable restrictions in international travel are still to be expected and also that traffic figures at the end of the year will still be significantly below those of the previous year. It goes without saying that the aviation industry is also dependent on the corresponding opening of borders.

Parked and stored - Swiss Airbus A330s

KJMT: Do you have aircraft parked/stored at the airport and if so, from which airlines?

RS: At Zurich Airport there are currently around 50 aircraft from local airlines SWISS, Edelweiss and Helvetic.

KJMT: Most people will know that airlines pay to use an airport, they are not free. What is the approximate loss in income from airline user fees and passenger spending?

RS: Income from flight operations (and also from our commercial centres) has almost completely collapsed. We are currently running a deficit so that Zurich Airport can remain open. The monthly loss is in the low double-digit million range.

KJMT: We have already seen some airlines cease operating entirely as a result of the crisis. Are you expecting any of the airlines that have suspended service not to resume them when the current restrictions begin to relax?

RS: An answer to this question would currently be pure speculation. The partners that are systemically important for flight operations, such as airlines, handling operations, cargo companies and catering providers, have been assured bridging financing by the Swiss government.

KJMT: If an airline has aircraft stored at the airport, are there fees due for the time the aircraft are spending parked on airport property?

RS: Yes.

KJMT: If any airline ceases operations and the aircraft is leased, the lessor will want the aircraft back but you will still be owed fees – you would be entitled to impound an aircraft until you are paid so how might you go about resolving this (in the UK, when Flybe stopped flying a number of airports impounded aircraft as they were owed fees)?

RS: We will deal with this question when the time comes. There are no signs that the local airlines SWISS, Edelweiss and Helvetic will cease flight operations.

KJMT: Air transport, both those airlines that survive and the airports that they use, will be of immense importance when recovery does get underway. Yet at the same time, air travel has, in recent times, faced severe criticism from climate change activists. How might you be able to reconcile this?

RS: In our view, a forward-looking strategy is needed: the goal is not to move away from flying and international networking, but to fly with non-fossil fuels. Flughafen Zürich AG remains committed to its climate goals and aims to reduce its own emissions to near net zero by 2050. This should not change even in the difficult economic environment caused by the corona crisis, even if individual implementation projects will have to be implemented in stages.

KJMT: The consequences of the Global shutdown have affected everybody. How is the city and community you serve been affected, both financially and socially?

RS: Zurich and Switzerland as a whole is massively affected by the current situation. But in Switzerland the first easing of restrictions is underway; restaurants and shops with an appropriate protection concept are now being allowed to reopen. More activity is therefore also returning to Zurich Airport on the landside in Airport Shopping.

The lights are on but few are at home - the early signs of recovery are still evident

All images courtesy Flughafen Zurich AG.

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