Coronavirus is forcing many empty flights: The airline industry is now rethinking the practice

Airports and the carriers that fly in and out of them are among the hardest hit sectors of the coronavirus pandemic. And now the two are squaring off against each other—this time over coveted rights to take off and land on some of the world’s most congested runways.

The International Air Transport Association (IATA), a trade body representing the airline industry, fears potential chaos should its member firms opt to ground flights en masse rather than fly near-empty planes around the world.

On the other end of the conundrum is ACI World, which represents airports. Fearing the loss of revenue, they’re demanding airlines maintain the routes—regardless of demand. This could lead to the potential of so-called “ghost flights” operated solely for the purpose of retaining slot privileges despite seats being virtually empty. This would wreak havoc on an operator’s bottom line not to mention waste millions of liters of kerosene in the process.

“The profitability of carriers is relatively low, even under normal conditions, so they can quickly face existential risks. Since they have a higher share of variable costs, grounding aircraft can save up to 60 percent of their expenses,” Guido Hoymann, Head of Equity Research at Metzler Bank, told Fortune.

“Airports by comparison earn higher returns, but because they are essentially concrete buildings that must operate regardless, there is no real pressure valve to adjust their costs to lower demand. It’s harder for them to adapt,” he added.

A record slot fee fetches $75 million

In the past decades, more and more airlines wanted access to such popular destinations as JFK in New York, London Heathrow or Charles De Gaulle in Paris—and that stretched available capacity on the ground to handle the increasing traffic. In order to efficiently maximize the supply-constrained infrastructure at over 200 airports around the world, rights were allotted semiannually under a set of global guidelines first instituted in 1976.

In many cases, an airline requires designated slots for both the origin and destination, and the costs can be considerable. Oman Air reportedly paid a record $75 million to Air France KLM to buy a take-off-and-landing slot at Heathrow. Europe’s largest airport by passengers is groaning under the weight of demand and attempts to build a third runway recently failed in a UK Court of Appeal.

Coronavirus is making matters worse. Plunging passenger figures and government-imposed travel bans are forcing providers to slash flights and mothball planes to preserve cash and protect already slim margins.

Such a move could endanger those precious slots, which must be honored at least 80 percent of the time over each season—the so-called 80/20 rule—in order to automatically carry over to the next. Otherwise airlines forfeit them under a “use them or lose them” rule, and with it a part of their livelihood, since it is the very definition of a zero-sum game: their loss means a win for a competitor.

“We need to temporarily suspend the current slot regulation, so airlines are not forced to fly planes that are empty just to maintain the takeoff and landing rights,” Lufthansa CEO Carsten Spohr told Der Spiegel last week. “That would be economically and ecologically senseless.”

Waiving the 80/20 rule?

The global airline governing body IATA has called for the suspension of slot rules until the next season, but ACI World rejected on Tuesday such a blanketed approach, arguing revenue must be protected.

“Airports rely heavily on airport charges to fund their operating and capital costs and operators find themselves under intense pressure during periods of traffic decline,” said Director General Angela Gittens in a statement. “Measures to limit the collection of airport charges would be ill-advised.”

That same day, Delta Airlines said it would cut capacity by 15-20 percent for transatlantic flights and by two-thirds for Pacific routes along with deferring investments worth half a billion dollars, while Air France is cancelling 3,600 flights on top of a total suspension of service to Italy. At the start of the outbreak, Australia’s Qantas CEO described the situation as “survival of the fittest.”

Lufthansa meanwhile is cutting up to half of its capacity in the coming weeks in what Hoymann argues has little historical comparison. “Air traffic has in many cases come to an absolute stop. There might have been days following the September 11^th attacks, where such cuts were made, but on this scale it’s probably unprecedented,” he said.

The EU Commission looked to soothe concerns by carriers on Tuesday, pledging to find a solution to temporarily suspend the slot rules, although it will take time before they can put forward targeted legislation that can be approved by the EU Parliament and Council.

“We are preparing a proposal for this amendment of the slots regulation as quickly as possible,” Stefan de Keersmaecker, a spokesman for Mobility and Transport Commissioner Adina Valean said. But, he noted, the upcoming slots season, beginning March 29, have already been paid for and allocated.

All of which is little comfort to the airlines.

Sure enough, Lufthansa today moved forward with its first countermeasure, announcing 23,000 fewer flights through late April, or nearly one-third of its global capacity. A spokesman for the German carrier, which vies with Ryanair as Europe’s largest airline in terms of passenger kilometers, said it was “very optimistic” that other countries would follow the EU’s lead since all companies were in the same boat.

The U.S. Federal Aviation Administration, however, provided no such similar assurances, briefing Fortune that it was currently “monitoring the situation.” On Wednesday however, the agency changed its position and said it would temporarily waive the slot requirement through the end of May, hoping other governments would reciprocate.

For now at least, it looks as airports stand to lose in this particular battle. But it might be good news for clean-air fans as money-losing, carbon-spewing ghost flights recede from the horizon.