Global aviation now in crisis

BANGKOK, 20 May 2020: Global aviation has been battered, and airline travel remains largely grounded as countries enforce their lockdowns and restrict travel, with few signs that the end is in sight.

For the largest of carriers like IAG, United, American Airlines, Emirates Lufthansa and many more (see summary below) all have been forced to seek help from their governments.

The vital travel and tourism industry – which has often be the driver to a country’s economic recovery following past crises, is keen to see international air travel resume ASAP. The business of tourism which generates 10.3% of global GNP is anxious to restart travel.

The post-corona airline industry is going to look very different. Those that survive will have evolved into smaller leaner and debt-laden businesses and probably bailed out by governments.

Some aviation analysts are predicting that Covid-19 will leave the industry decimated and CAPA analysts say the world’s airlines could be bankrupt by the end of May if the situation does not turn around quickly.

One potential solution they propose would be to rescind national ownership rules and allow the industry to merge into global brands.

The post-corona chaos offers a rare opportunity to reset the building blocks of the global airline industry.

Emerging from the crisis will be like entering a battlefield littered with casualties. The field is open for lawmakers and financial markets to make their own demands on an industry that already has a long list – wish lists of ways they should treat customers better, reduce their carbon footprint and adopt more sustainable business practices.

As the impact of the coronavirus slashes through our world, many airlines have already been driven into technical bankruptcy. We see cash reserves are running down quickly as fleets are grounded. Forward bookings far outweigh cancellations, and each time there is a new government recommendation it is to discourage flying and travel.

The International Air Transport Association (IATA) most recent prediction is that European airlines will see demand drop by 55% in 2020 compared to 2019, and potential revenue losses will total USD89 billion. The association revised its loss prediction of USD76 billion made in March as the impact of the coronavirus global pandemic on the airline industry continues to hit unprecedented levels.

There has been a 90% drop in regional demand in the last several weeks and IATA has cited the introduction of travel restrictions around the world limiting movement only to essential travel and repatriation of citizens to their home countries as having “a greater impact than previously expected.”

A significant number of European airlines have suspended passenger operations with two of the region’s largest carriers, EasyJet and Ryanair, not expecting flights to operate until June.

Airlines will be hoping for corporate travel to bounce back quickly; business travellers probably pay four to five times the average fare on a typical flight – having them quickly back on aeroplanes is vitally important.

Even if the economy begins to recover in the third quarter of this year, as many economists predict, coronavirus fears could lead to a slow recovery as travel struggles to regain its pre-crisis levels.

It could take months for an airline to come back to life. Also, if second waves of the disease go around the world and possible hot-spot flare-up, these may reduce passenger confidence to travel. And while essential maintenance is still happening daily on parked planes, they will all need to be brought back into flying condition before being put back into service.

Demand is drying up in ways that are completely unprecedented. The new normal has not yet arrived at the airport.

AIRLINES IN CRISIS

✈️ The US government agreed a USD61 billion bailout for the US airline industry as the coronavirus pandemic brings travel to a virtual standstill. The grants to major airlines including American, Delta, Southwest, JetBlue and United, will probably come with strings attached.

On the 14 April,  the International Air Transport Association (IATA) released an updated analysis showing that the Covid-19 crisis will see airline passenger revenues drop by USD314 billion in 2020, a 55% decline compared to 2019.

Earlier, on the 24 March IATA had estimated USD252 billion in lost revenues (-44% vs. 2019) in a scenario with severe travel restrictions lasting three months.

✈️ Virgin Australia went into voluntary administration on 21 April due to crippling debts exacerbated by the coronavirus lockdowns. At least 10,000 jobs will be at stake if the airline folds. Virgin was carrying about AUD5 billion (USD 3.2 billion) in debt and had sought federal help to keep operating, but the Morrison government rejected a AUD1.4 billion bailout.

✈️ Thai International (THAI) similarily to Virgin Australia is seeking a USD1.8 billion restructuring loan from the government. The loan is unpopular as many believe that in its existing state it is doomed to fail. On 19 May the airline confirmed it would file under chapter 3/1 of the bankruptcy law for protection while it goes through a court-supervised reform plan.

✈️ IAG (British Airways’ parent company) the group announced in March moves to protect capital and reduce costs.

Capacity for April and May will be cut by at least 75% compared to the same period in 2019. The group will also ground surplus aircraft, reduce and defer capital spending, cut non-essential and non-cyber related IT spend, and discretionary spending. The company also plans to reduce labour costs by freezing recruitment, implementing voluntary leave options, temporarily suspending employment contracts, and reducing working hours.

✈️ Air Mauritius goes into Voluntary Administration.

✈️ South African Airways Bankrupt. On 5 December 2019, the Government of South Africa announced that SAA would enter into bankruptcy protection, as the airline has not turned a profit since 2011 and ran out of money.

✈️ Finnair returns 12 planes and lays off 2,400 people.

✈️ YOU grounds 22 planes and fires 4,100 people.

✈️ Ryanair grounds 113 planes and gets rid of 900 pilots for the moment, 450 more in the coming months.

✈️ Norwegian completely stops its long-haul activity!!! The 787s are returned to the lessors.

✈️ SAS returns 14 planes and fires 520 pilots… The Scandinavian states are studying a plan to liquidate Norwegian and SAS to rebuild a new company from their ashes.

✈️ IAG (British Airways) grounds 34 planes. Everyone over 58 to retire.

✈️ Ethiad cancels 18 orders for A350, grounds 10 A380 and 10 Boeing 787. More than 700 employees made redundant.

✈️ Emirates grounds 38 A380s and cancels all orders for the Boeing 777x (150 aircraft, the largest order for this type). They “invite” all employees over 56 to retire.

✈️ Wizzair returns 32 A320s and lays off 1,200 people, including 200 pilots, another wave of 430 layoffs planned in the coming months. Remaining employees will see their wages reduced by 30%.

✈️ IAG (Iberia) grounds 56 planes.

✈️ Luxair reduces its fleet by 50% (and associated redundancies)

✈️ CSA abolishes its long-haul sector and keeps only five medium-haul aircraft.

✈️ Eurowings goes into bankruptcy.

✈️Brussels Airline reduces its fleet by 50% (and associated redundancies).

✈️ Lufthansa, the German federal government, agreed on a €9 billion ($9.74billion) rescue package and planned to ground 72 aircraft.

✈️ Air France KLM Chief Executive Ben Smith said that voluntary redundancies would be part of the airline’s initial cost-cutting plans and that costs at its ‘HOP’ arm were not viable as things stood. In an interview just hours after Air France KLM secured 7 billion euros (USD7.6 billion) in French government aid, he also said that it could take two years, or possibly “even a bit longer,” before things returned to normal in the aviation and airline industry.