The airline industry is famously turbulent. Oil shocks, currency fluctuations, geopolitical skirmishes, the occasional accident and groundings. On their own, they were big deals but suddenly, they seem like very small problems for the industry. The impact of COVID-19 on airlines is pushing the industry into new territory, beyond contingency and worst-case scenario planning. Daily,…
The airline industry is famously turbulent. Oil shocks, currency fluctuations, geopolitical skirmishes, the occasional accident and groundings. On their own, they were big deals but suddenly, they seem like very small problems for the industry. The impact of COVID-19 on airlines is pushing the industry into new territory, beyond contingency and worst-case scenario planning. Daily, the crisis is worsening and the future of many airlines and the airline industry is in question.
This is nothing like SARS
As COVID-19 tightened its grip on China just one month ago, folks were comparing the impact on airlines to the SARS epidemic of 2003. But this is nothing like SARS. While SARS also came out of China, its impact on aviation was much smaller. Unlike COVID-19, its spread was geographically limited and it ended reasonably quickly.
We can measure a beginning, middle, and end with SARS. We are nowhere near doing that with COVID-19.
The Wall Street Journal is reporting that US carriers are in talks with their government to access USD$50 billion in assistance. That’s more than three times the assistance package post 9/11. Neil Harbinson, chairman of the Centre for Asia-Pacific Aviation says;
“What I’m hearing is that the best-positioned airline in Asia has 30 days of cash left. You can’t emasculate a business by 70 or 80 per cent for a period of weeks, in a cashflow business, and expect them to stay solvent. It’s as simple as that.”
In Europe, Norwegian Air Shuttle has cut 85% of its flights and laid off 90% of its employees. Virgin Atlantic is grounding 85% of its fleet. If this continues, the Centre for Asia-Pacific Aviation thinks most airlines could be bankrupt by May.
“By the end of May-2020, most airlines in the world will be bankrupt. Coordinated government and industry action is needed – now – if catastrophe is to be avoided.”
Airlines are bunkering down for the bleakest of winters
Just a week or so ago, an airline cancelling a significant number of flights from its schedule was breaking news. Now it’s happening on a rolling basis and is near impossible to keep track of.
Airlines everywhere are bunkering down for the bleakest of financial winters. Should we be worried about the future of the airline industry?
It is almost inevitable that some airlines will go out of business. It isn’t just the weaker airlines that are imperilled. Global behemoth such as Cathay Pacific are in huge trouble. Singapore Airlines faces terrible headwinds and a probable government bailout.
Is COVID-19 the final nail in the coffin for previously embattled airlines such as South African Airlines, Alitalia, and Norwegian?
It is inevitable some airlines will cease operating
Second-guessing the fate of airlines is pure speculation and not particularly useful. However, it seems almost inevitable that some airlines will permanently cease operating. The longer the crisis facing the airline industry rolls on, the longer the list of out-of-business airlines will be.
And not being able to put a timeline on the duration of the crisis is the crux of the problem.
The airline industry is not going to cease existing. But it may be set for a serious shakeout. Familiar brands and livery will no longer be seen and the airline landscape will be re-shaped. Once profitable airlines may take years to recover financially. This will have flow-on consequences for aircraft orders and investment.
It is going to be a wild ride, just not in a good way.
What do you think? Should we be worried about the future of the airline industry?