Global aviation in crisis

[webfact]

Global aviation in crisis

by Andrew J Wood

 

 

BANGKOK: Global aviation has been battered and air traffic 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 percent of global GNP is anxious to restart travel. 

 

A 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 by the end of May 2020 most airlines in the world will be bankrupt. CAPA analysts have also reported the same, most of 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 a 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 corona virus 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 percent in 2020 compared to 2019 and potential revenue losses will total $89 billion. The association revised its loss prediction of $76 billion made in March as the impact of the corona virus global pandemic on the airline industry continues to hit unprecedented levels.

 

There has been a 90 percent 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 airplanes is vitally important. 

 

Even if the economy begins to recover in the third quarter of this year, as many economists predict, corona virus 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 SUMMARY

 

✈️ The US government agreed a $61bn bailout for the US airline industry as the corona virus 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 2020 the International Air Transport Association (IATA) released updated analysis showing that the COVID-19 crisis will see airline passenger revenues drop by $314 billion in 2020, a 55% decline compared to 2019.

 

Earlier, on the 24 March IATA had estimated $252 billion in lost revenues (-44% vs. 2019) in a scenario with severe travel restrictions lasting three months. The updated figures reflect a significant deepening of the crisis since then, and reflect:

 

1- Severe domestic restrictions lasting three months

 

2- Some restrictions on international travel extending beyond the initial three months

 

3- Worldwide severe impact, including Africa and Latin America (which had a small presence of the disease and were expected to be less impacted in the March analysis).

 

Full-year passenger demand (domestic and international) is expected to be down 48% compared to 2019.

 

 

✈️ Virgin Australia went into voluntary administration on April 21 due to crippling debts exacerbated by the corona virus lockdowns. At least 10,000 jobs would be at stake if the airline folds. Virgin is carrying about AUS$5 billion (US$ 3.2 billion) in debt and had sought federal help to keep operating but the Morrison government rejected a $1.4 billion bailout.

 

✈️ Thai International (THAI) similarily to Virgin Australia is seeking a US$1.8 billion restructuring loan from the government. The loan is unpopular as many believe that in its existing state it is doomed to fail. Trust of its management and directors has reached new lows with the Thai Prime Minister Prayut Chan-ocha and the public. THAI must submit a rehabilitation plan by the end of the month if it wants the government to consider a rescue package. Transport Minister Saksayam Chidchob set the deadline amid this rising public sentiment against a state-backed loan. 

 

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

 

“We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer,” CEO Walsh said. “We are therefore making significant reductions to our flying schedules. We will continue to monitor demand levels and we have the flexibility to make further cuts if necessary. We are also taking actions to reduce operating expenses and improve cash flow at each of our airlines. IAG is resilient with a strong balance sheet and substantial cash liquidity.”

 

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. Lays off 720 staff.

 

✈️ 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 5 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 plans 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 ($7.6 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. 

 

 

About the author:

Andrew J Wood was born in Yorkshire England, he is a professional hotelier, Skalleague and travel writer. Andrew has 48 years of hospitality and travel experience. He is a hotel graduate of Napier University, Edinburgh. Andrew is a past Director of Skål International (SI), National President SI Thailand and is currently President of SI Bangkok and a VP of both SI Thailand and SI Asia. He is a regular guest lecturer at various Universities in Thailand including Assumption University's Hospitality School and the Japan Hotel School in Tokyo. 

[Puchaiyank]

Airlines, hotels, tourist industries...all in deep doo...and may never fully recover.

[cornishcarlos]

The ones that do survive will be like Bubba-Gump shrimp after the storm ????

If you can pick the right ones to invest in, could be on a winner...

[bert bloggs]

The other problem for the airlines is if they put up prices ,no one will bother to travel ,making it even worse .

[DoctorG]

The Green New Deal crowd should be happy.

[Benmart]

1 hour ago, car720 said:

I for one don't mind if we go back to travelling by ship.

The cruise ship industry is in similar shape. I loved cruising, but now just fond memories.

[Andrew65]

23 minutes ago, Benmart said:

The cruise ship industry is in similar shape. I loved cruising, but now just fond memories.

They're probably in the worst state of any industry. At least airlines are a necessity, to a point.
 

I think cruising will be dead for a very long time indeed

[tomazbodner]

2 hours ago, car720 said:

I for one don't mind if we go back to travelling by ship.

Wooden one, wind-powered?

[GinBoy2]

At least in the US there were strings attached to the bailout money the airlines received.

 

They are required to provide a minimum service even if the route doesn't make financial sense at the moment.

 

On our regional jets, which are a 2x2 cabin configuration, unless the passengers belong together, so families, we can only book the window seat, the aisle is blocked, so basically even if the passenger count was there the aircraft has a 50% load factor.

 

You don't make money in the airline business with a 50% load factor 

[eeworldwide]

9 hours ago, Puchaiyank said:

Airlines, hotels, tourist industries...all in deep doo...and may never fully recover.

Well -not according to TAT. Tourists are expected to flock back again in October. Everything will be ok then!!!

[Susco]

1 hour ago, GinBoy2 said:

 

You don't make money in the airline business with a 50% load factor 

 

You do if you double the price

[baansgr]

Now's the time to PX your 10 year old Vigo for a 737...

[Deli]

Again: Make CHINA pay for it. They caused it, they MUST pay for it. in any way.

[GinBoy2]

7 minutes ago, Susco said:

 

You do if you double the price

And that maybe the future!

[Andrew65]

9 minutes ago, Susco said:

 

You do if you double the price

That's why I won't spend Christmas in Thailand now (not that that's a really big deal), double ticket price.

[Elkski]

I do wonder what prices will be from the west coast to bkk when things  open up.  I need a conjugal visit.  All these  crazy  people in USA worried  about freedom  have most likely put USA on the high risk list. 

Just yesterday Texas had its highest case or death numbers.  Not sure which.     

I still dont understand how Thailand case numbers were,  are, so low?  I'm thinking this virus or a close cousin has been in Thailand before and Thai people have herd immunity.   

[Cryingdick]

22 hours ago, cornishcarlos said:

The ones that do survive will be like Bubba-Gump shrimp after the storm ????

If you can pick the right ones to invest in, could be on a winner...

 

You could be right. I would pick an airline that has mostly domestic routes. I am not sure about Europe but for the USA Alaska airlines is an obvious choice. Domestic flights and strong balance sheet. 

[Cryingdick]

14 hours ago, GinBoy2 said:

At least in the US there were strings attached to the bailout money the airlines received.

 

They are required to provide a minimum service even if the route doesn't make financial sense at the moment.

 

On our regional jets, which are a 2x2 cabin configuration, unless the passengers belong together, so families, we can only book the window seat, the aisle is blocked, so basically even if the passenger count was there the aircraft has a 50% load factor.

 

You don't make money in the airline business with a 50% load factor 

 

I was joking in another thread about paying a fare scale based upon how afraid you are. Then this morning I think Delta actually announced the idea. You pay more for flights with less seats occupied. I had to laugh. 

 

Anyway the whole middle seat thing will go away in less time than you think. Otherwise those airlines will go bankrupt. If the government continues to invest it will go bankrupt. The government no longer has enough Uncle Sam bucks to pretend to control everything.

 

Warren Buffett selling 100% of his airline stakes should be a clue. They are no longer investable.

Edited May 20, 2020 by Cryingdick

[3NUMBAS]

On 5/19/2020 at 1:05 PM, Andrew65 said:

That's why I won't spend Christmas in Thailand now (not that that's a really big deal), double ticket price.

same here .xmas prices got too high to contemplate xmas trips

[Kwasaki]

My daughter works for BA they are retiring and making people redundant all to keep shareholders happy, so not a lot of nice rich shareholders out there. 

[2 is 1]

On 5/19/2020 at 1:27 PM, car720 said:

I for one don't mind if we go back to travelling by ship.

Maybe nice if you can go ashore . I don't want cruice 2 to 6 month.

[Crazy Alex]

Thanks, China!

[Roadman]

The smaller national airlines will survive and come back strong and with support from the individual country lawmakers should stay clear of any global proposal. The airlines to regrow internationally while the individual country lawmakers keep global brands out. Likes of AirNZ has a strong and mostly sole operator domestic market to get back on its feet again, and being half government owned and a strong balance sheet for both the airline and country prior to Covid 19, they can take the hit for a couple of years while their international bussiness rebuilds. With several countries (a lot of the island nations...Aussie, Japan, NZ  to name a few) being able to show better leadership than the moronic so called world super powers, and get on top of Covid 19 there is opportunity for those countries to open international flights between each other earlier. Keep some strong standards and controls in place and it can be achieved. And international is not only people but perishable produce for export earnings. 

Edited May 20, 2020 by Roadman
spelling

[torturedsole]

3 hours ago, Kwasaki said:

My daughter works for BA they are retiring and making people redundant all to keep shareholders happy, so not a lot of nice rich shareholders out there. 

Shareholders don't come into the equation, sorry.  The airlines are cashless with the mathematical cashflow formula represented as 0-0=0.

[daveAustin]

On 5/19/2020 at 7:27 AM, car720 said:

I for one don't mind if we go back to travelling by ship.

 

This?

Fair play. Might take a while to get to ole Thightland. Bit of nostalgia for the bread thieves, but 

[daveAustin]

1 hour ago, Roadman said:

With several countries (a lot of the island nations...Aussie, Japan, NZ  to name a few) being able to show better leadership than the moronic so called world super powers, and get on top of Covid 19 there is opportunity for those countries to open international flights between each other earlier. 

The little places haven't gotten on top of anything because they didn't get the hit. Cringe-worthy seeing that smug Jacinda woman and Morrison patting themselves on the back. Five minutes ago, the aussies were struggling with fires because of total mismanagement of the bush, so pull the other one. They got away with it because of locale and being non-hubs, nothing more. Ray Charles in office on the moon would have achieved the same.

Edited May 20, 2020 by daveAustin

[torturedsole]

11 minutes ago, daveAustin said:

Ray Charles in office on the moon would have achieved the same.

Nice analogy.  

[daveAustin]

On 5/19/2020 at 8:10 PM, Elkski said:

I still dont understand how Thailand case numbers were,  are, so low?  I'm thinking this virus or a close cousin has been in Thailand before and Thai people have herd immunity.   

It was and they aren't/weren't. Believe the facts of a military-controlled gov less than a civilian one. As has been documented on here a few times, there was a strange sickness going around many months ago, before Christmas even. Likely lots have died (much noted as pneumonia) and authorities are naturally worried about the second wave because they've clearly already had the first.

[Kwasaki]

5 hours ago, torturedsole said:

Shareholders don't come into the equation, sorry.  The airlines are cashless with the mathematical cashflow formula represented as 0-0=0.

It is listed on the London Stock Exchange and in the FTSE 100 Index. British Airways is the first passenger airline to have generated more than $1 billion on a single air route in a year (from 1 April 2017, to 31 March 2018, on the New York-JFK - London-Heathrow route).

[tomacht8]

Eurowings goes into Bankruptcy?

 

I think this is wrong information.