Coronavirus » Most airlines will be bankrupt by May, experts warn

The Centre for Aviation (CAPA) has suggested that by the end of May most airlines will have gone bankrupt.

The industry body has called for a coordinated government and industry reaction to the coronavirus pandemic, noting that cash reserves are running out -and in some cases, have run out – with no relief on the horizon.

Global airline alliances SkyTeam, Star Alliance and oneworld have issued a joint statement calling on governments and stakeholders to financially support them in the midst of COVID-19.

“The impact of COVID-19 on the airline industry is significant, with IATA estimating up to $113bn in revenue losses for global passenger airlines,” the statement reads.

Airlines for America, representing carriers like Delta and United, has already asked the US government for a $50bn bailout to handle the pandemic’s effects, but CAPA has said that a coordinated government and industry response is needed.

Star Alliance CEO, Jeffrey Goh, said in the statement: “The unprecedented circumstances triggered by the coronavirus outbreak pose an existential threat not only to the airline industry but more generally to global trade and commerce, and social connectivity.

“As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”

However, as airlines such as Norwegian Air cancel 85 percent of their flights and ‘temporarily’ lay off a whopping 90 percent of their staff, it is clear to see the industry’s influence on the global economy.

Rick Smith, managing director of consultancy firm Forbes Burton, said that while he still believes the airline industry will bounce back from the pandemic, there’s a possibility for global airlines to enter rescue procedures.

“When they come out the other side, they will have to operate differently and their business models will have to change,” Smith said, via email. “Even once the Coronavirus pandemic is over, people are becoming more aware of the environmental impact that flying has. In the long run, this will probably have the biggest effect on airlines.”

Smith also said that regional airlines will be hit harder than global endeavours due to both their smaller cash reserves and lessened public impact.

“If government bailouts do occur, it’ll be the smaller airlines that miss out and suffer the most,” Smith said.

As airlines attempt to brace for the impending recession, the industry’s wider impact on the oil market has created more questions than answers.

Oil economist Dr Mamdouh G Salameh said via email that the curtailment of most normal economic activities has thrown the oil market into a quarantine of its own.

“While crude oil has other, larger, applications, jet fuel’s demand growth is expected to outpace all other petroleum products in the next couple decades, according to the International Energy Agency, which sees jet fuel demand rising 50 percent by 2040,” Dr Salameh said. “This and the lack of normal economic activities are already impacting adversely on the global demand for oil and prices.

“It is possible that oil prices could drop below $30 a barrel as long as the coronavirus is raging. However, once the outbreak is contained, global oil demand and prices will recoup all their recent losses.”

Although this does not offer immediate relief to airlines, it could potentially speed up economic recovery when partnered with coordinated government and industry intervention.

Moreover, it limits the cash bleed that some airlines are faced with when running skeleton flights, but only those who have not hedged their fuel requirements.

Download our Whitepapers
Accounting Software
Finance Process
Finance Process
FD Surveys