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By APD writer Alice
The global aviation industry is facing a serious crisis due to the sharp decline in passenger numbers due to the increasingly widespread COVID-19 outbreak.
It is no surprise that the industry is hardest hit by the pandemic as it is the one responsible for connecting everyone in the four corners of the Earth. But the speed and depth of the nosedive which airlines have taken is nevertheless breathtaking.
In a memo to staff on March 13, entitled “The Survival of British Airways”, the carrier’s boss, Alex Cruz, spoke of “a crisis of global proportions like no other we have known”. Most of the airlines should pull through if the situation lasts one or two quarters. Any longer, and the future of air travel could be altered for good.
The immediate pain is evident. European and American carriers’ share prices have declined faster even than the globe’s covid-struck stockmarkets. Lufthansa, Europe’s biggest carrier, had already cut flights in half for April. As more countries impose travel restrictions, the German airline may need to thin schedules by 90%. Others that serve smallish domestic markets and rely on global interconnections may need to shut down altogether.
Chinese carriers were hit hard by the COVID-19. At the peak of the outbreak in mid-February around 70% of flights were grounded, according to OAG, a travel data firm. Now that infections are stabilising in the country, Chinese passengers are getting back in the air, tempted by large discounts. The latest data suggest that capacity is now down by 43% compared with a year ago.
Asian airlines that rely on traffic to and from China are still reeling. Cathay Pacific, based in Hong Kong, has cut capacity by 65% in March and April, and anticipates more cuts in May. Korean Air has lopped 80% of its schedule..
At the moment, most airlines are desperately trying to preserve cash. Besides cutting flights, many are asking or forcing staff to take unpaid leave. Norwegian Air Shuttle, an indebted low-cost airline in the midst of restructuring, has temporarily laid off half of its 11,000 workers. Scandinavia’s SAS is laying off 10,000 workers, 90% of its workforce, as it cancels most of its flights. KLM, the Dutch flag-carrier, said it would cut 2,000 jobs in the coming months. Lufthansa has suspended its dividend for 2019. It may sell some aircraft.
Plenty of carriers are also scaling back capital expenditure by deferring the purchase of new aircraft. Airbus, Europe’s aerospace giant, has agreed to delay some deliveries to Chinese airlines. Cathay is discussing deferrals with both Airbus and its American rival, Boeing. Airlines are also asking leasing companies, which have grown rapidly over the past decades and now own around 50% of the global fleet, to show forbearance over payments.
Not every airline will survive the pandemic. Europe has already seen one casualty. Flybe, a British airline with underlying financial-health issues, declared bankruptcy on March 5.
If more airlines start to fail, that would have knock-on effects throughout the broader aviation industry. Weaker airports could come under pressure and may not survive, making some regions less accessible even if conditions eventually improve. Airbus and Boeing are making fewer planes and look likely to rethink plans for ramping up production of narrow-body airliners. Falling profits will weigh on efforts to invest in new climate-friendlier models. Even leasing firms, which have plenty of capital and could repurchase planes from straitened airlines and then lease them back, could be hurt if widespread insolvencies flood the market with second-hand aircraft, depressing leasing rates.
In early March, the International Air Transport Association (IATA) warned that revenue losses that airlines suffer from the COVID-19 epidemic could be around $63-113 billion in 2020, depending on the developments of the disease. According to IATA, Asian and European airlines will suffer the heaviest losses. Those in the Asia-Pacific region alone could lose $58 billion in revenue. Also according to data from the association, the global aviation industry achieved a total revenue of $838 billion in 2019.
In its report, IATA said the expected losses were similar to the 2008 global financial crisis. IATA Director General and CEO Alexandre de Juniac said that in just over two months, the prospects for the global aviation industry have turned to the worst, saying it was "almost unprecedented".
The association’s warning came after the British airline Flybe declared bankruptcy, becoming the first victim of the decline in travel demand due to the pandemic.
In a recent analysis, aviation research firm Center for Aviation (CAPA) forecast that the impact of COVID-19 on airlines " is sudden and negative" when the disease is likely to have serious impact on peak travel times like the Easter holiday in April.
Southwest Airlines CEO Gary Kelly said that the COVID-19 pandemic could make airlines’ business activities more vulnerable than the September 11, 2001 terrorist attack in the United States. Many carriers such as United Airlines and Norwegian Air even forecast losses right in the first quarter of 2020 due to the sharp decrease in the number of passengers and the cancellation rate.
In the current crisis, the world aviation industry has to "save" itself when airlines have to drastically cut the frequency of international and domestic routes, reduce costs, stop recruiting personnel, cut working hours and give employees unpaid leave. Leaders such as CEO or Chairman have not received basic salary or got reduced salary.
The outbreak of the COVID-19 could threaten the survival of many airlines as more and more countries and territories impose travel or entry restrictions for people coming from or going through the epidemic area.
The US decision from March 13 to suspend all flights from European countries (except the UK) within 30 days to prevent new infections of SARS-CoV-2 virus that causes COVID-19 in the country is expected to put the airlines in a tougher situation.
COVID-19 is now raging more than 160 countries and territories worldwide. More than 183,500 people have been infected with the novel coronavirus (SARS-CoV-2) that causes the disease, of them nearly 7,200 died.
(ASIA PACIFIC DAILY)
