Sydney-based aviation consultancy firm CAPA has said that most airlines in the world will be bankrupt by the end of May due to the Coronavirus pandemic and that only a coordinated government and industry action right now can avoid the catastrophe.
“Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon,” CAPA said in a report.
“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” the report added. In the wake of the coronavirus outbreak, airlines have been forced to announce drastic cuts in operations.
The International Air Transport Association (IATA) already said in a statement on 12 March that airlines will need “emergency measures to get through the crisis,” urging governments to consider extending lines of credit, reducing infrastructure costs and easing taxes.
Alexandre de Juniac, CEO, IATA has previously raised the possibility of direct government bailouts for airlines, similar to what took place in the United States after the 9/11 terrorist attacks, when the US federal government approved $5 billion in direct support and $10 billion in loan guarantees for the industry.
To alleviate the immense pressures faced by airlines in the current operating environment, and in support of IATA’s statement, the world’s three largest airline alliances Oneworld, Skyteam and Star Alliance recently issued a joint statement calling on governments and stakeholders to take action to alleviate the unprecedented challenges faced by the global airline industry amid the COVID-19 pandemic.
While member airlines of the three global alliances are responding proactively to mitigate further impact in face of rapidly-changing policy scenarios, it is imperative they are supported by governments and stakeholders who can play a vital role in alleviating the unprecedented pressures faced by global airlines amid these extremely challenging times.
Around the globe, airline bookings are plummeting and cancellations soaring as governments restrict travel and people fear being enclosed in an airplane for several hours during a pandemic that has already sickened about 170,000 people and killed more than 6,500.
With fleets grounded and flights operating much less than half full, cash reserves are running down quickly.
CAPA’s report said forward bookings are far outweighed by cancellations and each time there is a new government recommendation, it is to discourage flying.
India’s largest airline IndiGo, which has around 260 planes in its fleet, said, it has seen a decline of 15-20 per cent in daily bookings in the last few days. The low-cost carrier had stated that it expects its quarterly earnings to be materially impacted due to such decline.
Even before the Indian government announced its decision to close the country from March 13 and the current ban, several foreign and international carriers had cancelled over 500 flights to and from India. With new restrictions in place, European carriers will further carry out large number of cancellations.
Airlines such as Qatar Airways and Delta Air Lines, besides some African carriers have already reduced capacity into the Indian market while others are reviewing the situation.
Some European governments will provide selective support for some airlines and Gulf carriers too are likely to be supported by their respective owners. The prospects for many private airlines are not as bright, the report said.
“The last thing the world needs post-coronavirus is a nationalistic, aeropolitical confrontation. A conflict along nationalistic lines would have colossal implications for the aviation supply chain, airframe and aerospace manufacturers, lessors and financiers. It would be greatly reduced in size and would be catastrophic for many satellite activities,” the report added.
When deciding on which carriers to prioritise, Indian government will need to consider which airlines play a vital function in the economy. These are more likely to be the legacy carriers than budget airlines, which are focussed mostly on leisure travel.
CAPA’s report said the failure to coordinate the future will result in protectionism and much less competition.
An unstructured and nationalistic outcome will not be survival of the fittest but “will mostly consist of airlines that are the biggest and the best-supported by their governments. The system will reek of nationalism. And it will not serve the needs of the 21st century world. That is not a prospect that any responsible government should be prepared to contemplate.”