MIAMI – CAPA, a Sydney based aviation analytics company, has predicted that by May, most of the airlines around the world will go bankrupt.
While this may seem like a bold statement, the evidence proves that this is a realistic hypothesis.
The current situation of the airline industry is grim. Due to the COVID-19 outbreak, many airlines have been forced to temporarily suspend operations, cut operating costs by up to 90%, furlough staff and in the case of FlyBe, cease operations.
Airlines only have so much cash in reserve to continue operating in these conditions.
All airlines are currently operating at a severe loss as most of their current limited flight operations are conducted at less than half capacity.
It is estimated that airlines have, at most, the cash reserves to keep operating until May.
If airlines do not receive government bailouts, many existing airlines will have no choice but to declare bankruptcy and liquidate.
While nationally backed or government-owned airlines will most likely survive due to the high likelihood of cash bailouts by their respective governments, privately owned and traded airlines will have a harder time fighting for government bailouts.
Government and aviation during the COVID-19 outbreak
The role of governments and the communication between them is crucial to determining the survivability of airlines.
Governments around the world are naturally deciding how to navigate the current situation based on their own country’s structures and traits.
Some countries closed their borders to stop the spread of the virus. For example, the US banned travel for non-US citizens to and from Europe. This decision was announced without notice, causing turmoil within businesses worldwide.
The lack of communication and cooperation between countries could lead to a disastrous outcome for airlines.
Which airlines will survive?
Due to the volatile nature of the current outbreak, it is impossible to predict with absolute certainty what will happen to airlines globally. We can estimate, however, that any government bailouts will be provided for national airlines.
CAPA predicts that most national airlines in the EU will receive government support, along with most of the national gulf carriers (Emirates, Qatar, Etihad).
Governments in the EU will likely be highly selective when it comes to deciding which airlines to assist. For example, in Italy, we saw Alitalia become nationalized.
In the US, many of the large airlines have lobbying powers within the government, allowing them to vie for bailouts.
The fate of smaller private airlines is still largely up in the air. Without any lobbying power, it will be much more difficult for them to receive government bailouts.
CAPA states that the nationalization of major airlines could lead to a geopolitical standoff. In a recent article, it said “A conflict along nationalistic lines would have colossal implications for the entire 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.”
Airways will continue to provide the latest developments about the COVID-19 outbreak and its effect on aviation.