Op-Ed: Why Airlines Go Bankrupt at the End of the Summer?

DALLAS - On August 19, 2023, news appeared about the possible revival of the historic British carrier Monarch Airlines (ZB), which ceased operations on October 2, 2017, after 50 years. A year later, four other carriers collapsed: Azur Air Germany (UR) in September, Primera Air (GX) in October and Small Planet Airlines (S5) in November 2018. Interestingly, these collapses happened just after the end of the summer season.

In 2019, the busiest in the history of commercial aviation was by far the worst for the airline industry, with the sudden fall of three large airlines in September; XL Airways (JN), Aigle Azur (ZI), and Thomas Cook Airlines (MT).

After the crisis of the COVID-19 pandemic, and as travel demand levels started to rise again, more airlines kept filing for bankruptcy, such as Alitalia (AZ) in October 2021, Blue Air (0B) in September 2022, and Blue Panorama (BV) in December 2022.

The pattern is clear: at the end of the summer season in the Northern Hemisphere, between September and November, the market periodically sees the cease of operations of a large number of airlines, leaving stranded hundreds of thousands of passengers around the world with no resources to fly back to their homes. Why is this happening even today?

The High-Risk High-Reward European Summer Season

Analyzing every airline listed above, we see two main characteristics shared by almost all of the carriers: all were European and concentrated most of their operations on summer leisure travel.

The leisure market is one of the most profitable for airlines to operate in, as the passenger profile on these flights does not expect if any, much detail in terms of inflight experience and comfort. When flying on board these airlines, they aim to get from their home airport to their final holiday destination.

However, this section of the airline industry tends to be very volatile and dependent on many external factors typically linked to the destinations served. If the safety conditions in Egypt, for example, keep worsening and deters travelers from visiting that country, an airline solely focused on serving that region will face a significant downturn in demand and will struggle to be profitable.

Especially in Europe, the summer season in terms of passenger flow may, in many cases, double or even triple the traffic seen in the winter months. This largely unbalances the logistics, fleet, and staff, which experiences shortages during July and August, and excess personnel when the months of October and November arrive.

Leisure Airlines' Cash Flow Paradox

When thinking about the precise timing, when many airlines suddenly start failing as the summer ends, it may be challenging to understand this situation. Many may think that, in September, airlines have just received all the revenue from the high-season operations.

However, the opposite is actually true. Unlike the business passenger, the leisure traveller profile tends to purchase holiday hotels and airline tickets primarily before summer, as prices are lower and work breaks are already planned. This means that leisure airlines receive the revenue of summer flights far before they even take place.

In addition, the highest costs for airlines dedicated to this specific market appear during the summer when handling contracts, pilot staffing, airport slots, and, most notably, fuel costs come to the fore. In the low season, administrative and legal costs, as well as aircraft and facilities leasing fees, overtake the operational costs.

An airline needs to be managed correctly from a financial point of view. The operational costs of flying during summer can sometimes be larger than expected and beat the revenue numbers. The business is then incapable of dealing with the administrative debts, which start to rise in September, and declares bankruptcy.

The trend also presents an interesting situation, where more airlines stop operating when passenger traffic forecasts for the summer season are better than in other years. This is because the number of flights, seats, and tickets sold is higher, but handling costs, delays, and cancellations also increase.

Is Any Airline Going Bankrupt This Year?

Summer 2023 is now well underway and is reportedly the best-performing period registered since the start of the pandemic. Many European sub-markets have already surpassed the record levels of 2019, the best in commercial aviation history.

Given this situation, and now knowing why airlines massively cease operations at the end of the summer, it would not be surprising to see new startup airlines or already consolidated leisure carriers fall into bankruptcy at the end of the year.

Do you think that more airlines will stand by this trend? What are your thoughts about the revival of the defunct British carrier Monarch Airlines? Please share your opinion on our social media platforms!

https://airwaysmag.com/monarch-details-about-relaunch/

Featured image: Adrian Nowakowski/Airways.