Travel curbs clip airline wings
Widening curbs on travel to contain the spread of the coronavirus led airlines to ramp up flight cancellations and grounded up to 90 per cent of their passenger fleet.
Airlines across the globe are feeling the pain as travel demand withers because of the outbreak, scrapping flights and ditching financial forecasts for rest of the year.
Leading think tank and aviation analysts said that most of the global airlines may opt for bankruptcy in next two months due to grounding of their fleets and widening travel curbs amidst growing cases of coronavirus across the world.
They called for an immediate coordinated government and industry action to stave off millions of jobs and billions of dollars in losses as around 90 per cent of the world's commercial passenger fleet is grounded.
"By the end of May 2020, most airlines in the world will be bankrupt. 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," according to aviation think-tank Centre for Asia-Pacific Aviation (CAPA).
It said cash reserves are running down quickly as fleets are grounded and flights are able to fill less than half of their aircraft's seating capacity due to decline in passengers.
"Forward bookings are far outweighed by cancellations and each time there is a new government recommendation, it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon," it said.
A number of airlines across Middle East, Asia, Europe and the US have grounded their fleet due to slump in demand and restrictions by the governments to contain spread of coronavirus.
"Based on what we are seeing right now, airlines face ruin. Some will be saved - thanks to governmental assistance, but others will collapse well before that money is made available. If money is not made available then it's not out of the realm that every carrier folds. But governments will not want that to happen. Because once we get through this crisis, restrictions will be eased and air travel will become normalised again - and you can't do that if all airlines are vaporized," said Saj Ahmad, chief analyst, StrategicAero Research.
"As of now, its looks like 90-95 per cent of the total world fleet is grounded. This is totally unchartered territory for aviation," said Ahmad.
The International Air Transport Association (Iata) earlier this month increased its 2020 global airline revenue loss forecast to between $63 billion and $113 billion from its previous estimates of $29.3 billion. On a global basis, Iata estimated that emergency aid of up to $200 billion is required.
Globally, the number of scheduled flights last week was down more than 12 per cent from the year earlier, flight data provider OAG said, with many airlines having announced further cuts to come.
Similarly, More than 570,000 flights to, from and within, China were cancelled from Jan. 1 to March 16, data provider Cirium says.
Credit ratings agency Moody's estimated global capacity would fall by 25 per cent to 35 per cent in 2020, assuming the spread of the coronavirus slowed by the end of June.
Mark Martin, CEO of Martin Consulting, said three months of no flying and no revenues mean tremendous amount of cash flow challenges for global carriers.
"I believe this coronavirus issue for airlines will not end in June but likely to extend till September- October. But there will be a resurgence in demand for air travel once life comes back to normalcy in most of the world," he said.
He estimated that there are about 15,000 aircraft flying in Asia-Pacific and Middle East, excluding China.
"More than 80 per cent this fleet is grounded. So we are looking at just about 3,000 aircraft flying in the region. These are deployed out of compulsion mainly for cargo suppliers," he added.
Andrew Herdman, director-general of the Association of Asia Pacific Airlines, said: "It is a war against a virus. What we have to do is take care of the institutions and people's livelihoods, the soft capital, so that we can restart effectively in a timely way when the time comes."
Saj Ahmad said if the airlines are bailed out with cash assistance now, they can only survive by culling a significant amount of jobs and other capital expenditure.
"Even with cash bailouts that may last 2-3 months - what if the virus situation is unchanged? How much more money can governments keep throwing at them? Perhaps this is now a survival of the fittest. Saving every single airline is not possible and some players should be allowed to fold. Although everyone will argue that they want money to survive, it's up to governments to decide who is worth saving and who is not," Ahmad concluded.
He stressed that airlines have to take cost optimisation steps from broader perspective such as massive reduction of operations, negotiating lease rentals, realignment of insurance coverage, reduction of landing and parking charges, airport and commercial lease rentals among other measures.
"The industry has seen 2008 financial crisis, avian bird flu, MERS and SARs challenges, but we have never seen such a global pandemic and related lockdowns ever in aviation history. So everybody has to come together and take rational and sensible resolution. Time will tell, but all the support needs to be given to industry now. At the moment, it is any one's guess but I expect it to recover only by September or October," he added.
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