Coronavirus impact on the airline industry

This article mainly follows the events until March 15th, 2020. However, the overall negative impact of Coronavirus on the aviation and tourism industry has continued to worsen. Some airlines that did not feel its severe impact at the beginning, have asked for government support later. It also means that the overall impact of COVID-19 on aviation could be much bigger than the initial estimates by various agencies.

The novel coronavirus has hit several countries hard and particularly China, Iran, the UK, Spain, Italy, and several other nations. The United States government has already applied a travel ban on foreign nationals from 26 European countries. If any industry is going to be worst hit by the coronavirus then it is the travel and tourism industry. Airlines worldwide are grounding their planes as fewer people are flying overseas after several countries applied bans on foreign travel to prevent the spread of coronavirus. Spain has declared an emergency on 14th March to fight the outbreak. As people cut down on air travel and governments worldwide are shutting borders, airlines worldwide are facing the worst crisis in history. Travel demand has swiftly fallen to unprecedented levels following the spread of Corona. Initially, the outbreak was a headache for the Asian airlines only, but as the virus spread Westward and acquired a global proportion, it was clear the impact on global aviation was going to be much more severe. Airlines around the world have pleaded for government support to avoid a complete collapse.

The first casualty of the Coronavirus was United Kingdom’s largest domestic carrier Flybe. The company was already dealing with funding problems and the spread of Coronavirus compounded its challenges quickly bringing the airline on its knees. The problem has also affected the United States airline companies which are feeling the hard pinch of falling demand. Even the UK based British Airways is considering government support and seeking help from multiple banks for its urgent financing needs. Airlines around the world have grounded their flights and cut down the number of flights. With more idle planes, a large number of jobs are also going to be lost. According to the financial times, several airline companies are expecting a major drop in their April and May revenues (as much as 70%). The corona outbreak is worse than the SARS outbreak or the 9/11 attacks in terms of the overall impact on the airline industry. The overall impact of the coronavirus on the global economy is going to be huge which has become clear from industry data till the first two weeks of March. The International Air transport Association has forecast a loss of $113 billion in 2020. However, this estimate did not take into consideration the heavy restrictions that the US placed later on international travel and so the losses could be bigger.

China Airline Industry impact from Coronavirus:

During February 2020, according to BBC, the number of Chinese airline passengers slumped by 84.5% signaling a massive decline in airline revenue and the huge economic impact of coronavirus. The Chinese government announced measures to help its airline carriers out in March. Apart from providing subsidies to Chinese airlines, the Civil Aviation Administration of China (CAAC) has announced that it will also provide additional funding for international flights. The industry challenges are the most severe in China which is expected to experience the highest drop in aviation revenue of all the countries. IATA has projected that of the $113 billion losses in airline revenue worldwide, it is the Chinese airlines that will bear at least one-third of the total loss. According to OAG Aviation Worldwide, Chinese airlines had already cut around 10.4 million seats from their domestic schedules by February.

Some 6 or 7 months ago, China was the largest airline market but now, it is lagging behind Portugal around the 25th position. From mid-January to mid-February, there was a reduction of around 80% in the international flight capacity of Chinese airlines. Since China was the epicenter of the coronavirus outbreak, it is also going to be the worst affected country in terms of the economic impact of the outbreak. The biggest airlines in China include China Southern, China Eastern, Air China, and Hainan Airlines. However, from an international flying perspective, it is the two biggest carriers in China, China Southern, and China Eastern which are going to be the most badly affected. Both airlines haad heavily reduced their international flying capacity. Hainan Airlines is the fourth-largest airline in China and its parent company HNA group is already shouldering heavy debt. The Chinese government is planning to take control of the parent company of Hainan Airlines and sell off its assets. The group is heavily indebted. Recently, Chinese government officials took on key management roles at the HNA group. Most international airlines have suspended flights to Mainland China and several of them plan to continue suspensions in April.

The United States Airline Industry impact from Coronavirus:

It is not just the Chinese airlines that are facing a heavy drop in demand following the Coronavirus outbreak, but the airline companies in Europe, as well as the United States, have also experienced a heavy drop in customer demand following the spread of the virus in West. The situation turned even grimmer for the US-based airline companies after the US president declared an emergency on Friday 13th February. The US has banned flights to 26 European countries including the United Kingdom and Ireland. Delta airlines had announced a few days earlier that it was going to cut capacity by 40% for a few months. Apart from that Delta is going to ground around 300 aircraft and defer some of the planes it planned to purchase. The company is also adopting other cost-cutting measures as it is desperately trying to save cash. It is asking its employees to take unpaid leaves. To cut down costs, Delta has decided to defer $500 million in capital costs, suspend share repurchases as well as delay $500 million in pension funding. Other airlines in the United States are also making similar changes as they struggle in the face of steeply falling demand. While government officials in the US have stated that they are working with airlines, the kind of support that government plans to offer is unclear till mid-March. The four leading airline companies in the US including

American Airlines Group, Delta Air Lines, United Airlines Holdings and Southwest Airlines have said that they are discussing potential aid with the government. The spread of Covid 19 had hit the entire aviation industry very hard as the companies in the US are canceling employment contracts and asking existing employees to take unpaid leaves. With the situation having grown as worse, millions of jobs related to aviation are going to be affected.

United Airlines has also cut capacity both internationally and domestically and expects to incur heavy losses in April and May. The President of United Airlines Scott Kirby is trying to ready the company for the worst-case scenario. He predicted that revenue could fall 70% in April and May, and 60% in June. Air Travel Demand to Asia and Europe had declined by 100% in terms of net bookings. On a gross bookings basis, Asia pacific demand was down 70% and Europe demand 50%. For April and May, United Airlines has cut down its international schedule by 20% and domestic capacity by 10%. American Airlines has said that its international capacity would be down by 10% during the peak summer period and it will also include a 55% decline in transpacific capacity. Its domestic capacity would be down 7.5% in April. American Airlines has made several changes to its schedule including canceling services to China and Hongkong through summer. American is canceling services to mainland China from Dallas-FortWorth through summer and HongKong through June. Apart from that, it is canceling flights to Rome and Milan from Philadelphia.

European Airline industry impact from Coronavirus:

Europe is also among the regions worst hit by Coronavirus. Italy is the worst-hit country in Europe. However, it was the UK based Flybe that was the first to succumb to the threat of deadly Coronavirus. As Coronavirus had significantly affected demand in Europe, Flybe which was already dealing with financial challenges announced that it was going to shut down operations. Other UK based airlines are also feeling the pressure. British Airways, which is comparatively in a stronger position and had performed well during the last two years is also feeling the pressure. In a memo to his employees, CEO of British Airways, Alex Cruz warned that this was a crisis of global proportions and that there will be job cuts which could be short term or even long term depending upon how long the situation continues. He also announced in the memo that British Airways (owned by Internal Airlines Group ) was going to cancel routes and ground planes in a manner it was never forced to do in the past.

While British Airways has a significantly strong balance sheet and was financially resilient, Alex Cruz has still warned his staff not to underestimate the impact of Coronavirus on their company. British Airways had canceled flights to China and Italy and it will have a significant impact on the number of passengers it carries this year as well its revenue. The extended ban from the United States government will also affect the carriers based in the UK and Ireland. Another European airline Ryanair (Ireland) had warned its staff that they could be forced to take unpaid leave. Ryanair has also canceled all flights to, from and within Italy soon after Italy introduced a ban on nonessential air travel. After Italy went into lockdown, British Airways has also canceled flights to Italy. Poland government announced a lockdown on March 13th, following which Wizzair and Ryanair have canceled all flights to the country. According to Mirror, UK, Ryanair was forced to severely reduce flights to Spain and surrounding islands after the country went into lockdown.

Norwegian Air which is the largest airline in Norway had said that it was going to cancel 4000 flights and temporarily lay off around half of its staff. It has laid off around 5000 staff according to a report. The company has already been facing significant challenges for the last couple of years which are now multiplied with the spread of Corona. Its CEO Jacob Schram is asking the government for financial help since the company is reaching the verge of bankruptcy. He admitted that if the company did not receive a free cash injection, it was not months but just weeks away from collapse. Other major European airlines like Lufthansa and AirFrance KLM have also felt the bitter impact of Coronavirus. According to an article published by NASDAQ, AirFrance KLM expected to cancel 3600 flights and cut down capacity on its European network by around 25%. AirFrance KLM is a Franco-Dutch airline that reported a 1.9% drop in the number of passengers in February 2020 to 6 million which reflected the cancellation of flights to and from China. However, the coming months are going to be more severe the Franco-Dutch airline has reported and capacity on its long haul network will be reduced by 13% while its European network capacity will also be cut down by 25%. The entire capacity of the company will be cut down by 17%. However, since the situation has worsened after March 13th, the company might cut capacity further in the coming months. February was not so bad for AirFrance KLM but in March the situation has grown worse. Moreover, the US government has implemented a travel ban on 26 European countries which will also have a significant impact on all the leading European airlines that fly to the United States.

Lufthansa is also reeling under pressure due to the continuing spread of Coronavirus. As the effect of Coronavirus on air travel demand continues to grow, Lufthansa has canceled a total of 23,000 flights during April. These cancellations affect short, medium and long haul services from March 29 to April 24. The company expects that further cancellations may follow in the coming weeks. It will make flight schedule adjustments for the period after 25th April at a later date. The capacity adjustments made by Lufthansa will affect mainly Europe, Middle East, and Asia. In March, Lufthansa has experienced drastic declines in bookings and has sought the government’s help.

Germany has more than 800 cases by the first week of March and several countries have restricted flights from Germany which is having a direct impact on Lufthansa’s business.

According to Bloomberg, the Italian government was considering pumping 300 million Euros into struggling Alitalia SpA and might take over the airlines. In the UK, the struggling airline industry might need $9.2 billion to recover according to the chairman of Virgin Atlantic Airways, Peter Norris, who is writing a letter to the UK Prime Minister Boris Johnson to be sent on 16th March.

Other Airlines around the world are also feeling the bitter bite of Coronavirus and unless the situation is brought quickly under control, many might not be able to survive. Government intervention has become more than essential at this time. According to an article published by Financial Times on March 10th, Qantas (Australian Airlines) CEO, Alan Joyce has said that this is going to be a question of survival of the fittest. Qantas has laid out drastic cost-cutting measures to overcome the effect of Coronavirus including cutting international flights and asking people to take unpaid leaves. Qantas CEO has decided to sacrifice his salary for the next three months. While Alan Joyce is certain that his company would be able to ride it out but he also believes that not all companies will be able to survive the storm. Korean Airlines has also suggested that it would lose the battle in case the situation is not brought under control quickly. It has cut 80% of its international capacity which is having a severe impact on its earnings. Considering the situation, several airline companies around the world might have soon reached the threshold where their survival would become out of question. This crisis is bigger than any that the airline industry has experienced in history. While several governments and the European Union have announced some form of government support for airlines, unless the outbreak is brought under control quickly, it might prove to be the end of the line for many.