Airlines around the world are preparing for a large-scale crisis because of the coronavirus, which has already forced them to reduce passenger traffic. The industry, which has barely taken wing after the crisis, faces multibillion-dollar losses and the worst year in the last decade.
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The first victim on Thursday was the regional British company Flybe, which had long hung in the balance from bankruptcy. Coronavirus was the last straw. Others are still holding, but the clouds are gathering every day. Two weeks ago, the International Air Transport Association (IATA) estimated a decrease in airline traffic due to a virus outbreak at $ 30 billion. By March 5, the figure doubled to $ 63 billion.
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And this is at best. If the spread of the virus cannot be controlled, the losses will quadruple the initial estimate and reach $ 113 billion.
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“The situation is extreme,” said IATA President Alexander de Juniac. – Events are developing according to a scenario that has almost no precedent. In just two months, industry prospects around the world have deteriorated dramatically. ”
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It all started so well
After the nightmares of the night, with their attacks in the United States, the outbreak of SARS SARS, the price war of low-cost airlines and the global financial crisis, the 2010s became a decade of renaissance for airlines. They recovered due to cost reduction through mergers and due to increased demand for air travel, primarily from the Chinese, who, having become rich, went to travel the world.
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Growth continued, and the worst seemed to be behind. And although 2019 did not live up to expectations due to trade wars, brexit and other geopolitical problems, it was still profitable, and 2020 did not portend anything bad. Quite the contrary.
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Before the new year, IATA issued a rosy forecast: world aviation was preparing to increase revenue by 4% to $ 870 billion and earn almost 30 billion of net profit.
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Two months passed, and it was no longer about profit, but about survival.
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First victim
The British Flybe flew small Embraer from small regional airports, and its collapse would not only deprive 2,400 employees, but would also jeopardize the economies of these often remote regions. Flybe faced difficulties last year. A consortium involving Virgin Atlantic bought it and promised to revive the business if the authorities help with a subsidy of 100 million and tax breaks. Competitors, including British Airways, were outraged, and the government did not give money. The company went bankrupt, becoming the first victim of a coronavirus in aviation. As with people, in business, the most at risk are most at risk.
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Virgin Atlantic is not up to Flybe right now. She specializes in long-distance destinations, and they have suffered more than others due to the cancellation of flights to Asia and the United States. Ticket pre-order collapsed by 40% compared to the same period last year, and Virgin Atlantic sent employees on unpaid leave, suspended recruitment and cut management salaries by 4 months.
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Her competitors are not in the best position.
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British Airways, KLM, Lufthansa, United and other international carriers are cutting route networks, freezing investments and hiring.
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Aeroflot reduced the frequency of flights to some destinations and suspended flights to Hong Kong.
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Low-cost airlines are not far behind. Ryanair, EasyJet and Wizz Air have already announced similar measures. The Russian “Victory” has reduced the number of flights to Italian cities.
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Cheap kerosene
And if the virus continues its triumphal march on the planet, then the situation threatens aviation with a large-scale crisis. In the gloomy forecast of IATA, for example, neither Africa nor Latin America is taken into account, since in these regions there is not a single country where the number of Covid-19 patients would exceed ten people. All of this can change.
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But there is good news for airlines. Unlike previous crises, they still do without reducing ticket prices, and reducing the route network will allow them to cut costs in order to compensate for part of the losses from falling revenues.
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In addition, the virus threatens the global economy as a whole, which has already led to a serious drop in oil prices and, consequently, on kerosene since the beginning of the year. However, most airlines hedge purchases – that is, they actually pay kerosene bills a year in advance, so if the crisis continues, some may not have time to take advantage of low fuel prices.
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