With the end of the pandemic no where in sight, the struggles are only beginning!
It’s still a long road to recovery for aviation!
Even with passenger count, aircraft load factor and aircraft utilization increasing every month, airline companies across the globe may be in survival mode for the next few years!
Let me not bore you with the usual mumbo jumbo about how and what COVID-19 has done to the world. Instead, let me try to be different and get straight to the point!
Aviation has probably been the worst affected by the global pandemic. Within a month, airlines grounded a large part of their fleets, used passenger aircraft for cargo operations, retired aircraft early, got bailout funds, etc. as borders closed.
Air France-KLM group received a bailout package of $11.7 billion. Air France retired its’ entire A380 fleet two years ahead of schedule, and KLM retired their 747s from passenger operations.
Lufthansa group received a bailout package of $10.1 billion. Also, they sent all their 747–400s, A380s, and older A330s and A340s into long term storage. We may never see them in the skies again.
Australian airlines, including Qantas and Virgin Australia, received AUD715 million in funds from the government. While Virgin Australia declared bankruptcy, Qantas sent their A380s and Dreamliner's into long term storage, in addition to retiring all their 747s.
Singapore Airlines received SGD19 billion, in addition to sending A380s into long term storage. Cathay Pacific received HKD39 billion, in addition to sending all their old aircraft into storage.
Thai Airways received 58.1 billion baht, Emirates has already received $2 billion, all airlines in the USA ~$25 billion, amongst a host of other major airlines. Some US airlines’ even mortgaged their loyalty programs against the loan!
Airlines even declared bankruptcy. In addition to Virgin Australia mentioned earlier, Air Italy, Air Mauritius, Avianca, LATAM, Thai Airways, South African Airways, Virgin Atlantic were notable names! An entire list of airlines affected due to COVID here.
It isn’t easy storing an aircraft!
Aircraft are machines. They cannot merely be dusted back into action! While in storage, they need plenty of attention:
- Running engines, powering up aircraft, and checking flight controls regularly
- Covering sensors, engines, sealing doors to protecting them sand, dust, even insects and birds!
- Rotating wheels by towing them, using hydraulic fuel on landing gears to protect them from rust!
- Maintaining other parts against corrosion
Sometimes, planes are even fueled to keep from rocking! 62% of the world’s aircraft, in April, needed a place to park. Some were sent to deserts and some stored at local airports. Some airports even had additional runways’ converted to temporary parking spots!
But, air travel’s resuming?
Even with air travel resuming and picking up pace steadily, passenger volumes, aircraft load factor and aircraft utilization increasing, it’s still not enough to turn airlines’ profitable!
This may be the beginning or rough times for airline companies around the globe. You see, the end of the pandemic nowhere in sight and certain parts of the world, second waves of COVID are being seen!
Countries are now opening air travel bubbles between them instead of opening borders. India has 17 air bubbles, that means Indians travelling from India can only visit 17 countries!
Most bailout packages across the globe were received in the first half of the year, and with time, they will run out with the end of the pandemic nowhere in sight!
Airlines around the globe earn about 40% of their revenues during the travel season from July — September.
There was some hope when airlines stocks recorded an 18% improvement as per Bloomberg indexes, the best in 20 years since it was compiled.
Has the real downdraught begun now? Maybe, for a few airlines!
US Airlines’ were hoping for a second round of bailouts from the US government. With no bailout expected soon, they began furloughing 32,000 employees.
Last week President Donald Trump urged the Congress to consider another $25 billion package for the industry, but House Speaker Nancy Pelosi ruled it out without a wider stimulus deal.
Three weeks ago, Qatar Airways received a $2 billion government bailout.
On 5 October, AirAsia Japan ceased operations on account of low demand.
Last week, easyJet signaled to the UK government for a second round of financial support.
AirAsia X, the long haul arm of the AirAsia, today (17 October) mentioned they need $120 million or 500 million ringgit to restart operations, as other airlines across Malaysia suffer as well!
In what may seem the worst for airlines is past them, in reality, ‘Winter Is Coming’! With funds running out, the real challenge is before reaching zero — what do they do now?
According to IATA:
- Airlines burned $51 billion from April — June and will need another $77 billion through till December. That’s ~80% of the total $162 billion funds airlines have received.
- Travel won’t resume to pre-Covid levels till 2024, meaning from 2021, airlines may need up to $6 billion a month to keep their head above water
While airlines hope they can survive without massive state intervention, they will be dependent on them to a certain extent, no matter how much debt restructuring, or fleet and route restructuring you do.
Airlines could increase fares to make up for losses, but that may drive the passengers away!
While a few private players may be able to survive, there will be more restructuring, more liquidation, more nationalization!
What do you think — will more airlines terminate operations? Or will governments continue support for airlines to keep them flying?