LONDON – In 2020, around 34 airlines ceased operations due to a plethora of reasons, whether it be BREXIT, the COVID-19 pandemic, or general mismanagement of funds.
The information provided by CAPA – Centre for Aviation listed names such as Flybe in the UK, ExpressJet in the U.S, Air Italy in Italy as well as others globally.
It could be suggested that more closures could be on its way, especially when support from governments begin to reduce as well as the pandemic being prolonged as well.
Which Airlines Ceased Operations?
Why could more cease?
Analysts in the industry such as Fitch Ratings are expecting that while “operating conditions” will “relatively improve for the global airline sector in 2021”, it “also expects more airline bankruptcies” (Mishra, 2020).
On top of this, back in October 2020, the International Air Transport Association (IATA) warned of imminent bankruptcies as well as the “world’s airlines are hemorrhaging cash at a rate of $300,000 per minute or $13 billion per month”, warning that this could happen in months (Cirium, 2020).
In the U.S, the “airline industry… closed the books on the worst year in its history, losing a combined $32 billion excluding special items” (Isidore, 2021). Even though Isidore later goes to explain in this article about airlines being the most liquid it has been, cash has had to be raised as a result of the ongoing pandemic damage.
An airline that has been on the eyes of the industry at the moment has been Norwegian, who back in January “permanently canned all long-haul flights and slashed” thousands of jobs” (Thicknesse, 2021).
The airline is currently undergoing an examinership in Ireland, where it is working as fast as it can to ensure liquidity in the business and to reduce the speed of its cash loss to stop bankruptcy.
Another angle to take was that of aviation journalist veteran Andreas Spaeth, who when relating to the information provided by CAPA, brought up the point about state support and how it may dwindle.
“Lufthansa has a EUR9 billion state aid package, including a 20% equity stake for Germany”, which when that is spent, will restrict options for the carrier further (CAPA Centre for Aviation, 2020).
At the moment, the German carrier is “burning cash at a rate of 500 million euros per month and is far from breaking even” (Reuters, 2021), meaning that it still has lots of work to do to get rid of the high costs it has currently.
So it ultimately shows that airlines, both big and small, have the same risk of going into bankruptcy or ceasing operations as world governments continue to struggle with the pandemic.
Good Opportunity for Start-Ups?
That being said, the number of airlines that have started up over the course of 2020 suggests a predominantly high level of confidence in the industry despite a global health crisis.
With cargo carriers benefitting the most from the pandemic, “capacity remains constrained from the loss of available belly cargo space as passenger aircraft remain parked”, meaning that on all aspects of the market, its going to be more difficult to enter compared to at the start of the pandemic (International Airport Review, 2021).
On the passenger side, the constrained capacity followed by ultra-low passenger confidence because of the virus has encouraged a huge level of price competition.
In the short-term of the pandemic, “lower fares aimed at incentivising consumers” is the tact being taken out by the airlines at the moment (Walton, 2020). However, airline bankruptcies could “reduce both supply and competition”, meaning fares may go up (ibid). That being said, the ratio of airlines ceasing to airlines starting up in 2020 could potentially offset any damage done. But this is something we will see over the course of this year as demand aims to slowly ramp up.
It remains clear that looking ahead, the high level of competition with restricted capacity will remain prevalent in the industry. Evidence that substantiates this view is while over 30 airlines had ceased operations in 2020, they were eventually replaced by new entrants to the market.
That level of tension on the market will no doubt cause more bankruptcies as we progress through this year, but the harsh reality is that they will eventually be replaced by the newest generation level of thinking.
In terms of the previous generation, some that have gone under are trying to make a bounce-back, as seen with Flybe’s “new owner applying for a UK operating license” (Bailey, 2020).
All-in-all, it remains clear that as usual and is very well-known, this industry will continue to bounce on a negative and positive basis, especially in this time of volatility.
- CAPA Centre for Aviation (2021), Only a Few Airlines Collapsed in 2020, https://centreforaviation.com/analysis/reports/only-a-few-airlines-collapsed-in-2020-550663 [Last Accessed 9th February 2021]
- Mishra, M. (2020), Condition to improve but more airline bankruptcies likely in 2021: Fitch, The Economic Times, https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/condition-to-improve-but-more-airline-bankruptcies-likely-in-2021-fitch/articleshow/79658633.cms?from=mdr [Last Accessed 9th February 2021]
- Cirium (2020), IATA Warns of Imminent Airline Bankruptcies, FlightGlobal, https://www.flightglobal.com/airlines/iata-warns-of-imminent-airline-bankruptcies/140493.article [Last Accessed 9th February 2021]
- Isidore, C. (2021), Despite Huge Losses, US Airlines Are Rolling in Cash, CNN, https://edition.cnn.com/2021/02/07/business/airlines-cash/index.html [Last Accessed 9th February 2021]
- Thicknesse, E. (2021), Norwegian Air Scraps Long-Haul Flights, Ditches Gatwick Base and Cuts 2,000 Staff in Bid for Survival, City A.M., https://www.cityam.com/norwegian-air-to-end-long-haul-flights-in-bid-for-survival/ [Last Accessed 9th February 2021]
- CAPA Centre for Aviation (2020), COVID-19 Prompts Dramatic INcrease in State Aid to (some) European Airlines, https://centreforaviation.com/analysis/airline-leader/covid-19-prompts-dramatic-increase-in-state-aid-to-some-european-airlines-536591 [Last Accessed 9th February 2021]
- Reuters (2021), DLAKF.PK – Deutsche Lufthansa AG Profile, https://www.reuters.com/companies/DLAKF.PK#:~:text=Deutsche%20Lufthansa%20is%20burning%20cash%20at%20a,chief%20executive%20said%20on%20Monday. [Last Accessed 9th February 2021]
- International Airport Review (2021), Global air freight markets experienced slight increases in volumes in November 2020, https://www.internationalairportreview.com/news/148763/global-air-freight-increase-november-2020/ [Last Accessed 9th February 2021]
- Walton, J. (2020), Will Coronavirus Make Flying More Expensive?, BBC, https://www.bbc.com/worklife/article/20200528-will-the-price-of-flights-increase-due-to-coronavirus [Last Accessed 9th February 2021]
- Bailey, J. (2020), Flybe 2.0 Closer As Owner Applies for Air Operator Certificate, Simple Flying, https://simpleflying.com/flybe-2-air-operator-certificate/ [Last Accessed 9th February 2021]