The impact of the spread of coronavirus has four levels of impact in relation to the airline business. We’ll try and make sense of the flood of news in the last few days.
Firstly, many countries have (or are on the brink of) shutting their borders, and so severely restricting air transport. Amongst others, Italy, Germany, Denmark, and Spain in Europe have done so in whole or in part. The US has postponed flights from Europe for all but US citizens, the UK has reciprocated. India has suspended all tourist visas and e-visas granted on or before 11th March. The state of Qatar has announced similar restrictions. In an ironic twist of fate, China has placed all those arriving at Beijing into compulsory quarantine. Even South Africa has forbidden entry to those from severely affected countries.
Secondly, the response from airlines is obvious if catastrophic. Lufthansa has cut flights by 50% in April and may ultimately cut by 90%. It may sell some of its aircraft. Air France has grounded its thirsty A380s. Emirates will ground many of its own. Delta says it may have to lose 40% of its international schedules. Korean has cut 80%, and Cathay Pacific by 65% in March and April. In a devastating reduction in service, SAS of Scandinavia has been obliged to put most of its operations on hold, citing ‘non-existent’ demand. SAS is reported to be laying off 90% of its employees. Ryanair has announced that it will reduce seat capacity by up to 80% and doesn’t rule out the possibility of grounding the entire fleet.
Thirdly, as a consequence, shares of airlines on global stock markets have fallen sharply-potentially the largest collective drop in history. Some examples: on the London Exchange today (where the FTSE has declined 8% at mid-morning Monday) Ryanair has lost 19% on the day, American by 16%, EasyJet by 24%, Wizz Air by 45% and the mighty IAG–parent of British and Iberia—by 23%. The Chief Executive of British Airways, Alex Cruz in a memo to staff entitled ‘The Survival of British Airways’ spoke of ‘a crisis of global proportions like no other we have known.’ Today, Virgin Atlantic is requesting emergency financial measures from the British government for UK airlines and Lufthansa is in conversation with European governments.
Fourthly, where does this leave the business? The hope is that passenger numbers will rebound after a few months of chaos, revert to normal and growth will resume. This was the pattern after the terrorist attacks in the US in September 2001, the global crisis of 2007-09, and the trend occurring in China at the moment where new infections approach zero. But China is a special case, with a massive domestic market.
The aviation consultancy CAPA has said that most airlines in the world will be technically bankrupt by the end of May. If the period of chaos lasts longer than a few more months—perhaps beyond June, those carriers who were already in difficulty may shut down for good; candidates might include Norwegian, Korean, Alitalia, Air India, and American.
In 1859, Charles Darwin wrote ‘On the Origin of Species’ where he put forward the theory of ‘survival of the fittest’; that organisms that would thrive are not necessarily the strongest but those that are most adaptable to their environment. Darwin’s theory now seems to be relevant to the aviation industry, not just for carriers, but for all those businesses that are dependent on it.
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