With airlines facing a bleak winter and a full recovery seen only in 2024, more airlines are likely to collapse

Iris Ouyang
·3-min read

More airlines are likely to collapse in the coming months if governments cut aid to the industry devastated by the coronavirus-induced slump, with experts saying a full fledged recovery is likely to be pushed back to 2024.

Demand for air travel is lagging even the most pessimistic of recovery scenarios, which has been made worse by the resurgence of Covid-19 pandemic in Europe and the US, Cirium, a London-based travel data and analytics firm, said this week. The industry’s recovery to the level seen in 2019 could be delayed to 2024 from the previous forecast of as early as the second quarter of 2021, it added.

Meanwhile, forward bookings in November and December, have declined 81 per cent and 78 per cent year on year respectively, according to data from CTAIRA, a UK-based aviation consultancy.

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“We are going to see more airline failures in the winter,” said Chris Tarry, founder of CTAIRA. He said that this was because of the lack of revenue during the important summer period when demand is at its highest, which has been exacerbated by the deteriorating demand during the slack winter months.

Airlines are being besieged by various headwinds, including high aircraft leasing expenses and fluctuating oil prices. Additionally, debt level has been rising and the need for raising capital is urgent as many airlines lack sufficient cash to survive, observers said.

Around 43 commercial carriers have ceased or suspended operation since the start of this year, according to Cirium.

One of the key uncertainties though was whether governments will provide another round of financial support and bailouts, which had helped to limit the number of airline failures since the outbreak of Covid-19.

“How severe this issue [more airline bankruptcies and collapses] becomes depends on whether governments continue to provide support,” said Brendan Sobie, founder of Singapore-based aviation consultancy firm Sobie Aviation.

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These predictions come as airlines, their upstream suppliers and even the broader economy are increasingly feeling the impact of the prolonged decline in air traffic.

With orders for new aircraft falling in the wake of the havoc caused by the pandemic and losses from the prolonged grounding of its 737 MAX aircraft, Boeing said on Wednesday that it would reduce its headcount by 30,000 by the end of next year, a far deeper cut than the 19,000 jobs it planned to axe in August.

A week earlier, Cathay Pacific closed its Cathay Dragon brand and announced the biggest mass lay-offs in three decades, axing 8,500 jobs across the group. The local property market, too, is feeling shocks from the job cuts at Hong Kong’s flag carrier.

The International Air Travel Association, the industry guild representing 290 carriers or 82 per cent of global air traffic, said this week that airlines are lagging behind in cutting costs, with pressure mounting on their ability to preserve jobs and avoid bankruptcies.

Total industry revenue is expected to decline 46 per cent in 2021 compared to 2019, worse than the previous prediction of 29 per cent, IATA said, as the original expectation of a recovery in the fourth quarter has been delayed due to recent Covid-19 outbreaks.

“Maintaining last year’s level of labour productivity (capacity/employee) would require employment to be cut 40 per cent,” IATA said.

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