More airline bankruptcies expected following Flybe’s demise

Asian airlines and cash-strapped carriers identified as most at risk as IATA releases ‘worst case scenario’ industry forecast
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Flybe, Coronavirus, Covid-19, Iata

Flybe won’t be the last airline to collapse under the weight of the coronavirus impact and the industry can expect further consolidation in the coming months, analysts say.

The regional airline entered into administration last week, citing declining passenger traffic because of Covid-19 as one of the reasons for its collapse. Flybe was already in a precarious position having been rescued by its parent group and the UK Government earlier this year.

But the International Air Transport Association (IATA)’s latest worst case scenario prediction is that the airline industry could face a hit to its revenues of up to $113 billion.   

Experts reckon carriers in Asia and those without large cash reserves or who have been involved in a price war are at greatest risk of going under.

Speaking to the BBC, Michael Duff, managing director at The Airline Analyst, said there could be “a significant increase in airline casualties” if IATA’s ‘worst case’ prediction is realised.

James Goodall, transport analyst at Redburn, told the BBC that Flybe's collapse “will likely be the first of many in 2020”.

He said: “We expect that the demand destruction caused by Covid-19 accelerated its demise and we believe further airline bankruptcies should be expected in the coming months.”

Similarly, Paul Charles, a former director of Virgin Atlantic, said he expected “other [airline] casualties” and “massive consolidation within six months' time”.

According to IATA’s estimations, Covid-19 could cost airlines in Middle East over $7 billion. The virus so far has stripped carriers in the region of $100 million of sales.

IATA said last month that it expected global airline industry revenue losses to be around $29 billion. But the spread of the virus to countries outside China, including Iran and Italy, has seen IATA rethink its estimate.

In a limited spread scenario, IATA estimates airlines could experience a $63 billion loss to revenues. An extensive spread scenario could see a 19% drop in passenger revenues, equating to $113 billion, a scale equivalent to what the industry experienced in the Global Financial Crisis.

Bahrain, Iraq, Iran, Kuwait, Lebanon, the UAE could lose out on almost $5 billion of sales while the rest of the Middle East could lose over $2 billion, IATA estimates.

In efforts to mitigate the impact of the virus, oil prices have fallen significantly (-$13/barrel Brent) since the beginning of the year. This could cut costs up to $28 billion on the 2020 fuel bill, which would provide some relief but would not significantly cushion the full impact that Covid-19 is having on demand, IATA said.

Alexandre de Juniac, IATA’s CEO, said that the impact of Covid-19 “is almost without precedent”.

“Many airlines are cutting capacity and taking emergency measures to reduce costs,” he said.

“Governments must take note. Airlines are doing their best to stay afloat as they perform the vital task of linking the world’s economies.

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