Most of the world’s airlines will be bankrupt by the end of May 2020 due to the ongoing effects of coronavirus, a Sydney-based aviation consultant has warned.
CAPA Centre for Aviation made the dramatic prediction as countries lock down their borders in light of the spread of COVID-19 which has caused more than 170,000 infections and 6,500 deaths around the world.
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European nations like Spain, Italy and France have introduced strict lockdowns for tens of millions of citizens while countries like the US, Australia and New Zealand have either banned flights entirely or forced residents to go into self-isolation for two weeks on arrival.
CAPA Aviation said the impact could wipe out the aviation industry entirely unless governments act quickly in a co-ordinated effort.
“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” it said.
“Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full.”
“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon.”
The company warned governments are failing to co-operate, citing President Trump’s decision to ban flights from Europe which came as a surprise to EU leaders.
“National self-interest over co-operation is the evolving threat for aviation,” it said, arguing the “fragmented” airline industry is critical to global communications and trade.
“As things stand, the likely tepid response to the airline crisis will equally be fragmented and nationally based. It will consist mostly of bailing out selected national airlines.
If that is the default position, emerging from the crisis will be like entering a brutal battlefield, littered with casualties.”
The warning comes as airlines are forced to slash their flying schedules, shed jobs and seek government help in response to the clamping down of global borders.
United Airlines Holdings Inc booked $US1.5 billion less revenue in March than the same time last year and warned employees that planes could be flying nearly empty into the summer, even after severe flight cuts, Reuters reports.
United said it would cut corporate officers’ salaries by 50 per cent and reduce flight capacity by about 50 per cent in April and May, with deep capacity cuts also expected into the summer travel period.
“This crisis is moving really quickly,” United Chief Executive Oscar Munoz and President Scott Kirby said in a memo to employees on Sunday.
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Things worsened over the weekend as Spain declared a state of emergency, the Trump administration added Britain and Ireland to its list of countries facing travel curbs, and Australia and New Zealand said all travellers would have to self-isolate for 14 days.
“We call on Congress and the White House to take all measures available to protect the health and payroll of American workers,” said Sara Nelson, president of the Association of Flight Attendants-CWA, which represents 50,000 US flight attendants at 20 airlines, including United.
UK airlines called on the British government to help ensure their survival, while Germany’s Tui AG and Scandinavian carrier SAS said they would suspend the vast majority of operations due to the COVID-19 outbreak and apply for government support.
Air New Zealand Ltd said job losses would be necessary as it cut long-haul capacity by 85 per cent over the coming months.
“We are now accepting that for the coming months at least Air New Zealand will be a smaller airline requiring fewer resources, including people,” Air New Zealand Chief Executive Greg Foran said in a statement.
Qantas Airways Ltd said it would be making fresh cuts to its flying schedule beyond the 25 per cent reduction in international capacity announced last week due to the new travel restrictions.
UBS analysts said the latest travel restrictions would have a significant effect on Qantas’ international traffic, which historically accounted for around 45 per cent of revenue and 25 per cent of earnings before interest and tax.
“A downside scenario where international traffic is down 50 per cent for a whole year and domestic down 30 per cent could result in cash burn of up to A$200 million ($123.60 million) per month after incorporating changes to the business,” UBS said of Qantas.
Smaller rival Virgin Australia Holdings Ltd, which has a weaker balance sheet but a heavier domestic focus, said it was assessing its response to the new travel restrictions.
S & P Global Ratings downgraded its credit rating on Virgin to B- and placed it on credit watch negative due to rapidly deteriorating industry conditions spreading from the international market to the domestic market.
– With Jamie Freed and Tracy Rucinski of Reuters