Due to the outbreak of the coronavirus, airlines faced huge losses: some canceled flights, others rely on government support. However, some experts believe that a pandemic does not pose a threat to the industry in the long run.
Globalization has contributed to the prosperity of airlines. Traveling abroad has already become something like a trip to a neighboring city thanks to the introduction of a visa-free regime and the abolition of border controls between many countries. But for the same reason, any epidemic can now easily spread all over the world in a matter of days, as happened with the coronavirus COVID-2019.
Fear of becoming infected makes people stay at home during vacations and cancel business trips abroad, and air carriers around the world quickly realized what this threatens them with. Chinese and Asian airlines felt the first consequences at the end of February, then American and European airlines became worried. All of them – from the Australian Qantas to the Hong Kong Cathay Pacific, from the German Lufthansa to the American United Airlines – had to face a massive cancellation of reservations.
According to the American investment company Jefferies, in 2020 the volume of air traffic will be reduced by 8.9% due to coronavirus. This is the worst figure in the last 42 years of observation (even worse than after the terrorist attack of September 11, 2001, in New York). “The industry is facing the most serious challenge in the history of modern aviation,” confirms Yu Zhangfu of the Beijing branch of consulting company Roland Berger.
Governments close their borders, the most disadvantaged regions impose a quarantine regime, passengers return tickets, and airlines are forced to massively cancel flights. The American Delta plans to reduce domestic flights by 15%, international – by 25%. American Airlines is going to reduce the number of foreign flights in the peak summer season by 10%. The German Lufthansa also canceled 50% of its flights.
The first victims of the coronavirus have already appeared in the aviation industry. The pandemic was the last straw for the British Flybe, which had long been experiencing financial difficulties: on March 5, the company declared bankruptcy. The Hainan Province of China has taken control of Hainan Airlines to protect it from the risks of a coronavirus outbreak.
The governments of other countries, most likely, also will not stand aside. German Lufthansa intends to request government support to avoid company layoffs. US President Donald Trump promised, without going into details, that his administration will help US airlines deal with the losses associated with the pandemic. “We will help them get through this difficult time,” he said.
According to the most pessimistic forecast of the International Air Transport Association (IATA), in 2020 the revenue of air carriers will decrease by 19% ($ 113 billion) compared to last year. The most optimistic scenario is an 11% drop in revenue ($ 63 billion). In order to somehow soften the blow, airlines continue to cancel flights. Australian Qantas March 10 announced that it will cancel a quarter of international flights planned for the next six months. Air France also canceled 3,600 flights in March, cutting its shipments to Europe by 25%.
According to IATA, more than a third of losses in the industry will be in Chinese companies. Thanks to the rapid development of tourism in China, local carriers have been doing well in recent years, they were even planning to enter the US market in the near future. However, coronavirus made adjustments to their plans, and now many of them will have to fight for survival.
According to OAG, a British research company, in February, Chinese airlines reduced domestic traffic by 10.4 million seats. IATA reports that China has booked 80% fewer tickets in April than in the same period last year. Cirium consulting firm Joanna Lu fears that not all Chinese airlines will survive the pandemic. “Small airlines and low-cost airlines are most at risk,” she notes.
State aid is their only chance of salvation. The “Big Three” of China’s air carriers (China Southern Airlines, Air China and China Eastern Airlines) is under the control of the government, which announced its readiness to provide them with additional financial assistance in the crisis period. In early February, the Chinese Civil Aviation Administration confirmed that it would support the industry by any means.
In early March, the Chinese authorities announced that they would subsidize companies operating international flights and pay them 0.0528 yuan per 1 km of the route per passenger. So, for a flight on the London-Beijing route, which is 8175 km long, the government will pay the airline 432 yuan ($ 62) per passenger.
According to OAG, in March, Chinese air carriers began returning domestic flights to their schedules and selling tickets for them at prohibitively low prices. For example, a 3.5-hour flight from Shanghai to Chengdu will cost 140 yuan (approximately $ 20). This is almost ten times lower than in September 2019. However, Yu Zhangfu of Rolan Berger notes that the load on Chinese airlines is currently half that of late January when the epidemic was just beginning. After coronavirus infection began to spread in Europe and the United States, low prices are unlikely to help boost ticket sales for international flights.
Until now, airlines have been able to easily overcome crisis situations. Due to the SARS epidemic in 2003, air carriers lost $ 6 billion but were able to reach their previous level in just nine months. This time they can be helped by a drop in oil prices caused by the disruption of the deal between Russia and OPEC: fuel is one of the main expense items for airlines.
“I have been working in this industry for over 35 years. There have been wars, terrorist attacks, and epidemics, and disasters, ”says Jared Harkham, vice president and managing director of consulting company ICF International, specializing in the airline industry. – And all this has never affected the long-term development of the industry. For any problem, sooner or later, solutions are found, memories of it are quickly erased, but people never want to miss the best deals. ”