Coronavirus is pushing major airlines to the brink of collapse

19 March 2020 3 min. read

An Australian aviation consultancy has warned that major airline companies across the globe are flying towards bankruptcy if the current environment around the Covid-19 persists. Some major airlines already find themselves in “technical bankruptcy”, hoping that governments are willing to keep them adrift.

Share prices of most major airlines across the globe have more than halved since the start of the year, driven by an unprecedented lack of bookings. “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,” said Sydney-based aviation consultancy Capa Centre for Aviation.

Experts on Wall Street anticipate that the situation in the airline sector is set to get worse than it was in the post 9/11 period. “Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full,” said Capa.

The consultancy also highlights how the current trends in government policies paint a bleak picture for the future. “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.”

Coronavirus is pushing major airlines to the brink of collapse

Another trend that does not bode too well for the airline sector is that the anticipated bailout packages from government’s across the globe will be driven, in part, by nationalism and the desire to protect stalwart airlines for countries.

Such a scenario would inevitably result in the rescue of a handful of big nationally important airlines, which in some cases means that inefficient and legacy heavy carriers are saved.

This approach is obsolete, according to Capa, and does not represent the work ethic and ethos of the contemporary business environment. The consultancy suggests that aviation bodies across the globe use this situation as an opportunity to reassess priorities in the sector.

Based in Sydney, Capa has been offering market intelligence and advisory services to the global aviation sector since it was established in 1990. The specialist consulting firm and research house now operates across the globe, supporting clients with analyst reports, benchmark advisory, research publications and data analytics.

Capa’s predictions of doom for the aviation sector are the latest amid widespread economic analysis that seeks to gauge the impact that Covid-19 disruption will have on various sectors. Big Four accounting and advisory firm KPMG recently offered an overview for the Australian economy as a whole, estimating that the GDP might take a $17 billion hit by the end of this year. Other more direct estimates have been made for the energy sector, as well as for the travel and education sectors