A fleet of Airbus SE A380 passenger aircraft operated by British Airways, a unit of International Consolidated Airlines Group SA, stands near other grounded jets at Chateauroux Airport in Chateauroux, France, Thursday, August 27, 2020.
Nathan Laine | Bloomberg | Getty Images
SINGAPORE – Strong government support has saved some airlines from bankruptcy – but more airlines could fail in the coming months, aviation experts say.
Travel data company Cirium found that 43 commercial airlines have failed since January this year, compared to 46 in all of 2019 and 56 in all of 2018. One failed airline has ceased or ceased operations entirely as defined by Cirium.
“Without government intervention and support, we would have had mass bankruptcies in the first six months of this crisis. Instead, we had a manageable number of bankruptcies and very few breakdowns,” said Brendan Sobie, an independent analyst at Sobie Aviation.
Sobie said many airlines were struggling before the pandemic broke out but now have a “better chance of survival” because of government help.
“If there is a silver lining to all of this, things have been so bad that governments have had no choice but to support,” said Rob Morris, global director of advice at Cirium.
More failures en route?
Despite the financial support, the outlook for the rest of 2020 is “not encouraging,” said Morris.
“Many airline failures typically occur in the last few months of the year,” he told CNBC in an email. The first and fourth quarters are “the hardest” as most of the revenue is generated in the second and third quarters.
“I would normally characterize airlines as spending summers building ‘war boxes’ so they can survive the winter,” he added. The goal for airlines now is to “survive at all costs” and see if summer 2021 brings solutions or increased demand.
“With demand stalling in most regions and airlines still struggling with revenue generation and cash outflow, we expect further failures at least in the final quarter of 2020 and the first quarter of 2021,” he said.
Brendan Sobie Aviation’s Sobie agreed with the prediction, saying some governments may hesitate to bail out airlines a second time.
“But I still do not expect mass bankruptcies. The number of bankruptcies and breakdowns should be manageable and extend over a relatively long period of time,” he said.
Major airlines affected
This time, larger airlines are affected, stressed Morris.
Of the 43 airlines that failed so far in 2020, 20 operated at least 10 aircraft, compared with 12 in all of 2019 and 10 in all of 2018, data from Cirium showed.
“While we’ve seen fewer airline failures this year, the number of failing airlines that have operated ten or more aircraft is already higher than it has been in the last six full years, so it’s clear that the pandemic is affecting larger airlines and them fail, “said Morris.
A larger number of aircraft have also ceased operations as a result. Around 485 aircraft have been decommissioned due to aircraft failures, up from 431 in 2019 and 406 in 2018.
Airlines could go bankrupt due to poor business models or other local issues, he said. However, the major and future outages of 2020 are “inevitably a consequence of the loss of demand caused by pandemics”.
“After ten years of sustained expansion in demand, which resulted in the global traffic base nearly doubling during that time, this sudden shock has left airlines inefficient and structurally high costs,” added Morris.
The The International Air Transport Association warned this week that the industry will burn $ 77 billion in cash in the second half of 2020 and continue to bleed at $ 5 billion, or $ 6 billion per month in 2021 due to the slow recovery.
The association said in July that passenger traffic is likely Return to 2019 levels only in 2024.