Updated: 16th March 2020
This week, the International Air Transport Association (IATA) issued a stark warning that passenger airlines could stand to lose upwards of $113bn – or £87bn – collectively as a direct result of the continuing coronavirus crisis. This estimate has increased fourfold in just 13 days as the spread of the virus takes hold across Europe. Airline share prices have plummeted by 25% since the outbreak, a worrying trend which shows no sign of abating in the near future.
Passenger numbers are already down, with routes to Italy – the worst hit affected country in Europe so far - experiencing a significant decrease in demand. Ryanair has reacted to this by announcing a 25% reduction in flights for the next three weeks in light of falling passenger numbers with the majority of these cuts affecting flights to and from Italy; British Airways have likewise grounded 432 flights to match slowing demand for services.
Outside of the UK, leading German airline Lufthansa has cancelled a raft of flights, while both Emirates and Cathay Pacific have asked staff to take unpaid leave.
Compounded distress for a struggling sector
The travel sector was an industry already facing problems. Currency volatility and general economic uncertainty has resulted in airlines across the world experiencing unprecedented levels of financial distress.
British carrier Flybe succumbed to the pressures and called in administrators earlier this week. They follow fellow UK-based airlines, Thomas Cook and Monarch, who have already disappeared from the skies in recent years.
Flybe were already plagued with financial worries, yet having been granted a rescue deal just two months previously, the disruption caused by coronavirus appears to have been the final straw for the beleaguered airline. Flybe, which was the largest regional carrier in Europe, entered administration on March 5th with its administrators citing coronavirus as one of a number of reasons behind its ultimate failure.
With airlines working to already slim margins, an unexpected situation – particularly one which is global – can be enough to tip the balance the other way and see the airline plunging into insolvency. The true impact of the coronavirus outbreak is as yet unknown; no one knows for sure how long disruption will continue, nor how deep the financial impact will end up being. Those airlines without adequate cash reserves to act as a cushion against revenue losses over the next few months could be in for a tough time.