Over 40 airlines have failed so far this year — and more are set to come

A fleet of Airbus SE A380 passenger aircraft, operated by British Airways, a unit of International Consolidated Airlines Group SA, sit parked near other grounded jets at Chateauroux airport in Chateauroux, France, on Thursday, Aug. 27, 2020.

Nathan Laine | Bloomberg | Getty Images

SINGAPORE — Strong government support has stopped some airlines from going bankrupt — but more carriers 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 the whole of 2019 and 56 in all of 2018. A failed airline is one that has completely ceased or suspended operations, according to Cirium's definition.

"Without government intervention and support we would have had mass bankruptcies in the first six months of this crisis. Instead, we have had a manageable number of bankruptcies and very few collapses," said Brendan Sobie, an independent analyst at Sobie Aviation.

Sobie said many airlines were already struggling before the pandemic hit, but they now have a "better chance at survival" because of government help.

"If there is any silver lining in all of this, it is that things were so bad that governments had no option but to support," said Rob Morris, global head of consultancy at Cirium.

More failures on the way?

Despite the financial aid, however, the outlook for the rest of 2020 is "not encouraging," Morris said.

"Many airline failures typically occur in the final few months of the year," he told CNBC in an email. The first and fourth quarters are "the hardest" because most of the revenue is generated in the second and third quarters.

But I still don't expect mass bankruptcies. The number of bankruptcies and collapses should be manageable and also spread out over a relatively long period of time.

Brendan Sobie

Sobie Aviation

"I would typically characterize that airlines spend summers building 'war chests' so that they can survive winters," he added. The goal for airlines now is to "survive at any cost" and see if the summer of 2021 brings solutions or higher demand. 

"With demand recovery in most regions stalled and airlines still struggling with revenue generation and cash outflow, we expect to see more failures in the final quarter of 2020 and first quarter of 2021 at least," he said.

Brendan Sobie of Sobie Aviation agreed with the prediction, and said some governments may be reluctant to bail airlines out a second time.

"But I still don't expect mass bankruptcies. The number of bankruptcies and collapses should be manageable and also spread out over a relatively long period of time," he said.

Larger airlines affected

Bigger airlines are being impacted this time, Morris pointed out.

Of the 43 airlines that failed in 2020 so far, 20 of them operated at least 10 aircraft, compared to 12 in all of 2019 and 10 throughout 2018, Cirium's data showed.

"Although we have seen fewer airline failures this year, the number of those airlines failing that operated ten or more aircraft is already greater than we have seen in any of the past six complete years. Thus it is clear that the pandemic is impacting larger airlines and causing them to fail," Morris said.

A higher number of aircraft has also stopped operating as a result. Some 485 planes have been idled because of airline failures so far, versus 431 in 2019 and 406 in 2018.

Airlines may go bankrupt because of poor business models or other local issues, he highlighted. But the larger failures of 2020 and those to come are "inevitably a consequence of the pandemic-induced loss of demand."

"Coming off the back of ten years of continued demand expansion which resulted in the global traffic base almost doubling in that time, this sudden shock has left airlines with no revenue and structurally high costs," Morris added.

The International Air Transport Association this week warned that the industry will burn $77 billion in cash in the second half of 2020, and continue to bleed around $5 billion or $6 billion per month in 2021 because of slow recovery.

The association in July said passenger traffic is likely to return to 2019 levels only in 2024.

Source
Check Our More