Airlines and Coronavirus: Assessing the impact

Julie Palmer

Regional Managing Partner

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Airlines and Coronavirus: Assessing the impact

Updated: 7th January 2021

The Impact of COVID-19 on Airlines

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.

"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."

Uncertainty causing plummeting demand

Travellers typically fall into two main categories – those travelling for business purposes, and holidaymakers travelling for leisure. Unfortunately for airlines, demand from both groups has been heavily dented.

Business travel is hugely important for airlines, accounting for the majority of its revenue. These travellers are less sensitive to price and bookings are typically placed much closer to the departure date than for those planning a holiday. This means any drop in bookings is felt almost immediately. An increasing number of workers being asked to work from home or else advised to limit unnecessary contact with others where possible have led to severe curbs on business travel. If meetings can take place via conference call or video call, then this is likely to be the preferred option while the situation is ongoing.

When it comes to those travelling for pleasure, this is often a busy time for airlines securing bookings for the upcoming holiday season. However, as summer approaches, people are understandably cautious about committing to a holiday which would involve air travel amidst the prevailing feeling of uncertainty.

News stories emerging about holidaymakers being quarantined in a hotel in Tenerife, others trapped on cruise ships off the coasts of both Yokohama and California, as well as increasing numbers of airlines cancelling and reducing flights to infected areas, are all driving down demand.

The rapid spread of the disease makes it near on impossible to predict which areas will be infected in the coming months; what might be deemed as a relatively risk-free destination now may be under strict travel restrictions when the peak Easter and summer holiday seasons come around. For those planning a trip months in advance, this risk may be too great to take.

As well as impacting the airlines directly, there could well be huge knock on effects on other businesses who rely on travellers passing through airports, such as chauffeurs and airport pick up services, who are likewise at risk of seeing a downturn in trade as a result of reduced air travel.

Seizing the opportunity

As in often the case in times of distress, some companies will unfortunately experience a huge drop in sales, yet other industries will see their activity given an unexpected boost, and the impact of coronavirus appears to be no different.

While demand for foreign travel slows, there are signs that demand for so-called ‘staycations’ is increasing. Steve Jarvis, owner of Independent Cottages, has revealed web visitors are up by 40% compared to this time last year, with the vast majority of this coming from domestic searchers.

For those spooked about the potential of flight cancellations, concerns over overseas healthcare, and confusion over whether they would be protected by travel insurance should the worst happen, holidaying closer to home has never been more appealing. With the Easter break approaching, and the school summer holidays following shortly after, the UK tourism business could be in prime position to seize on these growing levels of consumer uncertainty.

If your business is experiencing a downturn due to the escalating coronavirus crisis, call our dedicated helpline on 0333 009 6851 for immediate help and advice on navigating the situation including expert guidance on arranging a Time to Pay agreement.