Aviation faces ‘lost year’ as carriers battle for survival

Aviation analyst John Strickland painted a gloomy outlook for the sector during a WTM Global Hub seminar, entitled Airlines in Crisis - What is the Prognosis for the Aftermath of Covid-19?

Strickland, director of JLS Consulting, said one airline boss had called 2020 a “lost year” for the industry, which could lead to an end to low airfares in the future.

“Cash is still going out the door even when an airline is hibernating,” he said. “It’s critical to cut staff costs as much as possible.”

Strickland added that there were only a “handful” of carriers who had enough “liquidity and cash in the bank” to survive a shutdown in flights for a year or longer.

“The large majority of airlines have cash for a matter of weeks or months, and then have nowhere to go,” he said.

Strickland added there were currently “so many barriers to a rapid recovery”, including the opening and closing of borders, as well as questions about quarantines such as the 14-day periods proposed by the UK and France.

“Spain’s summer season will be crippled by the crisis,” he predicted.

There were also questions about how social distancing could be maintained on flights with proposed moves such as leaving the middle seat vacant set to cut capacity by 30% leading to a 30%-50% rise in fares, which was “not sustainable”.

Strickland also raised the spectre of government bailouts for airlines such as Alitalia, which has already been renationalised, and the French government backing Air France with potential conditions such as the airline not flying on domestic routes served by high-speed rail services.

“Lufthansa is in need of liquidity to get through the current set of circumstances,” he said. “The German government could hold as much as 25% of the business.”

Strickland said he expected more consolidation in the industry with fewer larger players in the post-coronavirus world.

He cited British Airways owner IAG and Wizz Air as two groups which expected to come out of the Covid-19 crisis in a “stronger” position.

“Wizz Air’s [chief executive] Jozsef Varadi says Wizz will recover in a year and launch into new markets - he’s still very optimistic,” said Strickland. “They can survive for about a year and a half, they have so much cash and liquidity.”