Most airlines in the world will be bankrupt by the end of May 2020 and only coordinated action by government and industry can save them, global aviation consultancy firm CAPA has said.
"By the end of May-2020, most airlines in the world will be bankrupt. Coordinated government and industry action is needed - now - if catastrophe is to be avoided," CAPA- Centre for Aviation, said in its latest note on the global situation.
Demand for travel has fallen drastically since the last two weeks after countries across the world implemented travel advisories and Visa restrictions, aimed at preventing spread of the deadly coronavirus.
In the report, CAPA said that demand is drying up in ways that are completely unprecedented, forward bookings are far outweighed by cancellations, and cash reserves are running down quickly as fleets are grounded and the operating flights are less than half full.
"As the reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants," CAPA has said.
It has also cautioned that governments are failing to cooperate and while they are grappling with the health challenges of coronavirus, it is clear that there is little instinct to act cooperatively.
"Each nation is adopting the solution that appears best suited to it, right or wrong, without consideration of its neighbours or trading partners," CAPA said.
CAPA's statements come at a time when airlines across the world are cutting flights, grounding aircraft and the business is bracing for severe impact.
US-based United Airlines witnessed a fall in passenger count by more than one million in the first two weeks of March 2020 as compared to the same period last year. The situation is so worrisome that it will reduce capacity for April and May by 50 percent and cut the salaries of its corporate officers by 50 percent.
"Even with those cuts, we're expecting load factors to drop into the 20-30 percent range -- and that's if things don't get worse," United said.
Last week, Delta announced its plans to cut operations by 40 percent schedule and a 100 percent salary cut for their CEO and over the weekend, American said it will reduce its international capacity by 75 percent.
Today, CAPA said that National self-interest over cooperation is the evolving threat for aviation.
"As things stand, the likely tepid response to the airline crisis will equally be fragmented and nationally based. It will consist mostly of bailing out selected national airlines. Some survivors are self-evident. Chinese airlines are mostly government-supported, so at least the majors will remain solvent; their share prices reflect this actual and de facto underwriting," CAPA said.
Such a situation will be similar to entering a brutal battlefield, littered with casualties and in short, the post-coronavirus environment has all the makings of a geopolitical standoff, CAPA added.
"Inevitably, once we exit this tunnel - as we will - the world will be a different place; aviation will be no exception," CAPA said.
CAPA urged that organisations like ICAO, the EU, IATA, the regional aviation associations and the key aviation nations – should start a dialogue towards cooperation and establishing a 21st-century regime.
"Failure to coordinate the future will result in protectionism and much less competition. It will mostly consist of airlines that are the biggest and the best-supported by their governments," CAPA added,
First Published: Mar 16, 2020 8:30 AM IST
