The Effect of Coronavirus on the Airline Industry

Updated: 4 days ago

Written by: Sonia Surainian


Introduction


Coronavirus (COVID-19) is an illness that can affect the lungs and airways of the respiratory system (NHS, 2020). It is significant because it has interfered with the daily routines of many people from university students to businesses and to schools. University students have been affected because on-campus learning has officially moved to online-distance learning (Universities UK, 2020).


There are many countries which rely on tourism. Tourism generates a total of $8.8 trillion to the global economy which is equivalent to £7 trillion and creates approximately 319 million jobs worldwide (Quinn, 2020). Countries such as Spain and Italy that rely on tourism are expected to make losses since the death toll in Spain, which has exceeded more than 10,000 deaths (Mayberry, Stepansky and Varshalomidze, 2020) and Italy with a total of 13,155 deaths (Henley, 2020).


The UK prime minister Boris Johnson has implemented strict measures such as: social-distancing from friends and family outside of the area of residence, general public, travelling only for essential items and lastly by self-isolating by staying indoors (BCC, 2020). This adversely impacts the airline industry as people are no longer able to travel. The UK chancellor Rishi Sunak announced the offering of £330 billions worth of loans equivalent to 15% of Gross Domestic Product to the economy, in order to support businesses in need (Sparrow, 2020).


The Effect of Coronavirus on the Airline Industry


The sales of many airline companies are likely to decline since people are not allowed to travel unless it is mandatory, as stated by the UK government and the Foreign Commonwealth Office (Sparrow, 2020).


The development of the coronavirus started in Wuhan, China which was one of the regions where the aviation industry was generating most of their revenue because 1.6 billion passengers flew with Asia-pacific airlines amongst any other airline situated in Europe, North America, Latin America, the Middle East and Africa that had a lower number of passengers (IATA,2019).


The travel demand to Asia dropped, that consumers were no longer travelling to China or other parts of Asia, and it led to airlines cutting their flight journeys to China and other countries situated in Asia (Slotnick, 2020). The airlines were further affected once the Coronavirus spread to other parts of the world such as Europe and America because travellers were avoiding anything involving air travel due to being in reach of contact with someone who may have the virus. This led to demand for flights plummeting even more (Slotnick, 2020).


The Airlines affected include regional based airlines such as Flybe based in the UK and US airlines, and Trans States and Compass Airlines because they have become bankrupt (Slotnick, 2020). The aviation industry is at major risk because the expected losses are between $63 billion and $113 billion according to IATA (International Air Transport Association).


Many of the major airlines require financial backing from the government as much as $200 billion to survive throughout the coronavirus crisis (Togoh, 2020), since travel bans were initiated and flight schedules descended. The airlines’ main trade body IATA mentions the majority of carriers were at risk of running out of money within two months (Powley, 2020). IATA’s Director General, Alexandre de Juniac stated revenues could go down 44% from last year which requires the government’s urgent support (Topham, 2020) or else the airline industry can become bankrupt according to the Centre for Aviation cited in the BCC (2020).


Norwegian Air is facing trouble with debt as it is established as a low-cost transatlantic operator (Coulter and Farrer, 2020). The airline is looking at temporarily getting rid of more than 7,500 staff and cancelling thousands more flights (BCC, 2020). A Dutch subsidiary of Dutch Air France-KLM, plans to remove 2,000 jobs and cut working hours by one-third for its entire staff (Coulter and Farrer, 2020).


Despite this, the US government plans to support the aviation industry to deal with money losses and protect jobs (Coulter and Farrer, 2020). President Trump has signed a stimulus bill that includes $58 billion in aid for airlines, $29 billion in payroll grants for workers, and $29 billion in loans for the airlines (Slotnick, 2020). Whereas, the aviation industry in the UK is stuck as there is no stimulus deal. (Jennings, Savjani and Tyler, 2020). Apart from a £330 billion fund that the chancellor announced to aid the economy during the crisis (Jennings, Savjani and Tyler, 2020).


Virgin Atlantic has decided to cut almost all of its flights by only having a fifth of flights available and with staff to take eight weeks of unpaid leave with their jobs suspended up to two months (BCC, 2020) in order to cut costs (Togoh, 2020). However, Virgin Atlantic are setting up schemes for thousands of suspended crew to volunteer over the next two months with the NHS or work in supermarkets (Kollewe, 2020).


Despite this, Virgin Atlantic is seeking a bailout from the government by encouraging Airbus and Rolls-Royce to support the carrier to lobby the government on the airline’s behalf (Topham, 2020). A comment made by Rolls-Royce is they rely on Virgin, since they play a significant part in the company and on its UK supply chain (Topham, 2020).


The chairman of Virgin Atlantic, Peter Norris required £7.5 billion in state support from the government last month (Topham, 2020). Where the UK chancellor decided against an industry-wide bailout (Topham, 2020). The firm has lower cash reserves than its larger competitors Easyjet and British Airways (Topham, 2020). The bookings for Virgin Altanic have almost dropped to ‘zero’ according to the Guardian.


According to a report by the BCC, passenger numbers and bookings have collapsed as holiday makers cancel trips (BCC, 2020). This explains why one of the world’s leading European Airline Easyjet has grounded all of its planes and their shares have dropped by 5% (Togoh, 2020). Following the UK government’s advice and the FCO, Easyjet operated hundreds of rescue flights to repatriate stranded people according to Forbes (Togoh, 2020). As part of the UK Government’s job retention rescue package some workers’ pay may be covered by volunteering at the new 4,000-bed temporary hospitals across east London, Birmingham and Manchester, and will continue to be paid up to 80% of their salaries (Togoh, 2020). The crews at Easyjet are expected to be out of work for three months according to the BCC.


The airline company British Airways has grounded most of its fleet due to the coronavirus outbreak and has temporarily suspended 30,000 and more of its cabin crew and ground staff (BCC,2020). The chief executive is convinced that this is the best thing to do, in order to save jobs and survive the crisis (BCC, 2020). According to a source by the BCC staff account for 40% of an airlines costs and the government employment help scheme will support the company and many others as they can reclaim 80% of wages.


Neither British Airways or Easyjet have gained further financial help nor are seeking any. For British Airways it may be because they negotiated a deal with pilots to cut their basic salary by 50% over three months (Powley, 2020). Nevertheless, the coronavirus outbreak has led to British Airways closing down one of their two runaways because of the reduction in flights according to the Guardian.


British Airways is amongst many other subsidiaries owned by International Airlines Group (parent company). Hence, it may have been able to generate enough profit before the pandemic, therefore, be in a better financial position than its competitors (BCC, 2020). Also, they are one of many to run government repatriation flights to get a number of British nationals back from Peru to the UK after the country went into lockdown (BCC, 2020).

According to Business Insider, suspended routes and grounded planes (Slotnick, 2020) have led the airline industry to be one of the most affected. People are afraid of booking tickets for future travel because of the way the coronavirus pandemic is being handled (Slotnick, 2020). As at first it was told by the government that the country would be on a total lockdown for three weeks before being reviewed and if improvements were made things would slowly originate back to normal. However, it is not the case and the country can be on lockdown for a total of six months.


The UK government’s response is that the coronavirus will only get “worse before it improves” (Ellyatt, 2020). This means many airlines will find it a struggle to survive, as the chief executive Willie Walsh of IAG ( International Airline Group) expects the demand to remain weak well into the summer according to the BCC.


Conclusion


Overall, the impact the Coronavirus has had on the economy and the aviation industry is apparent. Airlines have had to cancel flights because they are no longer able to operate due to travel bans from one country to another. Moreover, people are just genuinely afraid of catching COVID-19 and do not want to place themselves in situations where that could happen.


Regional airlines such as Flybe, Trans States and Compress Airlines have become bankrupt (Slotnick, 2020), particularly, because of the coronavirus pandemic. The jobs of staff are at risk as Norvegian Air looks to temporarily remove 7,500 of its staff (BCC, 2020) and Virgin Atlantic is leaving staff unpaid for a set period (BCC, 2020). Virgin Atlantic are also lobbying the government (Topham, 2020) which shows the current financial situation that they are in considering the chairman of Virgin Atlantic requested £7.5 billion last month.


The major effect for the airlines is they somehow will have to try and makeup for the financial losses they have encountered throughout this year. This will be difficult considering the UK could be on lockdown for six months as well with other countries which will pass the summer months, the time airlines make the most money.


However, due to the coronavirus pandemic it is less likely that the airlines will generate profit to cover their losses. Unless, they are given the right funding and support by the UK government and the chancellor just as the US president has provided to airlines in its domain.


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