Airline bankruptcies will continue in 2021, LCCs expected to recover first

Report by : Gan Yung Chyan, KUCINTA SETIA

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Aviation Experts: "The tide of bankruptcy" will continue in 2021, low-cost airlines are expected to take the lead in recovery

 Although governments are actively promoting the large-scale vaccination of the new crown vaccine, analysts believe that the demand for air travel will not soon return to the level before the pandemic of the health event, and more airlines may face bankruptcy this year. But there may be a bright spot: low-cost airlines focusing on domestic short-haul routes will be the first to recover.

More airlines may go bankrupt

Peter Harbison, chairman emeritus of CAPA (Centre for Aviation), said that it is difficult for airlines to conduct mergers and acquisitions overseas, so the possibility of failure is greater. Last year, governments of various countries provided “anti-gravity support” through a combination of direct funding and employment support programs to keep airlines operating. "

Harbison added that cash flow problems will become increasingly prominent, and all airlines are still "burning money." At this time of the year, airlines usually accumulate cash by booking spring and summer air tickets in advance. However, due to the situation of health incidents is still not optimistic, even if the fares are very cheap and the conditions for changing or refunding tickets are very good, people are reluctant to book tickets in advance.

In view of the current variables, Harbison believes that even if the positive progress of vaccines brings hope, the necessary cash flow will not flow in large amounts before mid-2021.

CAPA's forecast is that due to the long-term uncertainty of economic recovery, coupled with the severe decline in business travel demand and the sharp drop in international flights, the number of air travel is expected to return to pre-pandemic levels by 2025.

Low-cost airlines will take the lead in recovery

Shanantanu Gangakhedkar, consultant of Frost&Sullivan Consulting Company, said that because low-cost airlines generally have better financial conditions, focus on short-haul domestic or regional routes, and have ways to provide low-cost air tickets to the global market for a long time, they will be in a more favorable position on the runway after the health incident. status.

Gangakhedkar added that, at least in the next few years, the aviation industry will face overcapacity, which means that airlines and the entire supply chain must be adjusted to serve an industry with a smaller market size and meet completely different market needs. get ready.

However, JoannaLu, head of consulting for Cirium Asia, warned that the favorable situation for low-cost airlines will not continue. If health incidents continue to wreak havoc and travel restrictions still exist, the ability of these companies to fight risks will become more vulnerable.

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The road to recovery is obstructed and long

According to travel data company Cirium, last year’s air passenger traffic dropped by 67% compared to 2019. Many airlines were forced to cut spending by an average of US$1 billion per day, despite the government’s extensive financial support to help avoid aviation Large-scale bankruptcy of the industry.

The International Air Transport Association (IATA) stated in December last year that airlines’ net losses in 2020 will reach 118.5 billion U.S. dollars, and in 2021, net losses will reach 38.7 billion U.S. dollars.

In this regard, Harbison believes that from the perspective of the international environment, the uncertainty of travel safety and border blockade is still a huge challenge for industrial recovery. In the domestic market, vaccines will provide the greatest boost to reopening, but there is still a long way to go, because certain uncertain factors may at any time make previous efforts in vain.