Tuesday, March 17, 2020

Airlines expected to outlive COVID-19 pandemic scare with resized business; govt support vital to see through turbulence

Yesterday, an article by an Aviation Consultancy firm CAPA signed the death warrant of 75 percent of global aviation in an article titled: “By the end of May, most world airlines will be bankrupt”. Look, I agree with the sentiment that aviation is a very fragile business, but I don’t agree at all with the sentiment that airlines are going belly-up due to COVID-19. Especially since the article does not spend any time on which airlines will crash and back it up with any financials. That is the least you could ask of an aviation consultant making a doomsday prediction.

Aviation has been a profit-making sector, on an overall basis for the past many years. Aviation is also a great equaliser. In 2019, over four-and-a-half billion passengers and 61 million tonnes of freight travelled across a network of more than 22,000 unique city pairs connected by air, as per Alexandre de Juniac, the CEO of International Air Transport Association (IATA), the industry trade body.

Airlines, as a group, were expected to rake in $25.9 billion in profits in 2019, and the business was going to be in the black for 10 years in a row. However, as IATA Chief Economist Brian Pierce said in December 2019, “There is a long tail of airlines barely breaking even and a group making significant losses”. As a matter of fact, between 2010 and 2019, at least 26 major airlines have gone under, largely on account of bankruptcy.

Aviation, as a business, involves making upfront investments in airports, product, licenses, staff, planes and so on, and have these recovered by flying people on a per-seat basis over the months and years. Like any other business, aviation has capital investments and ongoing expenses. However, capital investments are massive, and recovery takes place over a period of time.
17/09/20 Ajay Awtaney/First Post
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