Can major airlines survive as long as COVID-19 continues to spread?

All major U.S. airlines are burning through cash every day. No one is making a profit. It could be a long time before any U.S. airline turns a profit with a spreading COVID-19 pandemic.

COVID-19 new cases in the United States (John Hopkins University).

Americans cannot travel to the European Union, a first in many summer seasons. This is cutting off a normal gigantic revenue stream for many U.S. carriers. This has grounded many wide-body airliners.

In this article by Lance Brofman, he states “Without infusions of cash from the government, it is unlikely that any of the legacy airlines could ever get to breakeven as long as COVID-19 is still a factor. Even without the cash burn and non-cash losses, since March 31, 2019, Delta Air Lines (DAL) probably has no shareholder equity left now.”

He continues:

“All the worlds’ airlines are suffering from unprecedented declines in revenue. However, among airlines in the developed world, American airlines are facing additional problems. The world is devolving into two categories of countries with regard to COVID-19. Those countries with COVID-19 and those without. New Zealand and Iceland have already reported no new cases of COVID-19. Australia, Taiwan, Hong Kong, Denmark, Greece and South Korea are well on their way in totally eradicating COVID-19. Countries that have or are very close to eradicating COVID-19 are now working on plans for a “travel bubble” where travel between those countries will not be restricted. As other countries also eradicate COVID-19, travel between them will be allowed without 14-day mandatory quarantines upon arrival. America will almost certainly be among the last developed countries to have no COVID-19 cases…”

If correct, this is very bad news for struggling U.S. airlines.

Read the full article.

Bottom line question: Are U.S. airlines becoming worthless? The same question applies to cruise ship companies, hotel chains and the travel industry in general.

In the United States, many former airline travelers are now opting to travel by car or even a RV for a vacation to avoid sitting next to a suspect passenger in a pandemic.

Every U.S. airline is now stressing the steps they are taking in making every aircraft as clean as possible.

Photos: Delta Air Lines.

Here is Delta Air Lines latest reassurance.

Is it working? For some people, yes they are willing to take the risk. However will the U.S. airlines ever get back to where they were pre-COVID-19? Probably not until the pandemic is tamed.

According to Airlines for America, “despite a recent uptick in air travel, passenger volumes remain down about 80 percent”.

According to Airlines for America, 40 percent of the U.S. passenger airline fleet remains grounded. Each of those aircraft have payment schedules. An idle aircraft is a drain on airline finances. Hence the daily cash burn. Having a large grounded fleet is now a curse.

The COVID-19 pandemic has reshuffled the cards and airlines will need to reinvent themselves in order to survive. This probably means being a lot smaller. However does the business model still work? For some airlines, like Ryanair, having a crowded, full aircraft is their business plan in order to offer their low attractive fares.

Worldwide, the situation is not much better for airlines. Although there are areas where the pandemic has been somewhat controlled (see above), as long as COVID-19 is increasing worldwide there is the risk of reinfection in many countries (hence the actions of the European Union). Airlines depend on travel between countries. As long as there are barriers between countries due to a pandemic, airlines will be restrained from making a profit.

Worldwide COVID-19 cases (John Hopkins University).

Many countries have instituted “quarantine on arrival” procedures which has made international travel a difficult proposition. Many potential travelers cannot afford to quarantine when they arrive and have decided not to travel. As a result, international travel is taking a major hit along with the airlines.

IATA issued this statement on this subject for Africa and the Middle East:

The International Air Transport Association (IATA) urged governments in Africa and the Middle East (AME) to implement alternatives to quarantine on arrival that would allow economies to re-start while avoiding the importation of COVID-19 cases.

Government-imposed quarantine measures in 36 countries across Africa and the Middle East (AME) account for 40% of all quarantine measures globally. With over 80% of travelers unwilling to travel when quarantine is required, the impact of these measures is that countries remain in lockdown even if their borders are open. 

“It is critical that AME governments implement alternatives to quarantine measures. AME has the highest number of countries in the world with government-imposed quarantine measures on arriving passengers. The region is effectively in complete lockdown with the travel and tourism sector shuttered. This is detrimental in a region where 8.6 million people depend on aviation for their livelihoods,” said Muhammad Albakri, IATA’s Regional Vice President for Africa and the Middle East.

IATA proposes a layering of measures to protect public health while re-starting aviation, focused in two areas:

  • Reducing the risk of imported cases via travelers
    • Discouraging symptomatic passengers from traveling with airlines offering flexibility to passengers who need to adjust their schedule.
    • Public health risk mitigation measures such as health screening by governments in the form of health declarations.
    • COVID-19 testing for travelers from countries perceived to be “higher-risk” when accurate and fast testing is available at scale.
  • Mitigating Risk in Cases Where an Infected Person Does Travel
  • Reducing the risk of transmission during the air travel journey with the implementation of the Take-Off guidelines published by the International Civil Aviation Organization (ICAO).
  • Contact tracing to efficiently isolate any traveler who may become symptomatic and infectious after arrival.
  • Reducing risk of transmission at destination through overall government measures to fight the virus.

“Implementing a layered approach should give governments the confidence to open borders without quarantine, and passengers the confidence to fly. Air connectivity is critical to economic and sustainable development in and across AME,” said Albakri.

Effect of COVID-19 on AME 

Economies across AME have been devastated by COVID-19, and the aviation industry has been especially hard-hit. Across the region, more than 8.6 million jobs in the airline industry and those businesses supported by aviation are at risk. Thousands of jobs have already been lost due to the shutdown of air traffic.

The latest assessment from IATA Economics shows that the outlook at national level has worsened for major aviation markets in the region since April. For example, the passenger numbers, airline revenue and jobs at risk impacts for the four biggest AME markets have declined across every metric:

COUNTRY APRIL -PAX DEMAND JUNE – PAX DEMAND APRIL – ARL REVENUE JUNE – ARL REVENUE APRIL – JOBS AT RISK JUNE – JOBS AT RISK
South Africa
-14.5 million
-15.61 million
-3.02 billion
-3.2 billion
– 251,100
-269,900
Nigeria
-4.7 million
-5.32 million
-0.99 billion
-1.1 billion
– 125,400
-139,500
Kenya
-3.5 million
-3.75 million
-0.73 billion
-0.8 billion
– 193,300
– 207,800
Ethiopia
-2.5 million
-2.62 million
-0.43 billion
-0.5 billion
-500,500
– 530,400
Saudi Arabia
-35 million
-36.41 million
-7.2 billion
-7.4 billion
-287,500
– 299,200
UAE
-31 million
-32.33 million
-6.8 billion
-7.1 billion
– 378,700
– 392,900
Egypt
-13 million
-13.79 million
-1.66 billion
-2.3 billion
– 205,560
– 297,200
Qatar
-3.6 million
-1.32 million
-1.7 billion
-1.7 billion
– 53,640
– 72,700
Jordan
-3.5 million
-3.78 million
-0.7 billion
-0.7 billion
– 34,000
– 36,660

What have we learned? We truly are a worldwide community which the airplane has helped to promote (and exploit). However in a pandemic, the worldwide community is as only as good as its weakest partners.

Airplanes cannot fly between unequal partners.

A year from now, which airlines will have survived and which ones will be gone? Stay tuned.