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Airlines

The Airlines That Went Under During the Coronavirus

The Airlines That Went Under During the Coronavirus
Taylor Rains

The spread of COVID-19 has forced many airlines to ground hundreds of aircraft and suspend a majority of their flights, while over 70 carriers, such as Air Serbia and IndiGo, have actually halted operations completely.

Although government aid will likely help most airlines get back on their feet, some carriers may not make it through the crisis and be forced to close their doors permanently. Only time will tell, but as of now, these are the airlines that have gone belly up as a result of the coronavirus.

 

Flybe

Flybe was an Exeter-based airline that operated some 40% of the UK’s domestic flights, but it suffered from a myriad of factors that led to its financial struggles, including high taxes, overcapacity, and low barriers to entry. However, it appeared the airline was going to overcome these issues after the government agreed to £100 million in rescue aid, but it still ceased operations on March 5. So, what exactly went wrong for Flybe, and what role did COVID-19 play in its collapse?

  1. Flybe operated in a highly competitive market, going up against low-cost giants such as Ryanair and easyJet. This drove average airfares down, and in 2019, the carrier revealed its inability to turn a profit when it posted a £20m loss.
  2. The airline paid considerably high taxes on Air Passenger Duty (APD), which is charged for flights departing the UK. For international flights, the fee is only charged on the departure, but for Flybe, they were being charged for both the departure and the return on domestic flights because both left UK airports.
  3. One of the most significant factors that led to Flybe’s collapse was its number of aircraft. A decade ago, the airline had an ambitious plan to expand into Western Europe, so it loaded up on 35 ERJ-175s, costing some £850 million. However, it began suffering from overcapacity and failed to efficiently manage its fleet, which led to high asset costs.
  4. Because Flybe was a domestic carrier, it was at the mercy of the domestic market. Events such as Brexit decreased consumer spending, and the airline was always competing with road and rail travel. Not to mention rising fuel costs.
  5. The straw that broke the frail airline’s back was the effects of the coronavirus on domestic demand. Flybe was already under pressure to revamp its finances, but the cancellation of flights and the drop in future bookings just compounded the problems it was facing. Although the industry as a whole was facing the same issues, Flybe was barely avoiding a collapse in the first place, so the impact of the coronavirus pushed it into bankruptcy just months after the government announced plans for a bailout.

Trans State Airlines

Trans State Airlines was a U.S.-based regional carrier that flew under United Airlines as United Express. Although Trans State had already announced plans to cease operations in December 2020, the coronavirus expedited its departure from the market.

One factor in the demise of the carrier was United’s decision to consolidate its regional operations. In a statement from ExpressJet, the airline revealed that Trans State’s 36 ERJ 145s would be integrated into its fleet and continue to fly as United Express.

Another factor was the pilot shortage that has plagued the regional airlines for years, which has made hiring difficult. But like Flybe, the coronavirus put the carrier into a significant cash crunch, causing it to close its doors on April 1 – nine months earlier than initially planned.

The closure of Trans State Airlines ends its 38-year old history, which included partnerships with Trans World Airlines (TWA), Delta Airlines, and US Airways.

Compass Airlines

Another U.S.-based regional airline, Compass Airlines, which flew on behalf of Delta and American, has also ceased operations as a result of the coronavirus. Unlike Trans State Airlines and Flybe, whose failures were expedited by the coronavirus outbreak, the fall of Compass was a direct result of COVID-19.

In 2019, Delta decided to drop Compass as a regional partner to eliminate “operational complexity,” with its final flights operating until the end of March 2020. However, Compass continued to fly ERJ 175s under American, but as the legacy canceled a majority of its domestic routes, the uncertainty of demand put Compass in a tight spot.

CEO Rick Leach explained, “We simply cannot keep infrastructure in place without guarantees, nor clarity of additional flying to support it.” Initially, the airline saw its partnership with American as a promising future, but the burdens faced by the virus proved to be too heavy to bear.

Virgin Australia

The most recent airline to experience insolvency since the start of the coronavirus is Virgin Australia, the nation’s second-largest carrier. In mid-April, the airline entered voluntary administration and began seeking bankruptcy protection. The decision came after the Australian government denied the carrier’s request for an $888 million loan, and now Virgin’s administration plans to “recapitalize the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis.”

To some, Virgin’s insolvency may not come as a surprise. The airline has been combatting years of financial loss and is struggling to repay the AU$ billion in debt it has accumulated. However, there is some worry among the Australian government and businesses that Virgin’s collapse would leave Qantas with a monopoly on Australia’s domestic market. Nevertheless, it does not appear that the Australian government will give in to a bailout, given that Virgin is 90% owned by foreign investors, including Singapore Airlines, Etihad Airways, Nanshan Group, HNA Group, and British billionaire Richard Branson. Treasurer Josh Frydenberg explained that he “was not going to bail out five large foreign shareholders with deep pockets who together own 90% of this airline.” Australian Prime Minister Scott Morrison added to Frydenberg’s comments, saying, “if we’d not taken the actions that we have and not demonstrated the patience that we have, then all we may have ended up doing is sending $1 billion to foreign shareholders, and that was never part of my plan. Our plan was always about seeing two viable airlines on the other side.”

Will Others Follow?

Some experts suggest that most carriers will go bankrupt by May as a result of COVID-19, but say many will still survive with government aid. Airlines in the U.S. are already set to receive $50 billion in the record-breaking $2 trillion stimulus package, the Singaporean government has announced plans to funnel 19 billion SGD into Singapore Airlines, Sweden and Denmark have approved $300 million in loans for Scandinavian carrier SAS, the Australian government announced a $715 million bailout for its aviation sector, and New Zealand has come up with $NZ900 for its flag carrier Air New Zealand.

However, some carriers may not be so lucky. Hong Kong Airlines (HKA) has been on the brink of collapse for months, and although the Hong Kong airport authority has rolled out a relief package to its aviation sector, some worry that it may not be enough to save HKA. Furthermore, the coronavirus has weakened many carriers, such as Mexico’s Interjet and Norwegian Air Shuttle, that have already been facing yearly losses.

Although Difficult, the Collapse of Airlines Could be a Good Thing

In another assessment of the outlook for airlines, the Centre for Asia-Pacific Aviation’s (CAPA) chairman Peter Harbison suggests half of the world’s airlines will fall as a result of the coronavirus, and that it might be a good thing in the long run. He explained that by allowing the smaller, weaker airlines to collapse, it could pave the way for a re-structuring of how airlines are owned and operated. He sees the opportunity for carriers to evolve into global ownership, with shareholders from all around the world regardless of nationality.

This would change the conditions of the 1944 Chicago Convention that prohibited multi-national ownership of airlines, which, in turn, would allow for mega-carriers to band together to “align capacity and schedules with consumer travel demand.” Harbison said in a statement, “The post-coronavirus chaos will alternatively offer a unique opportunity to reframe the foundations of a global airline industry.

But is there a will to grasp that potential? If the will is there, finding the right directions will require leadership and a recognition that there is no place for nationalist attitudes in this most international of all industries.”

What other airlines do you think will fall before the crisis is over? What do you think about Harbison’s assessment? Let us know in the comments!

View Comments (4)

4 Comments

  1. AJNEDC

    May 6, 2020 at 6:10 am

    Wouldn’t fewer airlines result in less competition, higher fares, crappier service, higher unemployment and the list goes on… How would this be a good thing?

  2. BC Shelby

    May 6, 2020 at 11:30 am

    …it will likely also lead to consolidation/merger between carriers , cities loosing service or possibly being abandoned altogether, reducing the choices travellers will have. It could also lead to monopolistic practises which could lead to price fixing.

  3. SamirD

    May 6, 2020 at 12:08 pm

    “How the chinese government destroyed the world airlines and then bought them out as part of their world takeover” — story at 11.

  4. PolymathClive

    May 7, 2020 at 1:45 am

    Whilst slightly off topic aviation is missing a golden opportunity to remove some of the legacy costs and annoyances that have affected individual routes and airports for generations. For Heathrow, why are aircraft still allowed to land between 04:31 and 06:00(L), this incurs huge costs for handlers and the airport authority for a maximum of 15 flights? Build a new arrivals schedule from 06:00 (excluding emergency landers), efficiency improves and local community have more sustainable respite from noise. Every large airport is likely to have similar historic issues that could now be resolved for NIL or fractional cost.

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