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The sheer drop in passenger numbers until the virus is contained is already having devastating consequences for airlines. Image Credit: Gulf News Archive

London: The failure of Europe’s biggest regional airline - flybe - and a dire revenue outlook from the industry’s leading trade group stoked concern that the impact of the coronavirus could trigger the collapse of weaker carriers around the world.

Flybe, Britain’s biggest domestic airline, was placed in administration - a form of bankruptcy - as the epidemic ended prospects for a state-backed rescue. Soon after that, the International Air Transport Association warned that carriers may lose $113 billion in sales this year - almost four times greater than an estimate it made just two weeks earlier.

Not just an Asian problem

While the threat from the virus to Asian airlines has long been clear, its spread has unleashed concern that carriers once seen as safe may now be at risk. With Flybe’s demise, attention in Europe is on debt-burdened Norwegian Air Shuttle ASA. In Italy, Alitalia SpA, already in creditor protection, has been hit hard because the nation has more cases of the illness than any other in Europe.

“Flybe’s failure this morning will likely be the first of many in 2020,” James Goodall, transport analyst at Redburn, said. “We expect that the demand destruction caused by Covid-19 accelerated its demise and we believe further airline bankruptcies should be expected in the coming months.”

While Flybe is relatively small, its exit leaves parts of Britain without air links, and some airports without their main customer. The company last year accounted for 96 per cent of flights at Southampton, southern England.

Worst-case scenario

IATA’s most severe projection for lost revenue would represent a drop of almost 20 per cent from 2019, akin to the hit from the global financial crisis more than a decade ago, and is based on the virus spreading more broadly.

Norwegian Air withdrew 2020 guidance given less than a month ago, sending its 250 million euros ($278 million) of bonds maturing November 2021 to their lowest in a year. The carrier has been trying to bolster its balance-sheet by selling assets, cutting routes, delaying jet deliveries and changing loan terms.

Escalating crisis

For Alitalia, the virus will add to losses and a liquidity squeeze, potentially making it harder to find an investor. The latest bridging loan will be gone by Easter, according to Andrea Giuricin, professor of transport economics at University Milan Bicocca, who said the state may even need to consider nationalizing a company that’s had 1.5 billions euros of funding in two-and-a-half years.

The economic damage from the virus has extended to the US, where United Airlines Holdings Inc. is trimming services after an abrupt drop in demand. International flying will be pared 20 per cent in April, with hiring frozen, CEO Oscar Munoz told United staff, saying “a lot has changed” even since last weekend.

Southwest Airlines Co., a Dallas-based discounter, said that first-quarter revenue will be lower than forecast because of the slump in travel.

In Europe, the CEOs of the region’s five biggest airlines, meeting in Brussels on Tuesday, said the decline may be too deep for weaker operators to withstand. Michael O’Leary, who heads the discount giant Ryanair Holdings Plc,said that at least two carriers would go to the wall in a matter of weeks. (He was including Flybe in his remarks.)

The epidemic will accelerate consolidation in the European market, where the six biggest operators already account for 90 per cent of earnings, Citigroup analyst Mark Manduca said.