Blogs

2019: Another tough year for the global airline industry

  •  
  • 2019- a tough year for the airline industry
  • An overview of some of the airlines that shut down operations in 2019
  • 2020- another tough year for the industry due to the Covid-19 pandemic

As are most years for the airline industry, 2019 was no less brutal. Ranging from the 737 MAX crashes that impacted several stakeholders besides the aircraft manufacturer to several airlines which exited operations during the year, 2019 was no less scathing to the industry. The year recorded its fastest failure rate ever for airlines with at least 18 airline companies filing for bankruptcy in the said year including prominent names such as Jet Airways, Thomas Cook, FlyBMI etc. As is common knowledge, the airline business is one of the toughest industries to operate in. While several airlines grappled with pressurized margins due to the tough competition posed by low cost carriers, the issues in management of fuel costs, exacerbated further by a strong dollar were some of the reasons for the downfall of many in 2019.

The table below enlists the airlines that went down under in the year 2019:

 

 

Here’s a snapshot of some of the airline bankruptcies in 2019 that shook the industry:

Thomas Cook Group, a 178-year-old travel company, operated its own airline, with about a fleet of 34 (at collapse) and owned several smaller airline companies (such as Condor, Thomas Cook Airlines UK, Thomas Cook Airlines Scandinavia, Thomas Cook Airlines Balearics, etc). Thomas Cook struggled with a drop in planned tour packages and flight bookings, a highly competitive online medium for ticket bookings (especially with the birth of low-cost carriers), higher fuel prices as well as uncertainty stemming from Brexit besides a crippling debt burden of c. US$ 2.1 bn. Right before filing for bankruptcy, the airline required another GBP 200 mn (c. US$ 260 mn) over and above the GBP 900 mn (c. US$ 1,169 mn) it had already agreed upon to allow it to get it through the winter months when typically the Group received less cash (owing to reduced travel season during the harsh winters) and would have to pay hotels for summer services. But alas, as the Government decided to not extend the emergency funding, thereby forcing Thomas Cook to file for bankruptcy on 24th September 2019.

Adria Airways, Slovenia’s flag carrier, declared bankruptcy in September 2019 after having been unprofitable since 2015. The airline blamed intense competition from LCCs (low cost carriers) such as Wizz Air coupled with the small market size of Slovenia as a reason for its doom. Adria’s fall also impacted Lufthansa that had a major code sharing deal with the former. With the airline now bust, there are no airlines based out of Slovenia. The Government, in spite of being aware of the imminent bankruptcy of the airline, chose not to rescue it. The airline’s 2019 operations included frequent flight cancellations, a startling number of flight delays, sporadic route cuts and launches, unpaid compensation claims apart from a criminal investigation in Switzerland and majorly hostility with the local media. While Adria had been struggling for quite a few years, it finally got so bad that the airline’s planes had started being repossessed, finally reaching to a point wherein they just could not afford to operate any longer.

The sudden suspension of Aigle Azur (with Chinese conglomerate HNA as its biggest shareholder – 49% stake), Frances’ second-biggest airline, left many shocked. The airline, known to have flown about 1.9 mn passengers in 2018, primarily operated flights between France & Algeria, in addition to serving routes on Russia, China, Brazil amongst others. The airline quoted its demise as a result of “great economic difficulty”. Its downfall was partly related to its unsuccessful expansion, with the airline hoping that its regular Algerian network would grow enough to include all of African Maghreb (Northwest Africa).  The airline is known to have had 14 takeover offers in its kitty at a point of time, all thanks to the airlines slots at Paris Charles De Gaulle (CDG) which is considered as hot property. However, the closure, came as a result of a French commercial court ruling on the basis of non-sustainable bids received, that resulted in the loss of ~1,150 jobs.

Germania, a Berlin based airline, served around 4 mn passengers in 2018, attributed its doom to increase in fuel prices, a strengthened dollar against the Euro coupled with delays in procurement of new aircrafts as well as maintenance issues. The airline was also a victim to its own flawed strategy; after the demise of its rival Air Berlin, Germania attempted at filling in the gaps left by the former’s bankruptcy. However, an apparent miscalculation in both expansion and maintenance of fleet left Germania high and dry. In addition, the carrier also faced brutal competition from its low-cost competitors such as Easyjet, Ryanair and Lufthansa’s Eurowings which bombarded the market with cheap flights, which further compounded its woes.

Jet Airways was considered one of India’s most respected carriers at one point of time, operating international long-haul flights from India. In fact, it was the first Indian airline company to attract foreign investment via Etihad Airways in the year 2013. But alas, the airline suspended operations in 2019 after having faced a plethora of issues beginning at the start of 2000s with the advent of several LCC players in India (incl. SpiceJet, Go Air and IndiGo). In a deal that went on to bring numerous problems for Jet in the later years, the airline purchased Air Sahara for US$ 500 mn (in cash) which was then renamed to JetLite. It is alleged that the founder (Mr. Naresh Goyal) went ahead against the advice of professional associates and the deal eventually not only reduced Jet’s available cash but also brough upon other financial and legal troubles for the airline. In addition, experts suggest that Jet did not take the new breed of LCCs as seriously back in 2005 & 2006 and continued to focus on its corporate clientele whilst the trio went on to gain more and more price sensitive customers by offering cheap fares & operating unserved routes. The vulnerability faced owing to sensitivity to fluctuation of global crude oil prices coupled with the aforementioned miscalculated financial and operational decisions resulted in the carrier having to suspend operations.

Wow Air was a key element in turning the country’s tourism sector into a major cash cow for Iceland (a country with a mere population of 350,000). While the LCC had begun operations in just 2012, it ceased operations in just March 2019, leaving thousands stranded and anxious for a refund. Accounting for almost 30% of incoming passengers to Iceland, Wow Air attracted price-sensitive customers by offering rock-bottom fares on long-haul flights between the US & European states. Wow stated similar reasons for its demise in line with other failed European airlines: financial issues stemming from the incapability to deal with fluctuating fuel prices, overcapacity issues in the industry and an aggressive continent-wide price war.

While 2019 wasn’t a breeze for the airline industry, Covid-19 has brought another tough year for the airline industry, with CAPA suggesting that most airlines could go bust by May in the absence of any form of government support while IATA estimates a revenue loss of more than US$ 250 mn this year alone. The airlines industry was perhaps one of the first industries to feel the heat from the spread of the virus. The scale of the issue became even more apparent when Flybe, a UK airline, entered administration when it ran out of cash in the early days of March. While Flybe was already on the brink of its collapse due to ongoing financial difficulties amidst a slowdown in bookings, Covid-19 served it the last blow. With Governments worldwide calling for cancellation of flights, airlines are bleeding by the day. Airlines all over the world have suspended routes, grounded planes, whilst seeing rock-bottom load factors on the few remaining active planes. With 2020 being one of the toughest years the industry has roughed out in the recent years, the airline industry is expected to witness major consolidation as well as airlines shutting down with the pandemic nowhere under containment as of now.

Your Rating

Slack set out to kill E-mail

Started as a side project for internal use in a gaming company High revenue growth with recurring revenues Went Public by offering shares through the Direct Public Offering ...

Will the Big Bang merger drive, of Indian Public Sector banks, provide the required impetus to the slowing economy?

India’s Government announces plans to merge 10 of the country’s public sector banks Probable impact of the mergers   India’s Finance Minister, Nirmala Sitharaman,...

Is Mothercare on the verge of collapse?

History of Mothercare What went wrong? Company moved into administration   Mothercare, an iconic brand for babies, children and parents to be, went into...

Rapidly growing Indian online food delivery industry and its unrealised profits

Evolution of online food delivery industry in India Geographical penetration and scope for expansion Key players and their zeal to balance revenue and costs   Online...

Tire manufacturing industry, analysing the cost and margin trends

The global market for tire manufacturing stands at $180 billion. Michelin anticipates the long-term demand to rise at the rate of 5 to 10% a year in developing markets and 1 to 2% a year in mature...