The Airline Crisis due to COVID-19

Science

15 maart 2020
Article
Auteur(s): Philip Lepoutre
The COVID-19 pandemic is an international healthcare crisis, which is also having serious repercussions in the aviation sector as people have started travelling less.

by Philip Lepoutre

Science Editor

We are on the verge of a global crisis. A collapse of the system will inevitably happen, and
one of the major contenders for this reason is the incredibly pathetic way that our nations
handled the novel coronavirus. COVID-19 brings much more than just social unrest due to
bad healthcare management; it brings with it the destruction of many fields we have in
place, including the aviation sector. The airline industry is one of the major industries
impacted by various shocks, including disease outbreaks. The COVID-19 experience is, of
course, the latest example. Here are some figures that demonstrate how negatively airlines across the world have been affected by COVID-19 according to the International AirTransport Association (IATA):

Chart from a report by the IATA titled "Investor concerns rise as coronavirus spreads globally" published on the 6th of March 2020.

The United States have taken drastic measures to reduce the spread of the virus, resulting in
a ban in the flights between the Schengen Area countries (Austria, Belgium, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and Switzerland) and the United States. As can be seen through the following infographic provided by the IATA, the impact this ban will have on the airline industry is dramatic.

Very recently, according to TIME Magazine, the United States have followed up their
decision on banning all flights between the US and Schengen Zone by announcing that they
will also ban all travel from the United Kingdom and Ireland. However, all US citizens and
Green Card owners are still allowed to come back home to the United States, but all those
who choose to do so will be subjected to harsh quarantine procedures. These decisions
come after Donald Trump announced a national emergency, which also allowed for the
release of more than $50 billion towards the fight against this pandemic.

As the airline industry faces a dramatic drop in travel demand amid the spread of the
coronavirus globally, the following chart (also provided by IATA) focuses on whether airlines have enough cash in their balance sheets to absorb this cash flow shock. The chart depicts how
many months of revenue loss could be covered by the cash that airlines have in their
balance sheet.

Chart from a report by the IATA titled "Liquidity is crucial for airlines to overcome COVID-19 pandemic" published on the 13th of March 2020.

We already knew that many airlines were in a fragile financial situation before COVID-19 hit,
but now the situation is getting even worse. Airlines have been burning fuel flying empty
‘ghost’ planes over the past few weeks so they could keep their flight slots during the coronavirus outbreak. Flying empty planes not only wastes a lot of money, but it also generates even more unnecessary pollution. 

The airline crisis brings back a familiar situation that dates back to the times of 9/11, in 2001.
A flight between Shanghai and Chongqing now costs $4, about the price of a tall latte at
Starbucks. Flights from New York to Miami were on offer for $51 last week, roughly the
same as the taxi fare from the airport to Manhattan. The problem for the airline industry is:
will anyone take them?

As the coronavirus outbreak continues to hit stock markets hard, the travel industry is
suffering its worst crisis in more than 18 years. Businesses have advised employees to avoid
non-essential travel, conferences are cancelled, and would-be vacationers are avoiding
foreign and domestic travel.

Southwest’s chief executive, Gary Kelly, said that the present situation is similar to the drop
the airline experienced after the September 11 terrorist attacks.

“9/11 wasn’t an economically driven issue for travel – it was more fear, quite frankly, and I
think that’s really what’s manifested this time … It has a 9/11-like feel. Hopefully we’ll get this behind us very quickly’’
. The comparison is by no means exaggerated. The International Air
Transport Association stated that the revenue worldwide this year could decline by between
$63bn and $113bn, or as much as 20%. After 9/11, airline revenues fell by 7%, or $23bn,
according to IATA.

With more than 65.5 million people working in the aviation sector alone (source: aviation
benefits.org), the question all the world is wondering is: When will this stop? What will the
impact of this dirty Covid-19 be on the world?

My opinion on the subject is that although the virus is strong and has shown is wrath particularly on old people, the reason for all this panic is not necessarily the virus itself (with a
mortality rate of 3.4% until the age of 60 according to worldometers.info) but rather the
measures we are taking against the virus. With a wave of countries declaring national
emergencies, it is inevitable that people panic, as the potential for entire cities being forced
into quarantine is very high and likely. For the moment, all we can do is continue with our lives
with vigilance and care as well as to do our best to not contract/spread the virus to anyone else. 

Until next time, fly safe and take care!

The most recent state of affairs at the KU Leuven can be found at  www.kuleuven.be/coronavirus. For questions you can contact coronavirus@kuleuven.be

Statement by the Belgian authorities here.