COVID-19: CAPA Says Airlines Will Go Bankrupt if No Action Taken

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Due to the coronavirus pandemic, most airlines in the world will be bankrupt by the end of May and only a coordinated government and industry action right now can avoid the catastrophe, said global aviation consultancy firm CAPA in a note on Monday, 16 March.

"As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants," it stated.

Across the world, airlines have announced drastic reduction in their operations in the wake of the coronavirus outbreak. For example, Atlanta-based Delta Air Lines stated on Sunday that it would be grounding 300 aircraft in its fleet and reduce flights by 40 percent.

The US has suspended all tourist visas for people belonging to the European Union, the UK and Ireland. Similarly, the Indian government has suspended all tourist visas and e-visas granted on or before 11 March.

CAPA, in its note on Monday, said, "By the end of May-2020, most airlines in the world will be bankrupt. Coordinated government and industry action is needed – now – if catastrophe is to be avoided."

Cash reserves are running down quickly as fleets are grounded and “what flights there are operate much less than half full”, it added.

"Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon," it said.

India's largest airline IndiGo which has around 260 planes in its fleet said on Thursday, 12 March, that it has seen a decline of 15-20 per cent in daily bookings in the last few days.

The low-cost carrier had stated that it expects its quarterly earnings to be materially impacted due to such decline. CAPA said the failure to coordinate the future will result in protectionism and much less competition.

"The alternative does not bear thinking about. An unstructured and nationalistic outcome will not be survival of the fittest.”

"It will mostly consist of airlines that are the biggest and the best-supported by their governments. The system will reek of nationalism. And it will not serve the needs of the 21st century world. That is not a prospect that any responsible government should be prepared to contemplate," the consultancy firm said.