It might take upwards of a year for airlines to recover from the coronavirus epidemic, as revenue-generating traffic slows down to prevent the spread of the virus.
What are the details?
Many of these airlines operated international routes to China or derived a bulk of their trade from fellow Asian countries such as South Korea or Taiwan. Not only are they prevented from flying to many destinations, thanks to government bans (and they would have to be crazy to do so regardless), but also domestic passengers at home are reluctant to travel.
In fact, the financial results have been so bad in the last few months that some airlines, such as United, have utterly withdrawn their previous financial guidance reports.
“An approximately 100% decline in near-term demand to China and an approximately 75% decline in near-term demand on the rest of our trans-Pacific routes.” – United financial statement as reported by Barrons.
Other airlines have been similarly affected in the United States. American Airlines has had its stock price plunged by $3 per share after it was revealed how many of its international routes to China had been affected (3% of the airline capacity). Delta Air Lines has also been affected, with its share price falling from $58 a share to $49. Lastly, United has gone from $79 to $66.
How will these airlines recover?
The issue here isn’t just the international routes to China right now, but how this crisis will affect aviation into the summer months.
The summer period is the peak travel period around the United States, transatlantic to Europe and across the northern hemisphere. If the virus continues, then airlines will not be able to rely on the lucrative summer trade to help them out of this dip.
“Airlines say they are still seeing good domestic demand, but obviously everyone is worried about spring and summer travel” spoke Cowen analyst Helane Becker to Barrons, “We also noted in one of our Covid-19 updates that we expect China to lose a year of air traffic growth, and if people are afraid to travel outside of their own borders, the $30 billion impact to revenue that IATA cited last Thursday will be low,”
Airlines who are looking to recover will be optimistic if they think that things will return to normal by the end of the year. Likely it will take until the middle of 2021 in order for things to return to normal.
I personally would be very surprised if any major airlines were able to post a profit this year, as the crisis looks like to continue well into the summer.
What do you think? Will the aviation industry be able to recover this year? Let us know in the comments.