Will airline failures increase when crisis subsides?

One of the most striking aspects of what is the deepest and most sustained crisis to ever hit commercial air transport is that it has resulted in relatively few airline collapses thus far.

The relatively small number of airline failures so far, however, is not indicative of the health of the sector. Quite the opposite. It reflects that the sheer scale of the crisis means states have been forced to introduce financial measures, either direct or indirect, to help support airlines through the crisis.

Where states have been reluctant or unable to step in, formal restructuring processes have been launched in a bid to secure the necessary breathing space. Many other carriers are undertaking major restructuring programmes, but outside of formal creditor protection processes.

To some extent the crisis has put airlines, almost regardless of their pre-pandemic health, into stasis. It will only be when the support measures are taken away and a new normal – whatever that may be – takes hold that the health of airlines will become clear.

In that respect, counter-intuitively it may only be when the outlook gets better for air travel that more airlines begin to fail.

The likely slow pace of recovery means an environment of less passengers to go round. Some airlines may have done enough to see out the crisis in semi-hibernation. Other hunters may even prosper picking off opportunities. But many will not survive without further life support.

Governments over the years have shown a reluctance to switch off airline life support. But this is a crisis like no other. In the past decisions to prop up sick airlines have often been taken in isolation – a choice between intervention or the political fallout of allowing a flag carrier and major employer to collapse.

In the post-pandemic climate, states may simply not have the resources to fund continued airline bailouts – or may find they have a stark choice as to which of their industries to save. In these cases a profitable track record, or at least a return on investment of some kind, will be a major consideration. Many airline brands, despite their long-standing history, do not have a profits record to match.

Industry partners – notably aircraft lessors and manufacturers – have also played their part in supporting struggling airlines through the crisis. This of course is in their own interest – they do after all need airline customers at the other end of the crisis to fly their assets. But lessors and manufacturers are a business. They too will have to choose which airlines to back when a more normal business environment returns.

The stronger airlines have already been able to tap private capital or financial markets to generate additional liquidity through the crisis. That speaks to the improved balance sheets and investment returns parts of the industry have been able to deliver during the good times. This illustrates some will survive – potentially without the need for significant state support.

Others are likely to benefit too from circumstance; those with access to strong domestic sectors to fall back on or which operate in markets where there is better control of the pandemic or greater state desire to support a recovery of air traffic.

But when the plug on state support is pulled – and panic does set in – things can happen quickly. In Europe, after the financial crisis a decade ago, Malev and Spanair collapsed within a week of each other. The carriers had 90 years of flying between them, albeit with limited profitability.

It is inevitable more established airline brands will be lost as a result of the crisis. How many and how long it takes is another question altogether. Many brands may survive on a smaller scale – or as part of wider groups depending on the appetite or ability of the stronger carriers to become acquirers.

But history suggests it takes a lot for an airline brand to disappear altogether. And as recent interest in a reboot of Flybe shows, or continued efforts to revive Jet Airways, even some lost brands may yet return.