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Coronavirus update: European Airlines suffer heavy losses during the pandemic

Geoff Riley

1st August 2020

The aviation sector is among those worst hit by the coronavirus pandemic.

Passenger demand for air travel collapsed and has only recovered partially as initial lockdown measures have been eased.

Many of the world’s passenger aircraft have been grounded for months and commercial airlines have had to scramble to raise fresh debt and equity finance to stay in business.

Thousands of employees have been furloughed and a number of airlines have announced that they are dropping unprofitable routes, leaving some hub airports and preparing substantial job losses.

easyJet announced it would cut up to 30 per cent of its workforce, equivalent to about 4,500 jobs. Europe’s largest airline Ryanair suffered a net loss of €185m in the three months to the end of June 2020 compared with a net profit of €243m in the same period in the previous year. They have cut jobs and also imposed pay cuts on their workforce.

The scale of the impact of lockdown is shown by Ryanair announcing that between April-June 2020, over 99 per cent of flights were grounded and the number of passengers fell from 42m to 500,000. Revenue fell by almost €2.2bn, to just €125m.

The International Air Transport Association (IATA) has forecast that financially, 2020 will go down as the worst year in the history of aviation.

Globally, airlines are expected to lose $84 billion in 2020 with revenues falling 50% to $419 billion from $838 billion in 2019.

Apart from the loss of jobs, another impact is on demand for new aircraft. Many planned investment projects to renew aircraft fleet have been cancelled or postponed leading to a negative demand shock for airline supply chain industries including new aircraft manufacturers and their component suppliers.

Not every airline can access generous employment subsidies to furlough their workers and some airlines have a stronger balance sheet buffer than others having raised fresh equity and debt and built up reserves from previous years’ operating profits.

The big challenge for airlines is to reduce their operating cost base so that there is a prospect of making a profit even if airlines are required – for the moment – to run passenger services at limited capacity.

Suggested reading

Al Jazeerah (June 2020) About 400,000 global airline jobs lost or at risk due to virus

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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