The ramifications of the COVID-19 pandemic are still being felt by airlines around the world as they deal with the fallout from the summer of cancellations, delays, and rising fuel costs, with many also facing the repayment of a crippling debt burden.
Although traffic reports are positive for many airlines around the world and some airlines – mainly those in the US – are reporting a return to profit, the difficulties of the past two years and this past summer are impacting predicted recoveries. City analysts at Berstein have suggested that more airline failures could be on the way this winter, especially as high energy prices push many economies into recession and with high inflation causing many travellers to cut back flying. SAS is the latest airline to suffer a Chapter 11 filing to reorganise the business, and more may be forced to take a similar route should pressure continue throughout the winter.
“Winter 2022-23 looks set to be one of the worst in memory,” said the Berstein report. “September heralds the beginning of bankruptcy season.
“After the summer is over, airlines often enter into a period of losses and limited cashflows, as demand ebbs with the weather, and children return to school.”
Bernstein said airlines in Central and Eastern Europe were at the highest risk. Blue Air is the latest airline in the region to halt flights, with Wizz Air and Ryanair moving quickly to plug the gap offering cheap repatriation flights and expanding frequencies to the region.
The Berstein report has ranked airlines with a “survival ranking” from zero to 100 – the higher the number the more likely the airline is to survive, says the broker. It pins its bets on the European low-cost carrier giants, Ryanair, Wizz, easyJet and Jet2 as well as IAG, which owns UK flag carrier, British Airways. Other players do not inspire confidence. As cost pressures continue, debt-laden airlines may be forced to take on more loans but at potentially a much higher cost to survive the winter.
Although the picture is much brighter in the US market, all carriers are facing an elevated wage bill as they compete for pilots as they pay down government and bank debt, at the same time as their fuel bill is only going one way. United has forecast a fuel bill for 2022 some $9bn more than 2019. Analysts are banking on higher fares and sustained higher passenger demand to help airlines through the leaner months but with inflation biting into disposable income, this may not be sufficient for the more debt-laden carriers.