It is first hit, last to recover – Experts

By OBINNA EZUGWU

In April, one of the world’s leading airlines, Virgin Australia, collapsed under the impact of the new global health pandemic, Coronavirus, crashing into voluntary administration and taking with it 16,000 jobs.
Beset by $5 billion debt to creditors and with almost zero income as the world imposed travel restrictions and the global populace became travel weary on account of a virus that has now infected 5 million people and caused the death of nearly 400,000 individuals, Virgin tried all it could to survive, including appealing to the Australian public and government for funds. But in the end, it became the first major blue chip company to go under, courtesy of Covid-19. It’s a capital intensive industry with narrow profit margins. And experts warn very many others could follow. The story is not different in Nigeria, where the industry is still on another one month lockdown, and loses N21 billion monthly.
Indeed before Virgin, in the first week of March, British regional airline Flybe, ran out of cash and entered into administration. The airline, typical of the industry, had ongoing financial difficulties and was battling to stay afloat. The pandemic which brought with it decrease in bookings, served as the final nail in its coffin.
Since the Coronavirus pandemic broke out in China in December 2019, gradually spreading to various nations of the world, leaving trails of panic, sickness and death, the world’s economy has practically shut down with many countries compelling citizens to stay indoors in frantic efforts to contain its spread.
More than any industry, aviation – and tourism – has been worst hit.
No or very limited travels; flight restrictions and outright air travel bans by many governments mean that the airlines are mostly grounded, often with huge debt obligations and other liabilities, and now with little or no income, more and more airlines are facing intense pressure. A good number in Europe and America are already out of business. And analysts say as the pandemic persists many are certain to follow.
“The aviation industry is going through a lot and there is no point downplaying it,” Josh Earnest, Chief Communication Officer of United Airlines told CNN last week. “We have never seen demand drop so sharply and so deeply, and stay down for so long. It is a difficult crisis that we are going through right now.”
The U.S based United Airlines had announced it would cut 30 percent of management and administrative positions in October, and told pilots in a memo to brace up for changes. Indeed the airline on Wednesday hinted at massive job cuts once the billions of dollars bailout pumped into the U.S airline industry by President Donald Trump expires.
“The last sector that will recover from all of this is the aviation industry. Pandemics hit the airlines very hard,” noted Dr. Vincent Nwani, Managing Consultant in Lagos based consultancy firm, RTC Advisory.
“It’s not just the airlines; it’s all the other value chains around the airlines. The travel agents, the hotels, fuel… everybody around the aviation industry, not just the airline is being hit badly.
“Incidentally, I have some friends that own travel agencies. Yes, they have not completely closed down, but some of them have sacked 90 percent of staff. The only staff left are just those that can do other things that are not related to travel agency.”
Few days ago, one of Nigeria’s largest airlines Arik Air, buckled, too, cutting salaries of its staff by as much as 80 percent and asking 90 percent of its workforce on go indefinite leave, beginning from May 1.
“We have suffered a sharp decline of over 98% in our revenue streams since the suspension of our scheduled flights almost four weeks ago. Added to this is the rapid decline in the value of the Naira by over 35% against the benchmark and with oil prices now falling well below $15 per barrel, it is evident that we must, without further delay, take decisive action to preserve our organization,” the airline’s CEO, Roy Ilegbodu said in a memo to staff announcing the adjustments.
“To date, the situation created by the COVID-19 pandemic remains dire with a high level of uncertainty, even within medical circles regarding the containment of the pandemic. Although daily updates from a few countries seem to be encouraging, our situation in Nigeria appears to be getting worse. With the current observed trend of events, it is prudent to lean on the assumption that the situation is likely to persist for a while longer.
“After careful deliberation and analyses, management has decided to implement an 80% pay cut for all members of staff across the entire organization for the month of April 2020. Furthermore, commencing from May 1st 2020, no less than 90% of our staff will proceed on leave without pay until further notice.”
The Asset Management Corporation of Nigeria (AMCON) had taken over Arik in February 2017 and the airline was subsequently placed in receivership, following its inability to repay debts in excess of N300 billion to AMCON and other creditors in Nigeria and around the world.
Like Arik and other airlines in the country, grounded by President Muhammadu Buhari’s ban on domestic flights more than a month ago, are reeling from the impact of the virus.
Last week, the country’s Aviation Minister, Hadi Sirika said the sector has been losing about N21 billion monthly since the outbreak of COVID-19 in the country.
Sirika who spoke at the daily Presidential Task Force on COVID-19 briefing on Wednesday said the huge loss is associated with lack of activities at the sector whose income solely depends on flight operations.
“In civil aviation, we are in a very difficult moment like everyone else. All of these things started because someone travelled and unfortunately came back home with it and the consequence is what we have been going through.
“We are the worst-hit than any other sector. Based on the trend of events before COVID-19, the total loss is about N21 billion approximately plus about N3 billion tangentially and this is divided in this form: N7 billion for aviation agencies which they lose in a month, N10 billion for airline and N4 billion for ground handling, catering and others and the tangential N3 billion,” he said
Across the world, the story is similar. A few days ago, aviation consultancy firm, CAPA warned that “most” of the world’s airlines could be bankrupt by the end of May.
International Air Transport Association (IATA) in a release fortnight ago said it estimates that airlines globally will lose at least $314 billion due to the outbreak. And it is likely that other airlines, both in the U.S and elsewhere, will be forced to consolidate or shut down, according to IATA director general Alexandre de Juniac.
In an effort to save the day for U.S airlines, Donald Trump signed a $58 billion bailout for the industry into law last month. The move may help save many of the country’s airlines. But it’s in doubt whether it would be enough given that many have already collapsed, including Trans States Airlines which has since stopped all operations, even as leading airlines around the world remain in jeopardy, particularly as credit markets seize up.
In late April, British Airways announced plans to cut 12,000 jobs, disclosing that it had provided cash refunds on 921,000 tickets, with 47,400 bookings still to be processed; and that another 346,000 bookings were canceled by customers in return for a voucher, with a further 1,700 vouchers still to be processed.
While the UK government tried to intervene to save the day through its furlough scheme, the airline’s owner, IAG SA insisted last Wednesday that it plans to go ahead with the job cuts.
IAG SA Chief Executive Officer Willie Walsh who restated the commitment in a letter, said IAG remains committed to its restructuring plans.
“We must act now to secure the maximum number of jobs possible, consistent with the reality of a structurally changed airline industry in a severely weakened global economy,” Walsh said. “I want to confirm therefore that we will not pause our consultations or put our plans on hold.”
In bids to encourage passengers, United, EasyJet, among others, proposed to leave middle seats open as a form of social distancing.
EasyJet had indeed noted that passengers on one airline wanting even more social distancing can now buy eight empty seats, which would allow the passenger to be the only occupant in their block of three seats, plus the three seats in the row behind and the three in front.
The move has however, not succeeded. United, particularly has been accused of filling up every seat, even as travel restrictions remain in most places.
“We are beginning to see the leading airlines in the world like the Emirates trying to innovate to see how they can create some social distancing flying and things like that. Yet, will people want to fly? Will countries open their borders for people to fly in?” Nwani wondered.
“And even if the airlines want to keep middle seats vacant, will they make any profit? All these are questions that should be answered. And the answer to these questions are not encouraging.”