COVID19 Second Wave in Europe Impacting Passenger Confidence, Demand & Profitability (Part 2 of 2)

Kimmo Ruotsalainen


October 14, 2020

helisinki 2 v2

Part 1 of this article can be found here. COVID19 Financial Impact to Airlines According to IATA, the forecast cash burn for the airline industry for the 2nd half of 2020 shows an additional USD77 billion as the revenues remain weak and recent government aid packages are diminishing. It is also expected that there will be some restructuring in the market. In the current environment, IATA projects that airlines will not turn cash positive until 2022 creating pressure to regain passenger confidence for air travel even during the pandemic and more importantly for the post-pandemic era. Expected stiffer competition (overcapacity, fight for market share, etc.) and changed customer behaviour will add pressure on sepcific airlines. As the crisis is the worst in aviation’s 100 year history it has affected all airlines’ balance sheets. According to IATA Economics Analysis, the median airline’s cash would last just 8.5 months at the rate of the 2020 second half of cash burn. Industry experts are forecasting that there will be more bailouts and bankruptcies as the situation worsens. ”The worst is not behind any airline, not only Qatar Airways”, Qatar Airways Group CEO Akbar Al Baker said in an interview with CNBC. ”There will soon be other rescues in Europe, there will be other bankruptcies around the world.” Al Baker expects the losses to continue as demand stagnates and flight restrictions remain in place. ”All the countries of the world depend on their national carrier to serve the economic interests of the country, so it is absolutely essential that governments support the airlines,” he continued. European mega-carrier Lufthansa Group CEO Carsten Spohr stated that there is no end in sight to burning through cash. ”The Airline Group is burning cash at a rate of €500m (USD590m) per month and is far from breaking even” he added. Spohr also said that the airlines group, hit by Europe’s worsening coronavirus situation, was hoping to stop the outflow of cash once it reached a utilisation rate of about 50% of seat capacity … that is absolutely not foreseeable. We are happy if we can reach 20% during winter”, he added (Reuters). Finnair’s CEO Topi Manner said in a recent interview by Talouselämä (9th of October) that the airline’s cash burn rate is €2m a day and if the current conditions were to continue longer than expected, the airline’s cash reserves will last until end of 2021. According to Finnair’s CEO the airline is currently operating only some 10% of its pre-COVID passenger volumes, but he is confident that due to a strong cash position and a healthy balance sheet backed up by, among others, a EUR600m pension premium loan, the company can weather this exceptional situation and continue operations from a firm base once this situation is over. COVID-19 Financial Impact to Airports Additionally, as people stop flying, non-aeronautical revenues derived from airports’ parking facilities, restaurants and duty-free, has also dropped substantially. The COVID19 crisis has also severely impacted the airport sector as both aeronautical and non-aeronautical revenue sources have collapsed. As airlines are forced to cut capacity, the aeronautical revenues from airlines, such as landing charges for aircraft have fallen. ACI forecast for 2020 shows a drop of nearly 57% in airport revenues to just below USD100 billion compared to pre-COVID-19 forecasts. Market Update – Finland Despite the recent negative development of COVID19 and a second wave in Finland, the country has not been suffering as much as some of its neigbours. The number of new confirmed cases has exceeded 12,000 and some 300 deaths since the first wave started in the spring of 2020. Unfortunately the pandemic has severly hit the Finnish aviation, travel and hospitality sectors due to very low demand and the country lockdown phase during the spring. As the demand has dropped dramatically since March, 2020, Finnish national carrier, Finnair, has undertaken extensive measures to cut costs. That includes parking a majority of its fleet, cutting routes and laying off employees. CEO of Finnair Topi Manner is stressing in the interview by Talouselämä (Oct. 09) the importance of sustainable traveling, unified guidance and health restrictions during and after pandemic. The current focus is on restoring the domestic leisure travel and European inbound tourism to Lapland. This is vital for the airline to keep its valuable slots in its European network. The longer-term strategy is to restore airline’s Asian strategy connecting Europe via its hub, Helsinki Airport, to Asian network.