Guru Gyan
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Guru Gyan

For Airlines, The Darker Times Are Yet To Come

The journey has gone from bad to worse.

From the crashing of Boeing 737 MAX jetliners to the coronavirus pandemic, times have not been kind to the airlines industry. Be it global or domestic, we have been reading how the industry as a whole is suffering from one crisis after another while individual companies have also been fighting their own problems.

We all know that this is not a really good time for a lot of industries because of the restrictions which came along with the pandemic. But, for airlines, things took a wild turn recently.

What Happened?

Warren Buffett, the CEO of multinational conglomerate company, Berkshire Hathaway said that his company has completely dumped its investments in four major airline companies. Those companies were American Airlines, Delta Air Lines, United Airlines and Southwest. In the company’s annual meeting on Saturday, he said that “The world has changed for the airlines”.

Once Buffet made that statement, the shares of all those companies were down by nearly 10% on Monday trade.

Why Does This Matter?

Because that data from industry bodies and analysis done by experts on the airline industry confirms Buffet’s statement of how the world has truly changed for the airlines.

  • The airline trade group, International Air Transport Association (IATA) expects the world’s air carriers to see their revenue decline by more than half while a number of industry watchers predict that it will be years before air travel returns to 2019 levels.
  • In the first half of 2020, Chinese passenger travel is anticipated to drop by approximately 87 million passengers.
  • The passenger capacity decline is projected to impact Europe the worst. In the second quarter of 2020, a 90% decline in European passenger traffic is estimated, if the same travel restrictions continue.
  • Earlier, IATA estimated a $130 billion loss of annual passenger revenue but they later revised that number, saying that the airline passenger loss will reach $314 billion globally.
  • Besides airlines, airports are also losing a good chunk of their money because of the crisis. In 2020, an estimated revenue loss of around $17 billion and $25 billion in North America and Europe, respectively are anticipated.

A 2015 U.S National Security Strategy cited the growth in intercontinental air travel as a factor in the global spread of dangerous pathogens — in short, airlines play a direct role in spreading disease around the world. So, we can’t ignore the fact that the fear would continue to live in people’s mind for a very long time before they consider air travel.

Also, the IATA chief executive, Alexandre de Juniac said that the industry’s outlook grows darker by the day and many airlines will not survive to lead the economic recovery without urgent relief.

And this gloomy industry outlook may continue to affect the company’s stocks and we will have to wait and see whether the government’s stimulus will set them on a path to recovery.

Head to moneyguru’s Insight section to stay updated on all major financial news updates of the day

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