Europe’s airlines have largely avoided bankruptcy and consolidation through the Covid crisis due to government support and the availability of capital, but “the sector may be at a tipping point”.
That is according to management consultancy FTI Consulting which warns “bold moves” may be required for the aviation industry “to weather the upcoming storm”.
An FTI Consulting analysis of the state of European aviation suggests airline failures have so far removed just 4% of 2019 capacity from the European market.
It notes: “Airlines in Europe have implemented only moderate fleet cuts” and low cost carriers “even plan to expand fleets over the next years.”
FTI warns: “It is probable airlines might face an oversupply of capacity which could endanger financial recovery.”
It expects carriers “to continue burning cash throughout 2021” and suggests cash reserves “might last between nine and 15 months” more.
Airlines in the UK and Germany could face “the most challenging recovery”, it warns, due to a greater exposure to intercontinental markets which will be slower to recover.
FTI forecasts Europe’s carriers will miss out on $200 billion in revenue they might otherwise have expected over the next four years and Europe’s airports lose out on €50 billion.
It notes UK airports have taken on less additional debt than those in the EU, but forecasts a slow recovery across Europe suggesting more than one quarter (27%) of flights and one third (34%) of passengers could remain “missing” over the next four years.
FTI warns the impact “could be particularly acute for regional and smaller airports”, arguing: “A potential shift of airlines towards larger, centrally located airports could impact smaller and mid-sized airports.”
It also warns of pressure on airport revenues as airlines seek to reduce landing charges.
The study concludes the sector’s cash situation “might further deteriorate before improving” and warns: “The perfect storm in Europe’s aviation is yet to come.”
It notes carriers have found “achieving an adequate reduction of employee, aircraft and maintenance costs a severe challenge” and recommends airlines and airports “consider deeper restructuring and transformation”, if necessary “restructuring under [bankruptcy] protection”.
FTI argues: “Further personnel downsizing might be needed . . . [the] same applies for fleet. Airlines might be forced to seek restructuring under creditor protection to rationalise lease contracts.”
Airports Council International (ACI) Europe director general Olivier Jankovec said last week: “For Europe’s airports the first six months of 2021 were actually worse than last year as passenger volumes further decreased by more than a third.
“This is the direct result of the travel restrictions reinstated by European states at the beginning of the year and which remained in place through spring as the continent was hit by the third wave of the pandemic.”