Weak airlines ‘should be allowed to fail’ or they will delay recovery

A senior Iata figure has warned airlines need to consolidate and weaker carriers be allowed to fail to avoid delaying a post-pandemic recovery.

Outgoing Iata chief economist Brian Pearce insisted weaker airlines “should be going out of business”, arguing: “We are not seeing an adjustment to the incredible shock Covid has been.”

He pointed out 2020 “was a normal year for airline failures despite traffic being 94% down” and said: “It’s crazy.”

Pearce told a CAPA Centre for Aviation summit: “We should see stronger players getting stronger and weaker players going out of business. But we’ve seen barely any failures because governments have stepped in.”

He pointed out: “The five years before Covid were the most profitable in the industry’s history, but only about 30 airlines made a profit. The rest broke even or destroyed shareholder value.”

Pearce insisted: “We need to see consolidation. [But] my fear is governments will be reluctant to let weaker carriers go. That means it will take stronger carriers longer to break even. No consolidation will make recovery a much slower process.”

He warned: “The debt burden is going to be massive – $250 billion in debt has been accumulated in the crisis. That is unsustainable.

“Airlines are going to want to put on any route that generates cash. [But] keeping the cost base under control is going to be a challenge when suppliers are going to be looking to recoup their losses.

“Oil and fuel prices are back to pre-crisis levels. The industry has to be really cautious about coming back. Every new service has to be cash positive.

“There is not going to be a lot of money for capital spending.”

Pearce insisted: “It is going to be a smaller industry. It has to be smaller to keep costs under control and keep that debt burden from causing failures.”

He also cautioned against believing the crisis is coming to an end, saying: “This is a massive shock and we are not out of it.

“We’re counting on the vaccines allowing a full reopening of borders next year or, for some markets, the year after. But we still don’t know if the vaccines will deal with all the variants that arise.”

Share article

View Comments

Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.