Will the COVID-19 Outbreak Reset the Airline Industry?

News today from the IATA tells of airline losses mounting because of the coronavirus situation. And now Flybe, Europe’s biggest regional airline has folded because of the COVID-19 outbreak. What does this mean for the airline industry overall? Will COVID-19 reshuffle the whole transportation and tourism world?

Flybe, Europe’s largest regional airline, has collapsed into administration with the loss of more than 2,000 jobs, less than two months after the government announced a rescue deal.

According to a Guardian story, the impact of the coronavirus on flight bookings proved the last straw for Flybe, the Exeter-based airline, which operates nearly 40% of UK domestic flights, as the government stalled on a controversial £100m loan.

Meanwhile, BBC and other media outlets are reporting airline officials’ fears that more failures are in the offing as passengers cancel flights. James Goodall, a transport analyst at Redburn told BBC:

“Flybe’s collapse will likely be the first of many in 2020. We expect that the demand destruction caused by Covid-19 accelerated its demise and we believe further airline bankruptcies should be expected in the coming months.”

Michael Duff, who’s managing director at The Airline Analyst was quoted as saying there are many airlines based in China, Hong Kong, Thailand, South Korea, Norway, and Mexico at risk because of their financial strength index. He cited recent price wars and the dependence on Chinese travelers as significant warning signs for potential failures to come.

With demand going into the drink, it’s not difficult to imagine the entire industry being shaken and stirred once the COVID-19 outbreak peaks and subsides. When demand goes back up, it seems certain the bigger airlines will absorb the supply lag left by defunct airlines.

I’ve discussed many times the critical economic situation for the overall travel industry with regard to out of balance competition for price. As the margins disappear, the cushion for companies evaporates as well. Airlines are the most vulnerable because of risk, but hotels and even whole destinations are in danger when two-dimensional economics are applied.

COVID-19 is not only going to reshape the airline industry, but it’s also going to reshuffle the whole spectrum of business surrounding travel.