Coronavirus crisis intensifies for airlines; UK's Flybe collapses

Reuters , Thursday 5 Mar 2020

Dash 8 Q400
This picture shows a Dash 8 Q400 of Flybe airline during take-off on September 24, 2019 at the airport in Duesseldorf, western Germany. (Photo: AFP)

 The worsening coronavirus epidemic heaped fresh misery on the airlines sector on Thursday, as British regional carrier Flybe became the first big casualty of a slump in travel demand and Norwegian Air scrapped its profit guidance for this year.

Airlines across the world are rushing to cut flights and costs, and warning of a hit to earnings, as a new virus that started in China spreads around the world, raising fears of a pandemic that could plunge the global economy into recession.

In a sign of the difficulties this is creating for airlines, a Turkish Airlines jet was flown back to Istanbul without any passengers on board on Thursday on orders from Singapore after a passenger who had arrived on the same plane on Tuesday tested positive for the virus.

Finnish national airline Finnair, meanwhile, said the impact of the new coronavirus, which has claimed more than 3,000 lives and infected tens of thousands more in over 60 countries, would be worse than the SARS epidemic in 2003.

The International Air Transport Association (IATA) warned on Feb. 20 of a potential $29 billion hit to airlines' revenues this year, but that was before fresh travel restrictions put in place by several countries as the virus gained a stronger hold outside of China, in places such as Italy, Iran and South Korea.

Among the latest events to be cancelled around this world due to the crisis is the world air traffic management congress in Madrid, which had been scheduled for March 10-12.


The failure of British regional airline Flybe comes less than two months after a rescue due for the company was agreed by its owners and the UK government.

Despite its commitment to improving regional transport links, the British government backed away from that deal due to the scale of the hit to demand from the virus outbreak.

"All flights have been grounded and the UK business has ceased trading with immediate effect," Flybe said as it entered administration, a form of protection from creditors.

The failure of the airline, which has long struggled with losses, not only puts around 2,400 jobs at risk but could also see some regional UK airports struggle and business travel hit.

Flybe carried around eight million passengers a year between 81 airports and was owned by a consortium of Virgin Atlantic, Stobart Group and Cyrus Capital.

Its collapse came a day after Ryanair Chief Executive Michael O'Leary predicted that the coronavirus crisis would lead to bankruptcies.

"It's inevitable in the next couple of weeks we'll see more failures," O'Leary told Reuters - citing Flybe as among the most vulnerable.

"Where you have a massive short-term decline in bookings you have a massive short-term decline in cash flow," he said on the sidelines of an industry event in Brussels on Tuesday.

Norwegian, a pioneer of low-cost transatlantic travel, has also been struggling for years due to cut-throat competition and heavy debts built up during rapid expansion.

The company, which has repeatedly raised cash from shareholders in order to stay in business, said on Thursday it was scrapping its 2020 earnings guidance, which had predicted a return to profit after three years of losses, due to the drop in travel demand and disruption caused by the virus.

It also said it would cancel 22 long-haul flights between Europe and the United States from March 28 to May 5, with routes from Rome to Los Angeles, Boston and New York seeing a reduced number of departures.

In addition, it will cut the number of flights between London and New York, flying twice, rather than three times, on some days.

"At this stage, it is too early to assess the full impact on our business," it said in a statement.

Norwegian shares, which have lost more than 50% of their value this year, were down more than 3% at 0820 GMT.

Willie Walsh, the outgoing CEO of British Airways parent IAG , also warned governments this week against any temptation to prop up airlines that were already struggling.

"I don't believe it's appropriate for governments to provide state aid to airlines that were not sustainable before the coronavirus," he said at the Brussels gathering. ($1 = 0.7770 pound)

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