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  • Writer's pictureSimon Ang

Global Airlines are cutting capacity – Is there a plan B?

More and more airlines are cutting capacity and costs due to COVID-19. Emirates, the world's largest long-haul airline, will halt almost all flights and cut salaries due to COVID-19. Singapore Airlines (SIA) recently announced that it will cut its capacity by about 96% - loosely translated as grounding 138 of its total fleet of 147. This blog examines the impact of these measure and whether there is a Plan B to prevent the situation from being an unmitigated disaster.

Impact Analysis

From the ecosystem depicted below, we can observe that the impact of cutting capacity is non-trivial and will be felt not only by airline staff, but also partners and businesses that are dependent on the airline industry.

The modern world is built on aviation connectivity and a crippling airline industry on a global scale will have a domino effect on a myriad of industries, especially tourism and logistics. In this difficult period, the importance of aviation cannot be understated as it is used for the timely transport of healthcare professionals and equipment to areas that are hardest hit with COVID-19 infections.

According to a CNA commentary by IATA director Alexandre de Juniac, the aviation industry supports USD 2.7 trillion in economic activity, which directly and indirectly creates about 65.5 million jobs around the globe.

Is there a Plan B?

For want of a better phrase, Plan B is essentially a bailout. As of November last year, the biggest challenge facing the aviation industry was the loss of environmentally conscious passengers to other modes of transport claiming lower emissions (thank you Greta Thunberg!)

I used to think that airlines are pure evil due to their dynamic pricing policies. Regardless of whether you think "karma is a bitch" or not, airlines need a lot of help, FAST! According to the Sydney-based aviation think-tank Centre for Aviation (Capa), "Cash reserves are running down quickly as fleets are grounded and what flights there are, operate much less than half full. By the end of May 2020, most airlines in the world will be bankrupt." Ironically, low fuel prices do not help in a situation where there is little or no demand.

Government bailouts are needed to keep airlines afloat, hopefully long enough to survive the COVID-19 tsunami. In the US, the airline industry trade group Airlines for America is pushing for more than USD 50 billion for US carriers in the form of grants and loans. Closer to home, analysts expect the Singapore Government to provide support to SIA in the form of working capital loans or subsidies, but not the extent of a bailout.

While the future of aviation looks distressed, hopefully the ones that pass the COVID-19 test will emerge stronger, wiser and more efficient!

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