The outbreak of COVID-19 has resulted in an unprecedented global crisis. Aviation, the industry that connects the furthest corners of the globe, has suffered a lot. And the pain is yet to end: airlines, due to plummeting demand and temporary travel restrictions are seeing their cash reserves burning in front of their eyes, despite their best efforts to cut-costs.

The International Air Transport Association (IATA) highlighted that on average, airline operating costs are 51% variable and 49% fixed and semi-fixed. While the variables, such as fuel, which is at a very low price point right now, and costs to operate the flights could be reduced to a minimum by grounding the fleet and reducing the number of flights, fixed costs are exactly what they are – fixed. Depreciation, insurance, leases for aircraft and other tangible assets are costs that are difficult to overturn.

Subsequently, the peaks that were predicted for the aviation industry over the coming years are now being pushed further back. With a 40% drop in passenger demand in 2020, and a recovery of 19% in 2021 and 10% in 2022, airlines would need 2,000 fewer aircraft than previously estimated, according to research done by Vertical Research Partners, reported Aviation Week.

Already now, airlines are reducing the amount of aircraft they have on their books, with older aircraft, like the Boeing 757s or 767s, or gas-guzzling giants like the Airbus A380 or Boeing 747 sent to their final resting places earlier than airlines themselves expected to do so.

On March 29, 2020, KLM Royal Dutch Airlines Flight KL686 from Mexico City (Mexico) to Amsterdam (the Netherlands) is going to be bittersweet, as it will be the last time a Boeing 747 operates passenger service on behalf of the oldest airline in the world. 

However, could coronavirus also be the culprit of new airlines popping up left and right?

Soil for new airlines

As the great Rocky Balboa once said,

“It's not about how hard you hit. It's about how hard you can get hit and keep moving forward. How much you can take and keep moving forward.”

The words could not be less true for aviation, an industry that has seen a fair few gut-punches over the years. From numerous oil price shocks, financial crises and the post-September 11 travel slump, the industry has only risen in terms of passenger numbers over the years. It has recovered from each crisis, no matter how bad things got at one point.

But each recovery, just like each crisis, was different. The post-9/11 travel slump sent shocks through the United States’ commercial aviation and resulted in a consolidation process that was further cemented by the 2008 financial crisis. Now, the market is controlled by four players with smaller and more niche airlines, like jetBlue or Spirit Airlines, trying their best to make inroads on the top four’s market share. While arguably, the top four have slept on their laurels in terms of subjective passenger experience, their pre-coronacrisis results were impressive, to say the least.

The trio of United States-based carriers announced their Q4 2019 and Full Year results, joining Delta Air Lines, which announced its yearly results on January 14, 2020. All in all, the four biggest carriers in North America and some of the biggest airlines in the world had a healthy year: with the exception of Delta, despite being negatively affected by the 737 MAX groundings, all airlines demonstrated healthy profitability.

In terms of other markets, Europe has seen its fair share of consolidation as well. Air France-KLM, Lufthansa, International Airlines Group (IAG), all have used difficult periods in time to grow as groups or form bigger entities by a way of mergers. Low-cost carriers used opportunities of downturns to reduce their long-term and fixed costs by acquiring aircraft on the cheap whilst global demand was down and aircraft manufacturers had nowhere to go. Factories were running despite economic downturns and they had to make up at least some of the manufacturing costs.