SAS, Finnair, Analysts warn the 1930’s are coming back

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Finnair announced yesterday that its passenger numbers were down 85.8% year on year for August, with SAS admitting to a 76% reduction for the same period.

Even worse, passenger load factors were down to just 41.7% of available seats, meaning that without cargo, every passenger was costing the airlines money.

These figures are not unusual, they seem to be about standard for most of the European and North America markets.

It’s reaching the point that the only way airlines are going to get through the northern winter financially is to send their aircraft to the desert and store them for six months. They have to stop this endless cash bleed – another six months of low fares, low load factors and low income is going to have serious consequences come the 2021 northern summer season. Someof these airlines are going to struggle to stay afloat.

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SAS has only just completed a re-financing, but the amount of liquidity it has simply isn’t going to carry it past March at the rate of burn.

Europe including the UK is seeing a marked uptick in Covid cases, mostly led by 17-29 year olds refusing to socially distance and while most – but no means all suffer only minor ailments, they’re spreading the disease to other members of their families and each other at a disturbing rate.

The Europe and North America wide transfer of millions of students back to schools, colleges and universities is spreading the disease at a high rate.

The constant coming and going of quarantine regulations has had serious impact on BA, Tui and easyJet flights to and from the Greek islands into the UK, with easyJet cutting 40% of its planned September-October operations to holiday destinations generally.

Europe-wide tougher regulations and reimposed quarantines are in place to try and slow the spread of the disease. In the US new cases are running at an average of 40,000 a day and the death toll is nearly 200,000 people. In India the situation is even worse.

No it doesn’t mean we’ll be flying in a Dragon Rapide with its deck chair seating!

A return to the 1930’s

Analysts are forecasting an even worse scenario than the return to the 1970’s-80’s levels of flying.

Prediction are that a 1930’s style environment will start to take shape over the next 1 to 3 years.

They don’t mean that the amount of flying will drop to those levels, but that the financial, state supported model will gain ground as ailing airlines face dire financial challenges and short-medium term cash runs out.

Faced with huge debts and credit lines they thought they could repay but won’t likely be able to if things carry on as they are, airlines will be placed in protective bubbles, routes will be governed not by the market but by levels of disease risk and quarantines, and prices for air tickets, especially long haul, will once again move out of the reach of most people.

I don’t believe the routes and the quarantines will persist if a vaccine works and is largely administered by summer next year in the developed world.

However the financial risk to airlines simply cannot be ruled out. Many of the largest household names will be facing fiscal zero hour by June next year if bookings haven’t at least doubled over this years. If they have to discount heavily to get bums on seats, they’ll be little better off than not flying at all.

The real risk is state ownership or influence, cramping the ability of airlines to expand, and quite possibly, in the year after a vaccine is administered, a genuine shortage of finance to get airlines the money they’ll need to get stored aircraft up and running again. In a years time we could actually be seeing a lack of seats and high ticket prices, with restrictions on airline expansion as they pay off the vast debts they’ve accumulated to survive, unable to spend it on the aircraft they need.

State ownership or controlling interest will also place burdens on emissions airlines might well have ignored, stopping them from taking on old aircraft. It will be in the interest of government – especially France and Germany – to demand newer aircraft to stimulate growth in the industrial sector, simultaneously bringing emissions down: a win-win with voters, if not for the airlines in the shorter term.