Corona virus outbreak
COVID – 19, a deadly virus has been declared as a pandemic now by the World Health Organisation. So far a number of people have been affected. This disease is probably the most contagious one the world has faced in a long time. A lot of deaths have been reported due to which many countries are shutting down. Recently a lot of countries banned public gatherings and traveling is no exception. A day or two back, a number of countries imposed travel bans to the epicenter continent of this pandemic, Europe. This has not only caused a lot of chaos and problems but has also caused a lot of loss for the airlines. This 15-day ban may be safe for travelers, but the aftermath of this decision can be very hard on the world economy.
So how exactly is this a problem for the airlines? They can fly to other countries, right? Let’s find out the affects of corona virus outbreak
Fewer travelers and more groundings due to corona virus outbreak –
The airline industry mostly works on the principle of advanced payment. Now you may be thinking, well that’s not really a problem because they must be having a lot of money right? Well, the answer is a big NO. Let’s take a case of one of the most profitable sectors, New York to Singapore. When a person books a flight on this route, then he or she is basically paying for a part of the aircraft’s operation needs. So when a number of passengers book tickets, the airline uses a part of that money. They use it to pay for the fuel, catering, ground services, and the airport fees. When all these costs are taken out then whatever is left is an airline’s profit.
So technically, an airplane on the ground is a big loss for the company as the airport can levy more and more charges from the airline for taking up a slot. So how does Corona worsen the situation? Well, Corona has instilled a lot of fear in people’s minds. Due to this fear and bans, airlines are being forced to cancel flights as they are not able to pay for the services.
Cancellations and Loan –
Now when bans are imposed, it is normal for airlines to cancel their flights. When this happens, passengers generally cancel their flights and get a full refund. But in case a passenger voluntarily cancels his or her flight then they don’t get a full refund. Corona just worsened things up for the airlines in this case.
Airlines all over the world are now being forced to refund 100 percent of the ticket prices back to the passengers. This means that the airline has insufficient balance with them as they have already paid about half of it to the service providers. Now to repay the customers, airlines end up taking loans. Since a lot of airlines are being forced to fo this, the banks take this as a business opportunity. They raise their interest rates by a lot. If an airline has been previously operating on loans, then it becomes extremely difficult for them. They end up shutting down which in this situation is very likely to happen.
Fuel Prices and Fuel Providers due to corona virus outbreak –
Fuel prices may not affect airlines as of now. Since there are a lot fewer aircraft flying in the sky right now, they have dipped. Since the fuel prices have plummeted, a lot of airlines can take advantage of flying more and more to other countries. Sadly, there are not enough passengers and the number of countries imposing bans is going up every day. So airlines have already lost the opportunity to earn but that’s not a big loss, right?
Well, the thing is, once this pandemic is over, a lot of people will travel. This will lead to a lot of flights due to which the fuel prices will skyrocket. This will worsen the situations of medium to small airlines as they would have no funds to pay for the fuel. The fuel provides will do this as they will have to cover up the losses that they are suffering now.
Airline Staff and Leased Aircraft because of corona virus outbreak-
This part is no rocket science. When a company faces an economic setback, the first thing they do is cut down or hold the salary of the staff. Similarly, when an airline is not optional, it would have to diverge all its funds towards the payment of loans and aircraft slots in airports. Assessing the present situation, it is advisable to stock up on almost every essential need as stores are closing down. But to buy stuff one needs money. When the staff won’t get paid, they will not be able to survive. Ultimately they will have to take loans and then live on the mercy of the bank and the hope of them getting paid soon.
Aircraft lessors have a similar story to the fuel providers. When demand decreases, the leasing price also decreases, when demand increases so do the price. Also, since many airlines have put their payments to the lessors on hold, there will be a surge in price to cover up losses and make a profit.
Indirect losses –
Many other industries are taking a huge hit due to the airlines shutting. The primary one being the tourism sector. A lot of private tourism chains associated with the airlines are taking a huge hit as there is a lack of tourists. Airlines are no more bringing the predicted number of travelers due to which cancellation rates are going up. The companies are being forced to return most of the money and are also losing a lot to other factors. Tourism is the primary source of income in most countries due to which the economy is tumbling down.
Corona Virus is definitely threatening the whole world in terms of health as well as the economy. The fall of one sector is causing a chain reaction due to which everything is being affected. The extent of damage is still unknown and might go up or down in the future. Till then we can only hope for this bad phase to get over as soon as possible.