The 10 years leading to the close of the decade have been remarkable and unique for the global airline industry in one sense: As a collective, it has been profitable.
The biggest financial performance improvements occurred in 2015 and 2016, when some airlines—mostly the US majors—for the first time started to look like decent investment prospects.
But that turnaround, welcome though it is, does not tell the whole story. The expectations for 2019 and 2020 are for the industry to remain profitable. IATA forecasts a $25.9 billion net profit for 2019 and a $29.3 billion net profit for 2020. Neither of those numbers are touching the $30 billion-plus profit figures the industry achieved earlier in the decade. And that profitability is driven by only a relatively small number of airlines. “There are really only 20 to 30 airlines that are doing well,” IATA chief economist Brian Pearce says.
The last decade was also one dotted with a phenomenon much more common to the airline industry: airlines not making it. As our table shows, almost 40 major airline names disappeared in the period from January 2010 to December 2019. Some of these, like Continental Airlines, Northwest Airlines, US Airways and Virgin America, went because of mergers. But most sank into the all-too-familiar grave of bankruptcy.
For many airlines, that threat does not go away as they enter the 2020s.
“The long tail of airlines that have not seen that performance improvement over the last 10 years is what led to the recent European bankruptcies,” Pearce says. “While fears of a recession in 2020 have diminished, you have a long tail of airlines barely breaking even and a group making significant losses. They have six times as much debt as cash and for them, there is still fragility and vulnerability to any sort of cash shock.”
Among airlines, therefore, which are the most vulnerable? The list is long, but it also can be separated into groups: the government subsidized; the long-haul LCCs; those in regions where government policies and taxes are a steep negative pulldown on airlines; and those that operate in areas affected by war or major civil disruptions.
Among those that have historically and repeatedly operated on or below the financial margins and typically only stayed in business because they are wholly or partly owned by governments that have propped them up with subsidies and other support, Alitalia, Air India and South African Airways (SAA) are some of the bigger names. All ended the decade not far from how they started it—precariously.
South Africa’s treasury in December guaranteed another R6.5 billion ($566 million) for SAA to keep it going. Alitalia, after two-and-a-half years in bankruptcy, seemed no closer to finding or accepting solutions that might make it financially viable and Italy’s government looked set to approve a further €400 million ($445 million) in funding to keep it flying despite an ongoing investigation by the European Commission into the legality of previous loans. Air India ended the year warning of operational disruptions unless it could raise more funds.
Any of these airlines, and those in similar situations, should in theory be on the next decade’s list of carriers gone out of business. But in this category, these are also the airlines that tend to keep operating if only because of government-provided life support.
In the second category, the LCCs in general have firmly established that model worldwide, and in many regions they are also some of the most successful financially. But where there remains uncertainty is on the still-developing long-haul LCC model.
The added costs of international operations combined with less efficiency because of the longer trip lengths and turnaround times makes a long-haul LCC harder to sustain financially, even when oil prices are low.
Add in sharpened competition from established airlines in markets like the transatlantic, which do not want LCCs disrupting their fare structures, and the business becomes even tougher.
Airlines like Norwegian Air Shuttle have good products and have fought through political campaigns to keep them out of markets—especially the US—while also dealing with major fleet and schedule disruptions related to Boeing 787 and 737 MAX issues. Norwegian enters the 2020s with a new CEO and in a restructuring program, but it has cut some of its long-haul flights to the US, Thailand and elsewhere.
For many carriers in Africa and Latin America, the struggles of operating in environments with ongoing regional infrastructure problems, high government taxes and airport fees, and political instabilities look likely to continue into the next decade.
The Single African Air Transport Market, signed in early 2018 by 23 countries, should help the region’s passenger and cargo carriers as it lifts market access restrictions, removes ownership caps and extends air traffic rights.
However, much work still needs to be done to turn those ambitions into a reality, and some are concerned that the changes will lead to domination by the larger carriers and an even tougher market for small carriers.
Across Latin America, the picture varies widely from country to country. In Panama, where there is a strong pro-aviation government and a well-performing hub at Tocumen, Copa Airlines is consistently one of the region’s healthiest airlines. Avianca Brasil, by contrast, suspended operations in 2019 after filing for bankruptcy protection the previous year. Its precarious situation seems unlikely to be turned around.
Political upheavals in Latin America and elsewhere have dampened demand for travel. There is no starker example of this than what occurred in Hong Kong in 2019, where Cathay Pacific Airways’ inbound traffic was down 46% in November relative to the same time in 2018, after months of anti-government protests.
While there was some cautious optimism for a return to normal in 2020, the rebound could be slow and it might be too late for smaller carriers like Hong Kong Airlines, which has parked aircraft, laid off employees and is ending all long-haul flights.
Aside from airlines that may not make it through the 2020s, there is also a question mark over the future of the global alliances. Since 1997, when the Star Alliance was created, followed by oneworld in 1998 and SkyTeam in 2000, these alliances have helped to bridge the gap caused by this industry’s unique equity and ownership rules.
They have also brought significant passenger benefits in terms of frequent flier benefits that can be applied across an alliance even if the initial promise of technologically seamless travel from one airline to another has not been fully met. Through their first decade, each of the global alliances added member airlines and, for the most part, those carriers focused their key partnerships on fellow alliance airlines.
In the past few years, there has been a shift. Airlines have forged joint ventures and taken equity stakes in airlines outside of the global alliance, such as SkyTeam member Delta Air Lines’ stake in non-alliance-aligned Virgin Atlantic. And they have formed partnerships across the alliances. Delta’s new partnership with oneworld carrier LATAM Airlines Group, in which it is taking a 20% stake, will see LATAM leave oneworld by October 2020.
American Airlines, a oneworld carrier, now has a stake in China Southern Airlines, which was a SkyTeam carrier until the beginning of 2019. Oneworld carrier British Airways has also formed a joint venture with China Southern.
American, meanwhile, has long been in a dispute with fellow oneworld carrier Qatar Airways, which has said several times that it might leave the alliance, even though it owns stakes in some oneworld airlines.
These shifting allegiances were likely inevitable as each of the alliance families expanded and they won’t kill the alliances. But airlines and the major airline groups have found alternative ways in the past decade to partner and grow their networks. At the very least, that could weaken the significance of the global alliances through the 2020s.