Airlines Struggling with Cash Flow, are you Prepared?
Aviation industry profitability has been considerably variable. According to IATA, the average global commercial airline’s net profit was as little as US$6.85 per departing passenger in 2019. Apart from leading market operators from North America and Europe, airlines in other regions were barely profitable, noticeably in Africa and the Middle East. During the last few years, we have witnessed a significant number of airlines which have gone bankrupt, highlighted by companies such as Thomas Cook, Air Berlin, Avianca Brasil and Jet Airways, and recently South African Airways have filed for bankruptcy protection. Etihad Airways posted a loss of US$1.28 billion in 2018, increasing the loss over three years to US$4.8 billion. Its cost-cutting plan is still being undertaken, which includes laying off a serious number of pilots and staff. Many other airlines have had to put expansion plans on hold and prioritise consolidation of their businesses.
Main Challenges Facing Airlines
There is very high competition to gain market share for airlines nowadays. Hence pressure is on to provide competitive airfares, improve customer services and safety. Moreover, the fluctuation in fuel prices, currency exchange and maintenance costs, all of which have a negative impact on profitability, are difficult for airlines to control. Political issues in some countries have a further impact. Regrettably, many airlines, especially start-ups, are lacking the expertise to plan for their operations, so they expand aircraft numbers, routes, and hire crews without evaluating the market properly. Mistakes can cost the airlines millions of dollars. Many airlines utilise a high proportion of debt in their capital structures to support expansion plans and to pay for operational expenses. This practice can create a serious cash flow issue for a sustainable business. Recently, ch-aviation reported that five Thai carriers including Thai Airways, Thai Smile, Nok Air, Thai AirAsia X, and Thai Lion Air are suffering from poor finances with consecutive years of losses. These raised a real concern for Thai aviation, and other carriers in the region.
(source: IATA Report June 2019)
Other Airlines are flying Without Making Profit
Despite years of substantial losses, numerous carriers still remain in business as various stakeholders cannot afford to let them go. Closing down a large loss-making airline would therefore affect thousands of jobs, inconvenience to hundreds of thousands of travellers, millions of dollars in losses for the airline’s creditors and a loss of national pride. The decision to close down a struggling airline usually being very political, governments often, where permitted, provide financial support so that the carriers can stay in business. Meanwhile, other small operators still exist to serve specific niche functions and destinations.
What can we do about it?
Undeniably, air transport plays a significant role in its contribution to making the world more accessible for everyone and businesses. Hence, it is vitally important for leaders to protect the airlines’ financial health and enhance a sustainable business environment without plunging into crisis. For these reasons, Brookfield Aviation, as a pioneer in aviation services, has established a consulting division that can support airlines in the turnaround of their businesses into profit, building strategic financial plans, in parallel with maximising revenue sources and cost-savings initiatives.
If the above challenges are critical to your business, please do not hesitate to contact us today. We have some of the world’s leading airline financial turnaround consultants available to make real changes for brighter prospects. Your early action today could save the future of your airline.
Contact our team: Ms Anna Tran (anna@brookfieldav.com)/ Mr Quan Nguyen (quan@brookfieldav.com) for a discussion.
