Airlines - Which One Will Fail This Autumn?

LONDON - Oct. 14, 2020 - PRLog -- How and when do Airlines fail?

Airlines fail each year. Fact. Many more are likely to fail in these troublesome times too. Most airlines fail in the autumn, so it is worth trying to understand why this is the case. We all know that airlines tend to be seasonal because most of us want to use airlines during the summer; so unless the airline is for business travel only; they will:

a) Take payments throughout the year,
b) Take more payments from February to June,
c) 'Deliver' the flights in the summer months,

This makes airlines awash with cash in the period up-to the summer, after which they lose the cashflow as the bills start to come in; and when they have to continue to pay staff costs, for airport slots, fuel, and (the big one) their quarterly airline leasing payments.

Airline creditors then need to enforce any defaulting debt, which is generally after the end of September 'quarter date'; after which the failing airlines file for bankruptcy, liquidation or receivership.

So, we can expect to see the weakest airlines fail from this month and next. Covid-19 further exasperates these issues and impacts those operators that are less robust. Cashflow difficulties in 'normal years' can often be 'limped-through' at this time by such airlines as they start to take winter booking and bookings 'for next summer'; but will this be so clear-cut this year?

The pandemic has highlighted airline industry challenges in protecting customer money, along with cashflow within the airlines and wider payments stakeholders, e.g. acquirers and card schemes, which work to safeguard customer funds.
Good news though for airlines (maybe), is that this may have come at the right time of year:

- Some of the cashflow 'came-in' during February and March; at the same time as Covid

- This gave airlines time to ground planes, cut costs and renegotiate with airports, staff (furlough schemes), and leasing renegotiation / delayed payments;

- With the public accepting 'vouchers' from the airlines for the cancelled flights, this also equated to a new funding method for the airlines through this difficult time.

Who normally loses, and who will lose this time?

When any business fails, it is the creditors that lose. For airlines, the biggest 'creditor' is the large numbers of customers who have paid for, but not yet taken their flights; they in the main, then recover the money from insurance policies or from their card company, who in turn recover the money from the card acquirer that processed the transactions for the airline.

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