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Airline industry post COVID19: Up and up and away?

HYCM

By Giles Coghlan, Chief Currency Analyst at HYCM

It is no surprise that airlines have been struggling. Tourism, business, and travel to see friends and relatives has all been reduced due to COVID19. However, will airlines simply bounce back in our post viral landscape, whatever that looks like? Here is a look at the New York Stock Exchange ARCA Airline Index, which has halved from pre-crisis prices:


At the moment a number of airlines are receiving support from governments; Air France, American Airlines, Delta, Easy Jet, Lufthansa, Norwegian Air, Southwest Airlines and United to name some of them. The number of airlines needing help is indicative of a potential issue for the airline industry going forward. How viable is the airline industry?

The airline industry has grappled in the past (1993-2003) with the cost of capital for airlines exceeding their average return of capital. Now since the Global financial crisis a report by the International Air Transport Association showed that the global airline industry's return on invested capital has improved. However, it was a relatively small number of airlines which has driven the improvement.

So, watch out for some airlines not making it through this crisis, but cash rich airlines will be well placed to ride the turbulence and then potentially snap up some extra routes which come free.

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