Collapse of UK airline stokes concern virus will doom peers

The failure of Europe’s biggest regional airline and a dire revenue outlook from the industry’s leading trade group stoked concern that the impact of the coronavirus could trigger the collapse of weaker carriers around the world.

Flybe, Britain’s biggest domestic airline, was placed in administration, a form of bankruptcy, on Thursday as the epidemic ended prospects for a state-backed rescue. Soon after that, the International Air Transport Association warned that carriers may lose $113 billion in sales this year, almost four times greater than an estimate it made just two weeks earlier.

While the threat from the virus to Asian airlines has long been clear, its spread has unleashed concern that carriers once seen as safe may now be at risk. With the demise of Flybe, attention in Europe is on debt-burdened Norwegian Air Shuttle ASA. In Italy, Alitalia SpA, already in creditor protection, has been hit hard because the nation has more cases of the illness than any other European country.

“Flybe’s failure this morning will likely be the first of many in 2020,” James Goodall, transport analyst at Redburn, said in a note. “We expect that the demand destruction caused by Covid-19 accelerated its demise and we believe further airline bankruptcies should be expected in the coming months.”

While Flybe is relatively small, its exit leaves parts of Britain without air links, and some airports without their main customer. The company last year accounted for 96% of flights at Southampton, southern England.

IATA’s most severe projection for lost revenue would represent a drop of almost 20% from 2019, akin to the hit from the global financial crisis more than a decade ago, and is based on the virus spreading more broadly.

Norwegian Air withdrew guidance for 2020 given less than a month ago, sending its 250 million euros ($278 million) of bonds maturing November 2021 to their lowest level in a year. The carrier has been trying to bolster its balance sheet by selling assets, trimming routes, delaying jet deliveries and changing loan terms.

The economic damage from the virus has extended to the U.S., where United Airlines Holdings Inc. is trimming services after an abrupt drop in demand. International flying will be pared 20% in April, with hiring frozen, Chief Executive Officer Oscar Munoz told United staff, saying “a lot has changed” even since last weekend.

Southwest Airlines Co., a Dallas-based discounter, said Thursday that first-quarter revenue will be lower than forecast earlier because of the slump in travel.

In Europe, the CEOs of the region’s five biggest airlines, meeting in Brussels on Tuesday, said the decline may be too deep for weaker operators to withstand.

Michael O’Leary, who heads the discount giant Ryanair Holdings Plc,said in an interview Tuesday that at least two carriers would go to the wall in a matter of weeks. He was including Flybe in his remarks.

The epidemic will accelerate consolidation in the European market, where the six biggest operators already account for 90% of earnings, Citigroup analyst Mark Manduca said by phone.