More airlines went out of business in 2019, with many more yet to come. Many people wonder the reasons airlines go out of business, yet few know the answer. Here’s why…
Naturally, there is no single event or reason that causes airlines to go out of business. Usually, they all play a part, it’s just some are more potent to the airline than others!
Bad management
Often, bad management is cited as the most common reason why airlines go out of business. It may have nothing to do with the pilots and other staff, that causes the airline to collapse.
It might just be that the people running the airline aren’t as good as they should be!
A quick Google search shows that many people believe that bad management is the reason most airlines go out of business. Often, the management:
- Mishandle the airline’s finances (borrow too much money, or don’t borrow enough to keep up with competition!)
- Have no knowledge of the airline industry
- Try to expand when no expansion is needed
- Don’t expand when expansion is needed
- Allow too many strikes which weakens the company’s finances (more so than paying the extra amount!
As a result of bad management (and one bad quarter), everything can go downhill from there! And before you know it, the airline has officially filed for bankruptcy, and then liquidates, resigned to museums for the rest of history!
Poor user experience
We all know that the airline industry is a customer-driven one. This means that if passengers don’t like a certain feature, or crave for one to be introduced, airlines will cave to customer’s demands.
However, if an airline fails to do so, it could lead to those airlines going out of business!
If an airline is constantly giving people bad experiences, people will complain on the internet. This will lead to, not only those people who spread it, but also those who read those complaints.
Naturally, people won’t want to fly on an airline that has a poor reputation for the quality of their flights!
Unions
Many people say that bad management blames unions. And it’s easy to see why- unions want cash-strapped airlines to increase their costs in order to increase pay for employees.
This leaves the airline in a sticky situation, as they have one of two options. 1) They pay the extra expenses, and suffer the financial burden. 2) They don’t increase pay and suffer a major strike.
In both cases, it could lead to the company defaulting on its debts and being forced to close.
In relation to the Fly BMI (owned by British Airways) collapse, according to a question on Aviation Stack Exchange, the union was blamed by the management for the sudden collapse, with “No prior warning”.
Bad reputation
Possibly due to poor management, possibly due to other factors such as unions, poor user experience etc. An airline can get a bad reputation that may see it being avoided by many flyers.
This could spell immanent disaster for the airline, especially if it is small or if it is a cash-strapped airline.
Some of the worst rated airlines in the world include:
- Spirit Airlines
- Pakistan International Airways (PIA)
- Tigerair
- China Eastern
- Pegasus Airways
Whilst I am not saying that these airlines will go out of business. I do believe that it is certainly a possibility that if these airlines were cash-strapped, it would be very hard for them not to go out of business!
Airline consolidation
Airline consolidation may be the biggest reason why airlines go out of business. And the truth is that nobody really wants to admit it. Yes, people do, but it’s not nearly enough people!
The fact is, that bigger airline consortiums, such as IAG, are able to negotiate for lower prices than what most other airlines could.
This means that, not only are they much bigger than their competitors, but they are also able to reduce their overheads more than their competitors too!
It’s often said that the airline industry is very unprofitable. Whilst yes, that’s true in one sense, in others, it makes completely no sense! For the largest airlines in the world, they make record profits year-on-year!
However, it is often cited as unprofitable due in no small part to the number of airlines that go out of business. Not to mention the record losses they get year-on-year!
Old aircraft
Old aircraft means a worse customer experience. Why? Because they believe that the airline is cheating them out of a better aircraft.
If a passenger realizes that the aircraft they are flying on is older than 15 years old, especially a major or ‘legacy’ carrier, they get annoyed.
As such, they demand that if they are going to pay such high prices, they are going to pay for new airliners. This is down to the fact that they often bring the best technology along with them!
This also happens to increase user experience! And also helps to stop the airlines from going out of business!
Being a banned airline
Being a banned airline prevents you from accessing certain countries or political blocs. This already restricts your possible clientele, especially if the place you are blocked from, happens to be a major aviation center like Europe or the US.
With that strain already on you, you will struggle to gain international prestige as a global airline.
If one of your aircraft then suffers any sort of issue, and is forced to divert into the airspace of your banned area, it could be costly.
I remember once when a banned airline’s 737-200 had an engine failure, and was forced to land in Italy. The only problem was that the airline was banned from flying in the EU, which created an issue.
I know that Italian Air Force fighters were sent out to escort them into an airport. They were then promptly fined by the EASA and the airliner was allowed to continue on its journey to Morocco (I think)
My second flight as a commercial pilot, from Rome to London!
That fine then bankrupted that airline, who subsequently went out of business soon after!
Poor training
Nobody wants a discourteous flight attendant, nor a pilot who falls asleep mid-flight with his co-pilot. Naturally, this creates issues with passengers, who spread around that bad reputation and so on.
Poor training also is the number one reasons planes crash. Many successive crashes from the same airline may lead to people believing that a certain airline is dangerous.
Once an airlines a reputation for poor training, whether of the pilots or the flight attendants, it is hard to shake that reputation. If it is so bad, people may avoid flying on that airline.
Thus, those airlines go out of business!
Shocking events
Every industry has its ups and downs. The airline industry is no different!
These are events like the September 11th attacks, Brexit, even up to the as-yet ongoing coronavirus pandemic. These events rock the industry and cause a temporary shortage in people wanting to fly.
As a result, many airlines go out of business. Most recently, we have seen the collapse of Flybe. Whilst undoubtedly, other factors were afoot, Flybe executives have placed part of the blame on the coronavirus.
Other major events like Brexit and the September 11th attacks have also been the reason several other airlines have gone out of business.
What can we see from this?
As I said at the beginning, most of these issues are inter-related, and an issue with one thing can soon lead to another.
But look closer.
In all honesty, it only takes one bad day, that becomes becomes one bad quarter, that becomes one bad year. Then, the airline needs to rebrand, or cut costs or invest in more advertising.
All of this costs money that the airline doesn’t have. And as such, those airlines go out of business!
Got any more reasons? Tell us in the comments!
Featured Image courtesy of Riik@mctr via Flickr