Travel Companies That Are At Risk Of Bankruptcy Due To COVID-19

By Victoria Simpson on June 15 2020 in Economics

Airlines are one of the worst-affected sectors due to the COVID-19 pandemic. Image credit: CatwalkPhotos/Shutterstock.com
Airlines are one of the worst-affected sectors due to the COVID-19 pandemic. Image credit: CatwalkPhotos/Shutterstock.com
  • Norwegian Cruise Lines is based in Miami and had its shares fall recently by 19% when disclosing its economic hardships.
  • Richard Branson airline, Virgin Australia, was denied an economic bailout by the Australian government and is seeking a loan of about $3.2 billion.
  • LATAM airlines filed for bankruptcy at the end of May, and is restructuring its debt under chapter 11 in the US.

The novel coronavirus pandemic is exacting a large economic toll worldwide. From declining revenues in real estate to clothing sales that have plummeted, many sectors are facing difficulty balancing the bottom line. This is especially the case in the travel industry. The number of American air travellers has hit its lowest point since about the 1950s, and that was the dawn of the jet age.

According to the CAPA Center for Aviation, a source of market intelligence for the aviation and travel industry, the majority of airlines in the entire world will actually soon be bankrupt if governments do not intervene to help. Cruise lines are also facing economic hardship, as are hotel chains large and small, rental car companies and tour guides.  Here are some travel companies facing the worst. 

Airlines

An airplane interior being disinfected to prevent spread of COVID-19. Image credit: Pradpriew/Shutterstock.com

Avianca

Colombia’s Avianca Airlines filed for bankruptcy in US courts in May of 2020. This airline is the second-largest carrier in all of Latin America, and has had more than 80% of its income slashed from the coronavirus pandemic. So far, Avianca has filed for Chapter 11 bankruptcy protection, which allows the company to postpone paying its debts to creditors, essentially buying it some time before folding completely (or sticking around). 

Flybe

The British airline Flybe is one of Europe’s biggest regional air carriers. Flybe grounded all of its flights on March 5, 2020, and the company has ceased all trading. The company’s webpage does not offer much more information than that but says potential passengers should not go to the airport to board a Flybe flight as they are no longer flying, unless the flight is being operated by Flybe’s partners, Eastern Airways or Blue Islands.  

LATAM

LATAM Airlines is now the largest air carrier to file for bankruptcy, and did so on May 26. The company has announced it is undergoing “reorganization to ensure long-term sustainability”, which involves the restructuring of debt under Chapter 11 protection in the US, the same help that Avianca is hoping to obtain. LATAM is doing so with the support of the Cueto and Amaro families as well as Qatar Airways, which form two of the largest shareholders of LATAM.

The company says that limited passenger and cargo flights will continue to operate as it reorganizes itself economically. LATAM has branches operating in Chile, Colombia, Peru, Ecuador, Argentina, Brazil, Paraguay, and the US.    

Virgin Australia

Richard Branson, Virgin Australia’s owner, asked the Australian government for financial help amid the pandemic, but was denied a bailout, and on April 21 the company filed for bankruptcy. The airline is Australia’s second-largest behind Qantas, and is owned by Virgin Group which also jointly owns Delta Air Lines in the US. Branson has offered up his own private island in the British Virgin Islands as a collateral for a large loan of about $3.2 billion. 

If Virgin collapses, Qantas may have a monopoly over Australia’s domestic aviation market. 

Cruise Lines

Carnival Cruise Line's Seabourn Odyssey cruise ship docked at Heritage Quay Cruise Port in St John's Antigua just before Covid-19 coronavirus impact. Image credit: Eleanor Scriven/Shutterstock.com

Norwegian

Airlines are not the only travel companies facing the prospect of going belly up during the pandemic. Norwegian Cruise Lines warned investors in early May that it may go out of business. The company said it has taken out millions of dollars in loans and has enough to weather through twelve months without voyages, but that was not enough to convince its investors. The company's shares fell by 19% right after filing with the U.S. Securities and Exchange Commission. Nonetheless, Norwegian, which is based in Miami, said that it intends to follow through with plans to add nine additional ships to its fleet by 2027. 

Luminous Cruise

This company run out of Japan provides tourists with buffets and views of the city of Kobe as a restaurant ship. In early March 2020, it filed for bankruptcy citing cancellations in connection with the coronavirus. Luminous Cruise is one of the largest restaurant cruise ships in Japan running both daytime and nighttime voyages in Kobe’s port.  You can still make reservations online, but whether the floating restaurant will continue to operate far into the future remains to be seen. 

Will Things Pick Up?

The pandemic will not last forever, but how long it will take for economies around the world to recover is uncertain. In addition to air and cruise lines, companies such as hotel chains and rental car services are also feeling the enormous dip of customers in the travel industry. Hertz car rental company filed for bankruptcy on May 22, and laid off 10,000 of its North American employees in April. Without firm government forecasts for opening up, those in industries like the hotel sector say it remains difficult for prospective tourists to make any plans, and this is developing into a huge debt problem.

Economists are forecasting V-shaped, L-shaped, and U-shaped recoveries to the US economy, but what happens all depends on the path the novel coronavirus takes. 

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