Brand Finance, a global brand valuation and strategy consultancy headquartered in the UK, said recently that as a result of the COVID-19 coronavirus pandemic, the top 50 most valuable airline brands could lose up to 20 percent of their brand value, which they equated to a US$22 billion in value.
In the financial crisis of 2008, the sector also faced major contraction in demand as it has now with the virtual grounding of the world’s passenger fleet and it took until about 2016 for airlines to regain their brand value. The severity of the current crisis points to recovery in the medium to long term with noticeable changes to the structure of the market, the group said.
Savio D’Souza, valuation director at Brand Finance, said “the COVID-19 crisis presents a dangerous threat to airlines, who stand to lose 20 percent of overall brand value and could struggle to cope with ever-decreasing demand in the face of global travel restrictions. This problem will not be easy to solve, particularly for an industry that has suffered during previous global challenges, taking over five years to return to profit after the 2001 terror attacks and 2008 financial crisis. It will no doubt be a long, hard journey back for the sector, and some airline brands may not survive the crisis, but the industry has always adapted to a changing landscape and this time will not be different.”
US airlines continue to dominate the Brand Finance Airlines 50 2020 ranking claiming the top three positions as of 1 January 2020. Prior to COVID-19, all American airline brands, including Delta (down 9 percent to US$9.2 billion), American Airlines (down 7 percent to US$8.9 billion), and United Airlines (down 3 percent to US$8.2 billion), had dropped in brand value following falling Brand Strength Index (BSI) scores and lower market research ratings.
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D’Souza said “even before the current crisis, the industry endured a turbulent 2019. Airline brands had to negotiate the escalating trade war and slowing growth globally. Rising tensions between the world’s two superpowers have inflicted far-reaching repercussions on the industry, increased scrutiny surrounding global warming and the flight shaming that has ensued as a result had contributed to a muted outlook for the sector at the start of the year.”
Airline survival or demise
There are an infinite number of factors that could contribute to either an airline’s demise or survival in these extremely testing times, the consultancy said. Brand Finance has analysed the cash position of the brands, the brand strength, and brand value to create a heatmap of which brands have the highest chance of seeing the crisis through and which look vulnerable.
The analysis of the ratio of cash and other short-term investments to revenue in 2019 indicates that 20 airlines in the top 50 only have enough cash to survive another 60 days or less. These brands include 6 out of the top 10 most valuable airline brands in the world.
On the other hand, there are 30 brands in the ranking that are likely to survive beyond 60 days. This is either due to a strong cash position (businesses that have been managed well), being state-owned or being able to tap into the public or private markets to shore up their balance sheet. These brands include Emirates, Southwest Airlines, Air Canada and British Airways. Qantas, ranked 15th, has for example been able to secure A$1.05 billion in private debt funding.
“Ultimately, recovery depends on how long the COVID-19 crisis lasts, but as more parts of the globe become riddled with the virus, it seems like the airlines sector is in for the long haul,” the consultancy said.