BLOG: CORONAVIRUS – PREVENTION IS BETTER THAN CURE
While it is still early days, the unprecedented impact of coronavirus is already causing massive challenges to people, business and supply chains, writes Shakespeare Martineau’s insolvency partner, Michael Mulligan.
With Flybe’s collapse the fourth significant UK airline failure since 2017 – and coronavirus heralded as the final nail in its coffin – this could signify that hard times are ahead for airlines, airports and their suppliers.
Whilst the impact of the coronavirus outbreak on demand for air travel was only partly to blame for Flybe’s collapse, it is clear that the industry is going to be feeling the strain in the coming weeks and months.
Airport decision makers and those that supply the aviation industry should already be putting contingency and continuity protocols in place, but where is best to start?
According to analysis from IATA, the impact of coronavirus on the industry could see airlines lose approximately £87.4 billion this year if the virus continues to spread.
This could be the tipping point for those businesses already facing financial difficulties or those that operate with tight margins.
Using Flybe as an example, engineers are already being laid off and there are many more jobs tipped to be lost as a direct consequence of its administration. There is a complex web of suppliers, people and airports that are heavily reliant on the airline and its supply chain.
For some larger airports, Flybe’s demise will have limited impact, but for at least eight regional airports – Belfast, Exeter and Cardiff included – more than half of their flights were operated by Flybe, and therefore the impacts could be catastrophic.
Due to fears of exposure to the virus, passenger numbers flowing through airports have decreased dramatically. Not only that, but with time spent in the terminal becoming less appealing, shopping and dining time spend before a flight is likely to be reduced, causing terminal outlets to also feel the strain.
In the midst of such uncertain times, the pressure on airports and those trying to turn a profit within, is looking much more difficult.
On learning that a major player in the industry has gone bust, action taken in the first 24 hours is crucial to limiting the knock-on effects for airports. The first step must be to understand quickly what type of insolvency process is taking place, as this will determine what action is necessary.
Don’t rely on the mainstream media to get this right. With damage limitation and recouping costs a priority, airport managers can’t afford to get this wrong.
Opening up communications as quickly as possible with those handling the administration, and those impacted, can assist in ensuring that goods or services are able to continue if the airline’s business and assets are picked up by another company.
Depending on the circumstances, and the type of supplier in question, a deal may be negotiated with whoever may step into take over a supplier’s contract as part of the continuity deal.
When dealing with a largescale administration that involves multiple parties – passengers, airlines, airport staff, suppliers and more – it is the method in which the crisis is communicated that will make a big difference to an airport’s reputation.
Successful collaboration between all stakeholders and partners in terms of communication and the technology used, could help curry some favour and encourage disgruntled passengers to return in future.
This is not always an easy set of circumstances to traverse but ensuring that customer experience – even in the face of adversity – is at the heart of an airport’s decision making, can help to protect reputation.
With the end of the line for another troubled European operator, Alitalia, also heavily rumoured, airport managers should be contingency planning, particularly if they are heavily reliant on one airline to draw passengers in.
Ringfencing funds in order to soften the blow of a dip in profits, as well as checking contracts with all the airport’s supplier base will help leaders gain a comprehensive knowledge of where they stand.
Renegotiating contracts now, to provide a little more flexibility in future, is a good way to cater for financial hurdles that are likely to be experienced by many in the industry.
The complex nature of many supply chains in the aviation and airport arena suggests that the fall-out from Flybe’s demise has only just begun and the situation will continue to develop.
Conducting a thorough risk analysis of a variety of scenarios will allow leaders to understand their risk exposure, should a large component of the airport ecosystem go bust. Additionally, checking the precise terms of any insurance cover should also be considered closely.
The announcement of Flybe’s failure will be a cause for concern for many interested parties. Having a clear understanding of their rights, the opportunities to leverage their position and areas where potential losses can be mitigated will be crucial during this difficult time.
• Michael Mulligan, insolvency partner at Shakespeare Martineau.