After Zoom’s collapse, analysts say ‘worst still to come’
31.08.08
The collapse of Zoom left 4,500 passengers stranded, another 60,000 with unusable tickets, and more than 600 people without jobs. But expect more of the same, and worse, to come, the Independent reports that experts have warned.
The demise of the Canadian low-cost long haul airline on Thursday adds to the list of airlines bankrupted by the vicious combination of record fuel costs and a weak global economy. Andrew Lobbenberg, an aviation analyst at ABN Amro, told the newspaper: ‘We've had all sorts going bust – full service, low cost, high end, long haul and short haul – because all buy oil and all have customers getting poorer. There have been lots of failures already, and there will be more.’
He predicts that the bankruptcy rate will accelerate as price wars over dwindling customers eat even further into cash reserves, just when the sector enters its usual annual dip. The summer months are the best time for airlines, with cash balances high on the strength of forward bookings. But by January, cash is running low, strained by sustaining the normal off-season losses. For those airlines already struggling, this year's lean winter months could spell disaster.
Add to that the looming expiry of fuel-cost hedging arrangements, which are currently warding off the worst of the oil price rises, and the difficulty of raising additional funding, and the picture is bleak. Gert Zonneveld, an analyst at Panmure Gordon, told the Independent: ‘Zoom is by no means the end. It is inevitable there will be more bankruptcies as airlines currently flying on vapour realise it's not going to work. The reason it doesn't look so bad yet is because a lot still have good hedging in place.’
Picking the survivors is not easy. A report from Blue Oar Securities this month listed some 50 European carriers under threat, including Flybe, bmi and Monarch in the UK. But most experts agree that cash is the key. Mr Zonneveld said: ‘It will all depend on the airline's cash position, fuel hedging and the ability to access extra funds. But the situation is pretty dire.’
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