COVID-19: Avianca in Bankruptcy Protection

Some big airlines have fallen victim to this pandemic. First, it was South African Airways. Then came Virgin Australia. After that, Air Mauritius. Many other airlines also hang in the balance. Now, it’s Avianca. Reuters reported earlier today that the airline has filed for Chapter 11. The second largest airline in South America and a member of Star Alliance, Avianca is the largest airline to file for bankruptcy so far. The airline has 103 planes and flies to over 100 destinations worldwide. The flag carrier of Colombia also has subsidiaries operating out of 7 other South and Central American countries. These include Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, Honduras, and Peru.

This is a huge blow to aviation. Avianca has not been provided government aid. They also have over 20,000 employees. Unfortunately, their financials were not looking pretty even before this. Billions of dollars in debt, the airline has not flown since March. With the airline losing money every day, it was only a matter of time.

Avianca Claims Bankruptcy

After filing for Chapter 11 Bankruptcy in New York today, it became clear that the airline is hanging in the balance. The airline had faced turbulence before. The airline filed for bankruptcy in 2004. In 2009, they merged with TACA. But, things were looking up. In 2010, they were invited to join Star Alliance. 2011 came with a new frequent flyer program. Then came the arrivals of the Boeing 787s. By then, the airline was already operating at a loss. The company was failing to make the airline profitable. They turned to Untied Airlines who provided loans of up to $700 million according to Reuters. But, they were able to meet financial obligations with a steady stream of service. In fact, 2019 was the best year on record for passenger numbers.

Then it all came tumbling down. The airline was in the middle of a rebranding after some issues in the boardroom. Stocks tumbled down 95% from their highs in 2019. The airline was then downgraded by creditors. Then came the pleas to the Colombian government. They went unanswered. The airline tried once again. But again, they were denied. This proved to be the breaking point for the airline. Now under bankruptcy protection, it can only be hoped that the airline will survive this. But much like other airlines in this time of crisis, things are not looking good. With the pandemic expected to last for a while longer, the airline will continue to lose money. 

What Will Avianca Do?

This will be up to investors and executives of the airline. Ultimately, many strategies could be taken. The rebranding in process may be sped up. The rebranding might also be scrapped in favor of a new approach. More likely, destinations will be cut and the fleet size will be reduced. Older aircrafts may be retired earlier. Serious looks at unprofitable routes will be warranted. Long haul flying may cease to exist for Avianca. Truth is, there is no simple answer. It could be a combination of things. On the bright side, the airline was able to successfully come out of bankruptcy once before. However, the failure to remain profitable when the industry was booming last year spells a troubling story.

The airline which calls Bogota, San Salvador, and Lima home must take drastic measures. Planes will not be flying for the foreseeable future. Money is not something Avianca can continue to lose. Only speculations can be made of what will happen to the airline. The airline has one of the best frequent flyer program, offering miles for sale often at low prices, leading to easier Star Alliance Gold status for fliers. 

Conclusion

After LATAM, Avianca is the second largest airline in Latin America. They have a foothold in Central America and the northern part of South America. Without Avianca, it would create a unique situation. Could Copa step up in Central America? Will LATAM continue their recent dominance and take over South America entirely? All that is yet to be seen. Of course, the hope is that Avianca will be able to come out of bankruptcy once again. After debuting a new hard product on their 787s, it would be a shame to see them go down in the middle of restructuring. Unfortunately, COVID-19 has taken victims in aviation before and this likely won’t be the last one. But, this is certainly the biggest it has taken down so far. 

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