This video was made possible by Shopify—the
platform behind Wendover and hundreds of thousands of others’ online stores. The last five years have the most the consistently
profitable and financially successful years ever for the world’s commercial airlines. Including the 2019 forecast, they’ve earned
more than $160 billion in combined profit over this period. With a world economy more robust and connected
than ever, the aviation industry is flying high… or at least most of it. In these same five years, the world has seen
some extremely high-profile airline collapses and the frequency of these seems to only be
picking up. The trend truly began in 2017 when Monarch,
a well-respected British leisure airline with fifty years of history, went belly-up. The very same month, Air Berlin, a massive
airline with over 8,000 employees and 100 planes, also ceased operations. 2018 then saw the end of Primera Air—an
airline that generated buzz but seemingly flew to close to the sun in its final days
with its low-cost transatlantic flights—and Cobalt Air—a small Cypriot carrier. 2019, though, was the year of slaughter. Wow Air, a huge player in the low-cost transatlantic
market, stopped flying. Aigle Azur, France’s second largest airline,
stopped flying. Xl Airways France, a long-existing transatlantic
airline, stopped flying. Adria Airways, a mid-sized Slovenian airline,
stopped flying. Then, after fifty years of history, Thomas
Cook Airlines suddenly too stopped flying in what entered the record books as the largest
UK airline collapse ever. Worth noting is that the aforementioned airlines
are not cherry picked names. It’s certainly not the definitive list of
airline collapses in the past three years, but they are most all the highest-profile
ones, and with these, there are two interesting patterns. Firstly, every single one of these airlines
is based in Europe. Secondly, and perhaps more strangely, every
single one of these airlines, with the exception of Wow Air, stopped flying in either the month
of September or October. Neither the pattern in location or times of
these collapses is a coincidence. There are very good reasons behind these trends. For the timing, you see, in general airlines’
most profitable season by far is summer since that’s when there’s the most demand. There are certainly exceptions to this rule. For example, an airline flying between the
Northern and Southern Hemisphere a substantial amount, like Qantas, typically sees more more
consistent month-to-month profits as it benefits from the demand in both the northern and southern
summer. The seasonality of demand also varies significantly
by region. For example, here are a few years of overall
month-to-month passenger figures in the US. You can see that there’s a clear peak each
August and a clear valley each February, with smaller, secondary peaks each year for Thanksgiving
and Christmas. If you take a look at Europe’s month-to-month
figures, though, you can see how relatively stable the US’ traffic is. Relying much more on leisure travel, which
is highly seasonal, European airlines have to cope with winter demand being almost half
that of summer demand. Airlines in the US, though, carry more business
travelers, in proportion, who tend to book more consistently throughout the year and
therefore they don’t have as much excess capacity in the winter. There are even regions like Asia-Pacific that
see nearly no seasonality in their demand, but the main thing to know is that Europe
has highly seasonal traffic which means the timing of when its airlines make their money
is highly seasonal. For example, take a look at Ryanair’s quarterly
gross profit graph. In 2018, they made $901 million from January
to March, $1.4 billion from April to June, then an enormous $2.1 billion from July to
September. The fall was then definitively their weakest
quarter with only $877 million made. Essentially, they made 3/4 of their profits
in half the year. The problem airlines then have, though, is
cashflow. For the busy summer season, airlines will
get paid for tickets in the months leading up to those flights. Therefore, most of the money for that season
will get to them between March and August. It’s therefore a season that can typically
sustain even the financially weakest airlines. Come September, though, bookings start to
dry up and therefore so does cashflow. With that, airlines will start to struggle
to pay off their debts, let alone the costs for fuel and other operating expenses. Once an airline starts to fall behind on their
debts, it tends to be a vicious cycle. Quickly, they might have planes repossessed,
which means they have to cancel flights, which means they have to pay for hotels and penalties
and for rebooking and pretty soon, the airline won’t have enough money to operate and will
be declared bankrupt. In Europe, unlike the US, there is little
opportunity for businesses to restructure once bankrupt so, for the most part, that
means they’re closed down immediately and indefinitely. As the aviation industry is so volatile and
capital intense, these bankruptcies can happen impressively fast. In Thomas Cook’s case, there had been hints
of its financial difficulties for months, but at the end of August, it seemed the company
would likely be saved by a buyout deal. It only truly became clear that the airline
was headed towards its end the very week of its collapse but still, everything went on
as normal from an operational standpoint. On September 22nd, at 9:40 pm, the airline
tweeted in response to a customer, saying, “our flights and holiday operations are
operating as normal.” That was true… at the time. All the flights were taking off, they were
still selling tickets, everything was normal from the public perspective. Behind closed doors, though, things were not
ok. Five and a half hours later, in the early
hours of the morning of September 23rd, the company’s last tweet went out saying, “we
are sorry to announce that Thomas Cook has ceased trading with immediate effect.” All around the world, at the very moment of
their declaration of insolvency, flights were quite literally boarding, crews onboard, planes
fueled, ready to go. With the company now gone, though, everything
had to stop. Those crews were not longer employed, that
fuel wouldn’t be paid for, the planes were no longer owned or leased by the airline,
everything stopped. Of course, once an airline collapses and its
flights are cancelled, there is no longer an airline to rebook passengers onto other
flights. In most cases, passengers are just out of
luck, but in the case of the UK, their Civil Aviation Authority essentially takes the place
of any UK airline for the weeks following its collapse. The CAA will either rebook passengers onto
another airline or just actually run their own flights. Of course, the CAA doesn’t have their own
fleet of planes. Rather, they have a number of airlines around
the world essentially on retainer for anytime they need to run repatriation flights. This includes plenty of charter operators
like HiFly, Atlas Global, Wamos Air, and more, but perhaps the most unique aircraft used
by the CAA was a Malaysian Airlines a380. The airline dedicates some of its a380’s
to charter operations and so, the day before Thomas Cook’s collapse, when it became clear
that the end was nigh, the a380 flew empty all the way from Kuala Lumpur to Manchester. It landed a couple minutes past midnight on
September 23rd, just a few short hours before Thomas Cook was officially declared insolvent. As this and plenty of other aircraft pre-positioned
even while Thomas Cook flew its last flights, the CAA was able to start flying its repatriation
flights the same day and many passengers were only a few hours delayed, even after their
airline went belly-up. The Malaysian a380 was assigned to fly flights
from Palma de Mallorca, but part of the difficulty was that, from Palma, Thomas Cook had flown
an enormous quantity of flights to an enormous number of destinations in the UK—London,
Cardiff, Birmingham, East Midlands, Manchester, Newcastle, Glasgow, and Belfast. Of course, it’s much more complicated to
find eight small planes than just one large plane, so that’s what they did—they found
the the largest passenger plane in the world. Every flight the a380 flew ran just the two
hours from Palma to Manchester and then from Manchester, buses ran to Glasgow, Newcastle,
East Midlands, Birmingham, and London. Using this system, with just one aircraft,
the CAA was able to run up to three flights a day from Palma to the UK with capacity for
nearly 1,500 passengers—the equivalent to almost seven Thomas Cook a321’s. This whole process went on for weeks, making
for a lucrative payday for the world’s charter companies and an expensive bill for the UK
government, but it certainly is easier than having hundreds of thousands of passengers
stranded worldwide. Having a record-breaking airline collapse
and then another record-breaking airline collapse in the span of two years is certainly not
normal and it’s certainly not a coincidence. Part of the problem is that the airline industry
has been so robust in the past decade that it has allowed weaker airlines to survive. Out of the bankrupted airlines mentioned at
the start—Monarch, Air Berlin, Primera Air, Cobalt Air, Wow Air, Aigle Azur, XL Airways
France, Adria Airways, and Thomas Cook—five were focused on long-haul, low-cost flying. This business model is a rather new phenomenon
made possible, at least on paper, by smaller, fuel efficient, long-haul aircraft and low
fuel costs but, outside of Asia and Australia, no airline has really achieved sustained profitability
with this model. Air Asia X, Scoot, and Jetstar are really
the only airlines worldwide that have seen long-term financial success flying long-haul,
low cost. After fuel prices plummeted in 2014, these
airlines entered a period of rapid expansion as they were able to undercut the incumbents
prices significantly, but then, in 2017, fuel prices starting ticking back up and these
airlines had a tough choice—they could either raise prices and lose some of the market share
they had built up or keep prices the same and grow further away from profitability. Many chose the ladder and, as fuel prices
continued to rise, the companies began to fall. Many analysts have also suggested that another
contributing factor to this spate of airline collapses is overcapacity. Somewhat as a result of how successful and
profitable the industry has been over the past decade, airlines have been buying planes
like crazy and investors have been funding airlines like crazy. For a while, the rule had been that adding
more capacity means more profits, however, the industry has likely found the ceiling
to that rule. This is especially true in Europe’s market
where buying an additional plane that you might be able to fill in the summer means
paying for it throughout the long winter too, when it might sit empty. What’s for sure, though, is that Thomas
Cook will not be the last to fall. It is only getting tougher to survive as an
airline, especially in Europe, and each year, without fail, another big name too will topple
in September or October—the latest victim in the world’s annual airline culling season. One of the ways that Wendover Productions
functions as a business, and stays out of bankruptcy, of course, is through merchandise
sales. We sell a few types of t-shirts for both Wendover
and Half as Interesting which is a nice, predictable income source that we control. Creating an online store at first seemed daunting,
but then we came across Shopify. Shopify is a super simple yet advanced solution
to creating and running your online store. They are designed to be a partner to independent
businesses as features like a logo maker, plug and play store themes, marketing solutions,
and much more make it easy to succeed. For your customers, it makes for a great buying
experience—one that you’ve probably already used as they’re used by over 800,000 business
worldwide, including mine, you know, in case you want to try out the buying experience
for a Wendover t-shirt. By going to shopify.com/Wendover, you’ll
be able to try Shopify for free for 14 days—no credit card required—and then after that,
pricing is as low as $9 a month.
He simplified it by saying only European airlines shut down. Jet Airways, a large Indian airline, shut down. Jet Airways had 124 planes near its end. It was one of two Indian airlines flying to western Europe. It also controlled 18% of the Indian market. He should have addressed that in his video.
The y-axis scale for the 'Airline Passengers Per Month' graph is absurd.
best Wendover video.
I'm a bot, bleep, bloop. Someone has linked to this thread from another place on reddit:
If you follow any of the above links, please respect the rules of reddit and don't vote in the other threads. (Info / Contact)
I wonder when South African Airways will join this list