Air Belgium discontinues passenger business, turns to freight
Air Belgium has decided to put its focus on freight operations and discontinue its passenger business which has faced increased competition and unprofitability. The aviation sector has gone through numerous disruptions over the last three years that have severely impacted the profitability of passenger operations for airlines, and Air Belgium is no exception.
In 2020, Air Belgium was forced to ground its fleet on account of Covid which resulted in a sudden and drastic drop in revenues, while its fixed expenditures remained unchanged. This first episode led to a weakening of the company’s financial situation.
In 2022, just as the post-Covid recovery was getting underway, the war in Ukraine led to a precipitous increase in fuel prices coupled with a negative trend in the euro/dollar exchange rate. Moreover, the inflation that followed the drastic rise in energy costs reduced the purchasing power of consumers.
Given the impossibility of passing the rise in fixed costs to passenger fares, Air Belgium decided in March to cancel flights to unprofitable and highly price-sensitive destinations such as the Caribbean and the French West Indies. All these factors have had a very severe impact on the profitability of the business and on the cash flow of Air Belgium.
The hard decision for Air Belgium
Faced with a more than unstable socio-economic and geopolitical environment and in view of the fact that an airline has to plan for cycles of 3 to 5 years, Air Belgium’s Board of Directors has taken a number of decisions to ensure the long-term viability and growth of the company which has a staff of 500 people.
The company decided to concentrate on the two profitable lines of business that offer growth prospects: The activities of cargo and ACMI (Aircraft, Crew, Maintenance and Insurance, or wet lease), i.e. the leasing of aircraft between airlines for passenger and cargo flights, constitute two profitable lines of business with growth prospects.
The second decision is to discontinue the passenger business. Despite the many investments by Air Belgium in recent years and the strengthening of commercial initiatives, the passenger business is still unprofitable. After numerous studies, Air Belgium’s Board of Directors reached the conclusion that turning a profit on this front would require substantial investments in addition to those already made in recent years, which has not been possible.
The board has also initiated judicial reorganisation proceedings by way of amicable agreement to ensure the company’s long-term viability and growth and to give it time to reorganise internally around these two segments.
This means the company has asked the business court to initiate judicial reorganisation proceedings which could lead to renegotiation of agreements with creditors for more favourable terms, the partial reduction of the existing debt and the deferral of interest.
The proceedings are also intended to reorganise the company’s lines of business by disposing of or, where appropriate, discontinuing unprofitable activities which would have no prospect of viability if continued.