Only 5 years after launching passengers flights and 7 years after it was founded, Air Belgium has announced it will cancel all passenger flights after 3 October because “in the face of increased competition, [they are] proving to be chronically unprofitable”. In order to address its current debt and return to profitability, Air Belgium’s Board of Directors has also filed for judicial reorganisation by way of an amicable agreement.
1. Accumulation of external factors
The airline has indicated in a statement that the decision came after an accumulation of external events that have severely impacted the profitability of passenger operations. The first blow to Air Belgium’s revenues came in 2020 with the Covid-19 pandemic. The airline, like all others around the world, was forced to ground its fleet, while its fixed expenditures remained unchanged/
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.
Not wanting to pass the rising costs to passengers, Air Belgium decided in March to cancel flights to unprofitable and highly price-sensitive destinations such as the Caribbean and the French West Indies. As of April 2023, the company has concentrated its activities on 2 main destinations: South Africa and Mauritius, the capacity of the released aircraft being allocated to cargo and leasing operations.
2. Restructuring
Air Belgium’s Board of Directors has decided to focus the company’s operations on the two profitable lines of business that offer growth prospects: cargo and ACMI (Aircraft, Crew, Maintenance and Insurance), or wet lease, which is the leasing of aircraft between airlines for passenger and cargo flights.
Moreover, the airline is initiating judicial reorganisation proceedings, giving it protections from creditors while allowing the necessary time to reorganise internally around these two segments. The business court will examine the application in the coming days. If it concurs to open such proceedings, the company will be able to negotiate agreements with its creditors so as to reduce its debt. These agreements may include the negotiation of more favourable terms, the partial reduction of the existing debt and the deferral of interest.
3. Implications
Flights scheduled before 3 October 2023 will be operated and return flights would be handled by Air Belgium, either directly or through other airlines. Flights scheduled after 3 October and already paid for by passengers would be cancelled and would be reimbursed as a matter of priority in the scope of the proceedings.
The airline currently has about 500 employees and has confirmed that staff in the Passenger segment will continue to work during the proceedings and beyond, as management intends to reassign them gradually to other activities operated by the company.
