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FlyBMI are currently in the news for failing and stranding passengers abroad. This is not the first time an airline has halted operations seemingly overnight and left passengers without a way to get home.

Why is it that airlines stop operating so suddenly, compared to other businesses which seem to go through a more protracted period of profit warnings, administration... and generally more orderly windup?

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  • $\begingroup$ Not really on topic, but when businesses are ran at really low gross profit, all costing assumptions need to materialize, else the profit is gone. Some of these assumptions are related to fuel costs, cabin filling rates, and competition prices. If one change, the ticket pricing doesn't float anymore. Only strong and large businesses can take care of passengers whatever happens, including losses. $\endgroup$ – mins Feb 17 '19 at 13:56
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    $\begingroup$ Welcome to aviation.SE! I'm not sure that your basic assumption here is entirely valid: plenty of other companies go bust and leave their employees, customers and creditors in the lurch. Lehman Brothers was a much larger and very famous example. My guess is that airlines just attract more attention because their customers can end up stuck miles from home or even abroad, which makes for a good news story. It's a bit more dramatic than customers not receiving the socks they ordered, for example :-) $\endgroup$ – Pondlife Feb 17 '19 at 19:31
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    $\begingroup$ I'd say its quite on topic, as it's about the special procedures the airline business has - not just for pilots. $\endgroup$ – Raffzahn Feb 18 '19 at 4:00
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Mainly because winding down airline business will turn it into a sudden and from there on increasing loss. Airline operation nowadays is calculated in most cases toward a rather high plane utilization. Even more so on low cost enterprises. Sometimes even 10% less passengers may turn a profitable flight into a loss.

Airlines depend on filling up flights - until the last seat and last moment (last minute bookings being, depending on the business plan, even being more profitable). As soon as an airline would announce the intention to close down, new bookings will dry up quick, making next to every flight after this unprofitable.

This all is due the fact that, unlike a brick and mortar store, most cost of an airline are operational cost. There is no valuable inventory to be sold of over time, or much existing machinery to be run until the last moment to convert existing materials in (somewhat) higher valuable products, to turn it into cash. For Airlines there is none (No, collector value of in flight magazines don't really count), so shuting down the flights removes next to all further expenses, stoping any further increase of debt.

Not to mention, that flying after such an announcement would become almost impossible as each and every supplier would demand cash payment from that moment on - with airport fees and fuel payment most prominent - something a money strapped airline hardly can provide. Airlines that tried to go that way usually postponed the shutdown just by days - and often with planes stuck in all corners of the world, unable to return, not able to sell them, but instead adding more debt in airport parking fees.

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    $\begingroup$ It might be worth adding to your last paragraph that with many businesses, it's better to go on selling/manufacturing even at a loss, because it might be the most cash you can get from inventory you've already paid for. $\endgroup$ – Dan Hulme Feb 17 '19 at 14:18
  • $\begingroup$ Dan: in many countries (probably most of those operating airlines) it's actually illegal to continue trading while insolvent. A receiver can keep going if it will reduce the debt (and probably will, for the reasons in the new paragraph) but not for long. $\endgroup$ – Tim Lymington Feb 17 '19 at 16:16
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    $\begingroup$ @TimLymington but as soon as word gets out that the company is insolvent, bookings will slow greatly, so the receiver would have a rough time pressing on. What they need is for ticket sales to be in trust or escrow, like bank deposit accounts, so the airline must hold all ticket revenue in trust and can't book it as income until the flight actually goes. Then if they cancel, the ticket value could be released to pay another airline to get you home. $\endgroup$ – Harper - Reinstate Monica Feb 17 '19 at 17:21
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    $\begingroup$ Yep. Store or manufacturers can slowly close and earn some many till it’s over. An airline lost all of it customers trust with announcing financial problems. They can only earn some money after going out of business, selling their planes. When everyone works together I nightmare for passengers can be prevent, like done in the case of Air Berlin. But yes, someone has to pay it, in that case german tax payers. And even after that, the temporarily reduction in the number of flying planes made live of everyone more difficult. Even of the surviving competitiors. $\endgroup$ – Peter Feb 17 '19 at 17:33
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    $\begingroup$ Excellent answer. It should be noted that a "10% less passengers may turn a profitable flight into a loss" can happen quickly, especially for small airlines that fly to a limited number of destinations. For example, there is a boycott campaign of Japanese products right now in South Korea and many local companies cancelled regular flights to Japan due to lack of passengers. I would not be surprised if some low-cost company go bankrupt soon. $\endgroup$ – Taladris Sep 26 '19 at 12:01
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When you buy an airline ticket, you are buying a promise that at some future date there will be a seat on a plane for you to make your journey. If you have any reason to doubt whether that promise will be fulfilled, the rational thing to do is buy your ticket from a different airline.

That is fundamentally different from many other commercial transactions, where you are buying something that can be delivered right now. If a store chain announces that it may have to close next week or next month, that makes no difference to you if you can physically go to the store and carry what you have bought out of the door. If the shop closes the next day you still have what you bought, and it has exactly the same functionality and reliability as it would have if the store were still trading.

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It's actually not that common and is probably mostly related to the bankruptcy law in the country where the airline is incorporated. Countries that have bankruptcy laws that allow second chance rescue plans like "Chapter 11" in the US (or Company's Creditors Arrangement Act in Canada) typically see the airline go into a bankruptcy process that sees the airline continue as it is reorganized and negotiations go on with creditors.

Certainly in North America airlines almost always go with one of these restructuring/reorganization routes once or twice before they disappear and these sudden collapses don't really happen very often.

A lot of airplane sales happen because an airline in bankruptcy protection is "restructuring" and part of the restructuring plan involves updating the fleet to something is is newer and cheaper to maintain, so word of a Chapter 11 execution is sometimes not bad news for a manufacturer, when the bankrupt company was flying around old beaters and is now shopping for new machines backed by fresh capital or loans.

Possibly FlyBMI has gone through a restructuring already and the options and creditor protections under UK bankruptcy law have already been exhausted. Usually these things go down the drain slowly, then suddenly, so anyone who was not an insider is caught unawares, like passengers.

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    $\begingroup$ According to their union, there was "no warning". My reading is that the shareholders decided to stop covering the losses, and either mgmt didn't have enough time to restructure or their attempts to do so failed. Continuing to operate would just make things worse. $\endgroup$ – StephenS Feb 17 '19 at 19:33

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