Brand Finance has calculated that as a result of the COVID-19 crisis the top 50 most valuable airline brands could lose up to 20% of brand value, equating to a staggering US$22 billion. In an unprecedented three months the sector has all but ground to a halt as travel restrictions make it impossible for airlines to operate. Even the falling oil price – which would be good news to carriers in normal times – makes virtually no difference in the dire situation.
In the financial crisis of 2008, the sector also faced major contraction in demand. It was not until 2016 that intra-Europe flights recovered to previous levels. Similarly, airline brand values and business values took about eight years to recover from the 2008 crisis. The severity of the current crisis points to recovery in the medium to long term with noticeable changes to the structure of the market.
Savio D'Souza, Valuation Director, Brand Finance, commented:
“The COVID-19 crisis presents a dangerous threat to airlines, who stand to lose 20% of overall brand value and could struggle to cope with ever-decreasing demand in the face of global travel restrictions. This problem will not be easy to solve, particularly for an industry that has suffered during previous global challenges, taking over five years to return to profit after the 2001 terror attacks and 2008 financial crisis. It will no doubt be a long, hard journey back for the sector, and some airline brands may not survive the crisis, but the industry has always adapted to a changing landscape and this time will not be different.”
Brand Finance Airlines 50 2020 Ranking: US Airlines Dominate Top 3
US airlines continue to dominate the Brand Finance Airlines 50 2020 ranking claiming the top 3 positions as of our valuation on 1st January 2020. Prior to COVID-19, all American airline brands, including Delta (down 9% to US$9.2 billion), American Airlines (down 7% to US$8.9 billion), and United Airlines (down 3% to US$8.2 billion), had dropped in brand value following falling Brand Strength Index (BSI) scores and lower market research ratings.
Prior to the coronavirus outbreak, Delta held on to its position as the most valuable airlines brand in the world, with its drop in brand value attributed to decreasing brand strength, scoring lower for customer familiarity, satisfaction, and preference than in previous years. Predicted to drop by a further 20% in line with industry trends, Delta is an illustrative example of the effect of COVID-19 on the sector, with the airline reducing its capacity by 70% in March 2020.
Likewise, competitors American Airlines (ranked 2nd) and United Airlines (ranked 3rd) have similarly suffered at the hands of decreasing demand, with the former currently reducing capacity by a 40% per day and the latter cutting its domestic flights by 52% and full capacity by 68%. Although these measures will undeniably wreak further havoc on airline brands, there is some debate over whether Delta is better equipped to scale back its operations. With more planes suitable for retirement and non-core routes in their possession, there is a chance that the brand may be able to bounce back comparatively unscathed.
Savio D'Souza, Valuation Director, Brand Finance, commented:
“Even before the current crisis, the industry endured a turbulent 2019. Airline brands had to negotiate the escalating trade war and slowing growth globally. Rising tensions between the world’s two superpowers have inflicted far-reaching repercussions on the industry, increased scrutiny surrounding global warming and the flight shaming that has ensued as a result had contributed to a muted outlook for the sector at the start of the year.”
Air Canada Soars Before Pandemic
Bucking the trend, Air Canada was flying high, recording the greatest brand value growth in the ranking, up an impressive 25% to US$3.7 billion and simultaneously jumping into the top 10. Prior to the global pandemic, Air Canada was boasting strong revenue forecasts owing to its revenue reaching record levels at the end of 2019. All forecasts, however, are currently being revised and Air Canada’s position and brand value, along with all brands across the sector, is in a precarious position. Canada’s flagship airline has laid off over 5,000 employees and is operating a reduced network.
Even before this crisis, Norwegian recorded the biggest fall in brand value in this year’s ranking, dropping 42% to US$527 million. The budget long-haul brand has failed to generate any income over the last three years, resulting in a damaging lack of trust in the airline to achieve a robust financial performance in the future. Norwegian Air has significantly cut its flights in the wake of COVID-19 and implemented enforced temporary layoffs for 50% of its staff.
The trend across the sector is similarly bleak with 35 brands in the ranking seeing a drop in brand value, averaging a 12% brand value loss. Across the industry, airlines have been negotiating the consequences of the grounding of the Boeing 737 MAX, which has been grounded since March 2019 following two fatal crashes. Many airlines in the ranking built their growth strategies around expected deliveries of new aircraft, but the grounding of the fleet has not only made these strategies redundant but has damaged revenue growth and thus brand value.
COVID-19: Airline survival or demise
There are an infinite number of factors that could contribute to either an airline’s demise or survival in these extremely testing times. Brand Finance has analysed the cash position of the brands, the brand strength, and brand value to create a heatmap of which brands have the highest chance of seeing the crisis through and which look vulnerable.
The analysis of the ratio of cash and other short-term investments to revenue in 2019 indicates that 20 airlines in the top 50 only have enough cash to survive another 60 days or less. These brands include 6 out of the top 10 most valuable airline brands in the world.
On the other hand, there are 30 brands in the ranking that are likely to survive beyond 60 days. This is either due to a strong cash position (businesses that have been managed well), being state-owned or being able to tap into the public or private markets to shore up their balance sheet. These brands include Emirates, Southwest Airlines, Air Canada and British Airways. Qantas, ranked 15th, has for example been able to secure AU$1.05 billion in private debt funding.
Ultimately, recovery depends on how long the COVID-19 crisis lasts, but as more parts of the globe become riddled with the virus, it seems like the airlines sector is in for the long haul.
Brand Strength and Crisis Resilience. Which brands will fly through the storm?
In addition to measuring overall brand value, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, familiarity, loyalty, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value.
Brand Finance has tracked how brand values have fluctuated during the three major economic downturns experienced in 2009, 2012, and 2016. The notable feature of this long-term analysis is that strong brands, as measured by Brand Finance, perform better during crises, across all sectors.
Considering brand strength, over the period from 2008 to 2019, the Consistent 100 Fallers have average Brand Strength Index (BSI) scores of 66 while the Consistent 100 Winners have average BSI scores of 70. This finding is in line with other research conducted by Brand Finance which correlates brand strength with overall stock market outperformance. Brands boasting the highest AAA+ brand rating by Brand Finance, consistently outperform the S&P 500.
Aeroflot: the sky’s not the limit!
According to Brand Finance’s Brand Strength Index (BSI), Russia’s Aeroflot has retained its title of the world’s strongest airline brand with a score of 92.1 out of 100 and the corresponding elite AAA+ brand strength rating.
Aeroflot is one of the few airlines in the ranking that have recorded an improvement in brand strength (up 2.2 BSI points), a testament to the brand’s exceptional reputation and popularity among its core customers.
Mirroring its success in brand strength, Aeroflot has recorded a 13% rise in brand value to US$1.7 billion, a result of high operational efficiency and strong financial performance. The brand’s revenue was boosted by a combination of increased demand and its strategic pricing, both of which have protected the brand as ground handling and airport costs continue to rise.
David Haigh, CEO of Brand Finance, commented:
“Aeroflot, which was well on track to achieve its strategy 2023 at the beginning of the year, will no doubt rely on its long-established and respected brand to defend its market share and to rise up to the challenge that COVID-19 poses.”
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 50 most valuable airline brands are included in the Brand Finance Airlines 50 2020 report.
Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Airlines 50 2020 report.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
Communications Manager, Brand Finance
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on Enterprise Value, as at 18/03/2020 compared to what it was on 1st January 2020. Based on this impact on Business Value, Brand Finance estimated the likely impact on Brand Value for each sector. Each sector has been classified into 3 categories based on the severity of Business Value loss observed for the sector in the period between 1st Jan 2020 and 18th March 2020.
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.