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Airlines face 'critical' threat from coronavirus-related cash crunch, IATA says

March 17, 2020
4 min read
Airlines face 'critical' threat from coronavirus-related cash crunch, IATA says
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Airlines around the world are being pummeled by the coronavirus crisis, with many facing tough questions about their future as the cash needed to pay their bills runs low.

The International Air Transport Association (IATA), the global organization representing airlines, estimates that carriers have on average cash and access to credit — otherwise known as "liquidity" — to pay their bills and sustain them selves for less than three months, said IATA chief economist Brian Pearce on Tuesday.

"At times like this, it’s actually balance sheets that are critical to survival," he said. “More than 75% of airlines we looked at actually had less than three months of cash and equivalents to cover those costs."

Get Coronavirus travel updates. Stay on top of industry impacts, flight cancellations, and more.

Liquidity is critical to any business. Even when revenues drop off, as they have with travelers staying home and countries implementing broad travel restrictions to stop the spread of COVID-19, airlines still need to pay their fixed costs, for example regular loan or aircraft lease payments.

Companies fail when liquidity dries up. Travelers saw this happen last year when Thomas Cook and WOW air shut down.

This liquidity crunch is driving airlines' requests for government aid to get them through the crisis. On Monday, U.S. carriers unveiled an at least $50 billion request for aid, including both grants and loans. Airlines elsewhere have made similar asks to their governments.

Related: US airlines seek at least $50 billion in aid to combat coronavirus crisis

"What has happened with this pandemic has been debilitating, and the deterioration of business has been incapacitating," Airlines for America (A4A) president and CEO Nicholas Calio said on NPR's Morning Edition Tuesday. A4A is the industry group representing U.S. carriers.

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Globally, IATA director general Alexandre de Juniac estimates that airlines will need more than $200 billion in aid to get through the crisis. His estimate includes the $50 billion request in the U.S.

"If we want to maintain a strong airline sector, able to cope with this difficult crisis but able also to provide the resources that the recovery [will need]... we need government to act quickly," said de Juniac.

Related: Coronavirus crisis raises questions about the survival of already-struggling airlines

Even with government support, IATA expects changes in the airline industry when global economies emerge from this crisis. Fewer players are likely from some combination of consolidation and shut downs.

“It is clear that we will see… probably consolidation, [and] unfortunately some airlines will be disappearing," said de Juniac.

Already, the UK's largest regional carrier Flybe ceased operations due to the crisis.

Some airlines could benefit from an industry cull. In a report Monday, J.P. Morgan analysts forecast that Air Canada, American Airlines, Delta Air Lines and United Airlines could see stronger financial returns on transatlantic routes after the crisis if some weaker players stop flying. European carriers were not mentioned as the scope of the report was limited to the airlines covered by the bank's North American analysts.

Related: US ‘big 3’ well-positioned to survive possible coronavirus crisis shakeout

And the crisis will end. Pearce at IATA said that airlines in China, where the coronavirus outbreak first began in January, have already begun resuming flights and loads -- or the percent of seats that are filled -- are trending above 60%.

“We are seeing a recovery phase in China, but certainly that is not the case in Europe and North America," he said.

Featured image by AFP/Getty Images

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Best for the well-traveled foodie
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

4XEarn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S.
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    $250
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
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Why We Chose It

There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.

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  • Not as useful for those living outside the U.S.
  • Some may have trouble using Uber/food credits
  • Few travel perks and protections
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
  • Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
  • $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
  • Choose the color that suits your style. Gold or Rose Gold.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees