More than half of global airlines could ‘die’ without aid, says IATA
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
International Air Transport Association (IATA) director general Alexandre de Juniac painted a grim picture of the novel coronavirus pandemic, saying more than half of air carriers globally could “die” without immediate government aid.
“We clearly need massive action very quickly, urgently,” he told reporters on Tuesday. De Juniac repeated his push for governments around the world to provide airlines with more than $200 billion in aid to bridge the crisis.
The cash crunch from the crisis is the biggest risk to airlines. Revenues have fallen to near zero for most carriers. But fixed costs, like airplane rents and employee payroll, remain on the books, rapidly depleting liquidity — or cash — reserves. Most airline collapses occur when their cash and access to credit runs out.
By “die,” de Juniac referred to a likely wave of both airline collapses and mergers.
Airlines in Europe, where consolidation is years behind the U.S. and travel restrictions are limiting flows across what are normally some the world’s most porous of borders, are the most at risk, said IATA chief economist Brian Pearce on Tuesday.
Norwegian Air is repeatedly at the top of most Wall Street analysts’ lists of airlines to watch. The Oslo-based carrier has slashed schedules by more than 85% and laid off the majority of its workforce to try and get through the crisis, which has seen demand for air travel plummet as governments’ have closed borders and people are staying home to slow the spread of COVID-19.
However, in a glimmer of hope for the discounter, Norwegian said Tuesday that it had secured an initial cash infusion of 300 million Norwegian kroner ($27 million) from the government.
Norwegian is far from alone. The CEO of International Airlines Group (IAG) subsidiary British Airways has talked about the carrier’s “survival” in communiqué with staff. And the Lufthansa Group — which includes Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa and Swiss International Air Lines — has grounded more than 90% of its fleet in response to the crisis.
Ryanair, by far the most successful and largest European low-cost carrier, said on Twitter Tuesday that it will suspend “most of our flights” from March 24.
A message to all Ryanair Group customers: pic.twitter.com/nzDhDt9jz4
— Ryanair (@Ryanair) March 24, 2020
“There is a very large number of airlines, hundreds, that are more or less breaking even or producing losses,” said Pearce when asked more about how many carriers are at risk.
Under IATA’s latest estimate, global aviation revenues are expected to fall by over $250 billion in 2020. This is more than double the organization’s previous estimate of a $113 billion loss.
“This is a tremendous revenue shock,” said Peace.
U.S. airlines have asked the government for at least $50 billion in aid to bridge them through the crisis. According to the latest reports on the negotiations, the package could include $25 billion in grants to passenger carriers for employee salaries, plus another $25 billion in loans to cover other fixed costs.
Any aid deal is expected to include limits on executive salaries, as well as investor returns like dividends and share buybacks.
The talks have not progressed fast enough for at least two airlines. Regional affiliates Compass Airlines and Trans States Airlines will both shut their doors in April citing the unexpectedly rapid drawdown in capacity by their partners, American Airlines and United Airlines respectively. The move, however, may bolster other regional carriers by removing some excess capacity from the industry, reported The Air Current on Monday.
“For the weakest airlines of our industry it will not solve the structural problems… but for the moment we are focused on injecting cash for everyone, and then we will deal with the weakest,” de Juniac said about the aid being sought.
IATA aims to bring airlines through the immediate crisis, and then let the market be the sorting hat of sorts during what is expected to be a slow, U-shaped recovery after.
Featured image by Artur Widak/NurPhoto via Getty Images.
WELCOME OFFER: 60,000 Points
TPG'S BONUS VALUATION*: $1,200
CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 60,000 points are worth $750 toward travel
- Get unlimited deliveries with a $0 delivery fee and reduced service fees on orders over $12 for a minimum of one year on qualifying food purchases with DashPass, DoorDash's subscription service. Activate by 12/31/21.
- Earn 5X points on Lyft rides through March 2022. That’s 3X points in addition to the 2X points you already earn on travel.