How long will US airlines' cash last? Between 4 months and a year, analyst says
U.S. airlines have enough cash, on average, to survive nearly eight months before they face the prospect of bankruptcy or worse, a new report from Raymond James finds.
The industry has enough cash to cover its bills — in other words cash-on-hand minus how much an airline must spend daily — for an average of 7.9 months, the report on April 5 finds. The analysis finds that American Airlines, which has the most debt among U.S. carriers, only has enough cash to cover only about 4.8 months of expenses while regional SkyWest Airlines has cash to cover nearly a year.
The estimates do not include any potential CARES Act grants that at least eight carriers applied for on April 3. Raymond James analysts said the aid could slow airlines' cash burn by about half, theoretically doubling the number of months they would be able to cover.
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U.S. airlines are in the enviable position of being among the best capitalized around the world. The International Air Transport Association (IATA) has estimated that carriers around the globe only have about three months of cash on hand, on average. The organization has warned that around half of airlines could collapse or consolidate without government support.
"At times like this, it’s actually balance sheets that are critical to survival," said IATA chief economist Brian Pearce during a press briefing in March.
Lack of liquidity — another word for cash — has proven a deciding factor in many recent airline collapses. This felled both Thomas Cook and WOW air in 2019, and regional RavnAir Group in Alaska stopped flying and filed for bankruptcy when it could not secure needed operating funds.
This is also why many airlines, to the annoyance of numerous travelers, are issuing certificates for the value of cancelled trips rather than offering refunds. The goal is to hold onto as much as cash as possible.
Related: It may be years until passenger demand returns to 2019 levels for US airlines
Despite being well capitalized and having access to CARES funds, U.S. airlines are not out of the woods. American's decision to pay for the majority of its new aircraft deliveries in recent years with debt resulted in its having $21.5 billion in outstanding long-term debt at the end of December. The airline also maintained a high cash balance, with $3.8 billion on hand at the end of the year.
American had $12.4 billion in debt payments and other obligations due this year for things such as aircraft lease payments, according to its 2019 annual report. This equals just over $1 billion in fixed expenses monthly.
"The margin for error for American management to navigate this crisis outside of the courts is growing uncomfortably thin," wrote J.P. Morgan analyst Jamie Baker in a report on Monday.
Both J.P. Morgan and Raymond James note in their respective reports that airlines, including American, have not tapped every credit source that they can. Many also have additional assets, like aircraft, that they can use as collateral for new loans.
The CARES Act also includes $25 billion for loans to airlines that have exhausted all other options to raise liquidity. The funds are in addition to the grants that carriers have already applied for.
Related: American, Delta, United among first applicants for coronavirus aid
Airlines are still in the process of winding down their operations and adjusting to the current reality of near-zero demand for air travel. The peak of COVID-19 cases in many parts of the U.S. is not expected for weeks — maybe months — to come suggesting demand could stay depressed for some time.
Analysts expect a smaller industry when things come back. Several Wall Street estimates put the number of travelers flying in 2021 at roughly four-fifths the number in 2019 — or back to about 2013 passenger levels.
Airlines will have to shrink everything from their maps to their fleets and their workforces in the face of a 20% smaller industry.
Related: How will airlines rebuild their route maps after the coronavirus?
Raymond James’ “Cash Burn Forecast”
- SkyWest: 11.8 months of implied cash on hand*
- Allegiant: 10.6 months
- Southwest: 9.4 months
- Spirit: 8.8 months
- JetBlue: 8.7 months
- Alaska: 6.6 months
- Mesa: 6.3 months
- Delta: 6.2 months
- United: 5.7 months
- American: 4.8 months
* = Raymond James calculated "implied months of cash on hand” by analyzing each carriers' cash and credit reserves, and estimated cash burn. The calculations do not include any possible government funds from the CARES Act.
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
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You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
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Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. 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, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.