It’s not going well for airlines. During a choppy press briefing held on Microsoft Meetings that was peppered with technical glitches as staff of the global airline industry association work from home, IATA officials painted a bleak picture for the airline industry if they cannot quickly gain access to capital.
International Air Transport Association (IATA) chief executive Alexandre de Juniac speaks during the ... [+]
Brian Pearce, IATA’s chief economist, stated that airlines are running short of operating capital. Only the top 30 airlines have sufficient liquidity to survive a prolonged retraction in demand while the rest of the world’s airlines are more heavily burdened by debt and 75% of airlines have less than three months of capital to cover their costs, he said. “There are a number of airlines that have cash to weather this,” Pearce said, “but the majority are in a vulnerable place.”
He said that, on average, the world’s airlines currently carry debt that is about four times earnings. “There is a group of airlines that have strong balance sheets, but they are a relatively small number,” Pearce said.
Airlines are asking governments to get creative with their support offering direct financial support in terms of emergency funding or access too credit but also to consider measures that would help reduce their cost burden, including the elimination of payroll taxes, passenger duty taxes, environmental taxes and even some consumer rights protections, particularly the EU’s rules on passenger compensation for delays and cancellations.
“We need big financial measures,” Alexandre de Juniac, IATA’s Director General and CEO said. “Timing is critical. We are in a liquidity crisis and we ask governments to act urgently.”
Asked to put a figure on the damage—with U.S. airlines, which are among the best in the world in terms of liquidity having asked the U.S. government for $50 billion to get them through—de Juniac estimated the global need around $150 billion to $200 billion.
De Juniac recognized that other sectors will also need help, but said that their plea for airlines was “not selfish.” He pointed to the crucial role airlines play in logistics during and after the global COVID-19 pandemic, including transport of goods and critical medical supplies, fresh food, raw materials and technology.
“Air connectivity is also crucial to ensure that the recovery will be fast and significant,” de Juniac said. “We want to maintain an airline sector that can cope with this crisis and ensure that the recovery happens with appropriate speed.”
Asked to predict what shape the future recovery might take, Pearce was cautious. During previous outbreaks, like Ebola and SARS, recovery took six to nine months, but COVID-19 is upending models.
“I think the challenge to the airline industry is that this has spread globally ... it will extend the period of recovery. The question is whether airlines can last that long without support. Large parts of the industry might not be there because they are running out of cash.”
Asked whether his initial prediction of $113 billion in revenue loses was adequate to reflect the damage of the pandemic, Pearce said no. “The assumption was that airlines would face a Chinese-style fall on demand, but not a near-full closure. The situation is worse than we thought it would be.”
But Pearce emphasised that even airlines which are cash strapped because of debt had otherwise good fundamentals. “Many of those airlines were very profitable before this crisis. It is not a solvency crisis,” he said.
