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  • OTVI.USA
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  • TLT.USA
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  • TSTOPVRPM.ATLPHL
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Air CargoAmerican ShipperNews

Airlines face $314 billion bath as economy dives

Industry trade group warns of failures without government bailouts

The global airline industry will generate $314 billion less revenue this year than in 2019 because the coronavirus pandemic has decimated air travel, according to the International Air Transport Association (IATA). The figure represents a 55% drop in business that is putting airlines at risk of going under and will take years to recover from for those that survive, analysts say.

Just three weeks ago, the trade group estimated airline revenues would fall $252 billion short of last year’s total in a worst-case scenario that assumed travel restrictions would remain in place through June. That scenario is now reality – and could even get worse..

IATA said Tuesday its updated analysis is based on expectations that severe domestic restrictions will last three months and that some restrictions on international travel will extend even further. The March analysis also factored in less impact in Africa and Latin America, which at the time had experienced limited spread of the novel coronavirus.

Recently, China and South Korea placed new, strict restrictions on international travel after initial lockdowns successfully contained the spread of coronavirus because they don’t want to risk a second outbreak being brought back from outside.

Worldwide flights are down almost 80% from a year ago, with fleets virtually grounded outside the U.S. and Asia domestic markets. 

Full-year passenger demand is expected to drop almost by half compared to 2019, IATA said, because of the travel restrictions and forecasts for a much deeper recession that is expected to shrink global output by 6% in the second quarter.

Last week, IATA projected that airlines could shed 2.7 million jobs, with an additional 22.3 million aviation-related jobs at risk because of the COVID-19 crisis.

Airlines and labor unions are pleading with governments for a financial lifeline and many are responding. The question is whether it will be enough. IATA estimates airlines will burn through $61 billion in cash in the second quarter alone, despite draconian measures to reduce expenditures.

The U.S. government is providing more than $50 billion to airlines in direct grants, loans, loan guarantees and tax abatements, but the industry is concerned about new Trump administration rules that would turn a portion of the grants for payroll protection into loans that would have to be paid back.

Airlines are also drawing down credit lines and taking out loans, but the added debt leverage will likely slow future growth and rehiring of furloughed employees.

“The industry’s outlook grows darker by the day. The scale of the crisis makes a sharp, V-shaped recovery unlikely. Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market,” IATA Director General Alexandre de Juniac said at a media briefing. “Without urgent relief, many airlines will not survive to lead the economic recovery.”

He said airlines won’t see new business until passengers feel safe about traveling, that they won’t be interrupted by the disease or by quarantine restrictions, and are confident in the economic situation.

U.S. domestic airlines will be 20% to 30% smaller by the end of the year, with 100,000 to 200,000 fewer employees and 800 to 1,000 planes retired, Cowen aviation analyst Helane Becker predicted in a research note.

“Demand is 5% of what it was in February, and we continue to believe it will take three to five years for domestic demand to return to 2019 levels and four to six years for international demand to get back to those levels,” she said.

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Eric Kulisch, Air Cargo Editor

Eric is the Air Cargo Market Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com

5 Comments

  1. I feel bad but not that bad for the airlines. As a person who until last year logged over 120,000 miles per year for work and whose wife and children live in Latin America and I still travel home until recently a few times a month I have mixed emotions. The airlines (all of them) want help from the tax payers via the U.S. government but have had no problem sticking it to those same people when they were customers. From bag fees to ticket changes to wanting an obscene amount of money to get a “premium seat” to last minute cancellations they all at times seem to have little regard to the people who they now seek a bail out from.
    Maybe the CEO and board of directors should have thought about this before paying out such huge salaries and bonuses. Or, what about the unions who pad the maintenance payrolls and foster an unhealthy work ethic among the rank and file of it’s members.
    Before we bail out the airlines, let’s help our barbers who need it more and have never taken advantage of us.

    1. Thank you for reading and for your comments, Mr. Crum. I have some of the same feelings regarding all the fees. But remember, this stimulus money is supposed to go directly to the employees to keep them employed. Thing is, most other industries aren’t getting that help and many airline workers will still be laid off eventually because there won’t be enough business to bring them all back. It’s a tough policy choice, but I wouldn’t think about it in terms of the big, bad airlines, but more about what’s needed for the economy. But you raise some good points.

      1. PPP loans are a scam to artificially lower unemployment #s and will be prone to abuse and mismamagement.

        The tax paying middle class majority will be on the hook for companys’ mismanagement and lack of financial reserves.

    2. Airlines spent billions on share buy backs so executives could increase their stock option compensation.

      Now they need the same billions of $$$s from govt/taxpayers.

      What a scam.
      Screw them.
      Let them fail and go bankrupt.
      The investors took risks and now must pay for mismanagement.

  2. These bail outs benefit risk taking investors.

    Enough with bailing out wealthy. Let companies bankrupt or lose money.
    The employees have unemployment just like the rest of us.

    The savings job quote is old and BS.
    It’s more about serving special interests.

    Business is risk.
    Investing is risk.
    If everyone will be bailed out, no business will save funds for bad times.

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