Many airlines at risk of bankruptcy as industry faces cash crisis: IATA

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The COVID-19 pandemic has plunged airlines into a cash crisis that threatens the existence of a “large part” of the global industry.

Brian Pearce, economist at International Air Travel Association, said revenue losses have already reached the industry group’s worst-case estimate of lost revenue of US$113-billion.

Mr. Pearce said most airlines have enough money to survive for three months, but that a recovery is more than six to nine months away, based on past periods of regional epidemics. “The challenge we face today is can airlines last that long before they run out of cash?”

The outbreak of the virus has reached countries that account for 94 per cent of the global airline market, as governments close borders, ban international travel and tell people to stay home.

WestJet Airlines Ltd. said it will suspend international and transborder flights on March 22, and reduce domestic capacity by about 50 per cent. Leisure carrier Sunwing Airlines Inc. has suspended all flights to holiday destinations in order to focus on bringing Canadians home from from Honduras, Aruba and Panama, which announced plans to close their borders.

“This is now affecting the entirety of air transport,” Mr. Pearce said on a conference call with reporters on Tuesday morning. “Demand for the business of many airlines has fallen to zero. … Airlines are running out of cash and are not able to sustain operations.”

Airline Revenue Plummets

Global airline industry group IATA says the sit-

uation is already worse than the worst-case

scenario in its recent forecast.

Impact on passenger

revenue (Billion US$)

Market

Australia, China, Japan, Malaysia,

Sing., S. Korea, Thailand, Vietnam

-$49.7

APAC excluding the above

-7.6

Austria, France, Italy, Germany,

Netherlands, Norway, Spain,

Switzerland, Sweden, Britain

-37.3

Europe excluding the above

-6.6

Bahrain, Iraq, Iran, Kuwait,

Lebanon, UAE

-4.9

Middle East excluding the above

-2.3

Canada, United States

-21.1

Note: Revenues are base fare revenues for all airlines

serving routes to, from and within each country.

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: iata economics

Airline Revenue Plummets

Global airline industry group IATA says the situation is

already worse than the worst-case scenario in its

recent forecast.

Impact on passenger

revenue (Billion US$)

Market

Australia, China, Japan, Malaysia,

Sing., S. Korea, Thailand, Vietnam

-$49.7

APAC excluding the above

-7.6

Austria, France, Italy, Germany,

Netherlands, Norway, Spain,

Switzerland, Sweden, Britain

-37.3

Europe excluding the above

-6.6

Bahrain, Iraq, Iran, Kuwait,

Lebanon, UAE

-4.9

Middle East excluding the above

-2.3

Canada, United States

-21.1

Note: Revenues are base fare revenues for all airlines serving routes to, from and within each country.

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: iata economics

Airline Revenue Plummets

Global airline industry group IATA says the situation is already worse

than the worst-case scenario in its recent forecast.

Impact on passenger

revenue (Billion US$)

Impact on

pass. numbers

Market

Australia, China, Japan, Malaysia,

Sing., S. Korea, Thailand, Vietnam

-$49.7

-23%

APAC excluding the above

-7.6

-9%

Austria, France, Italy, Germany,

Netherlands, Norway, Spain,

Switzerland, Sweden, Britain

-37.3

-24%

Europe excluding the above

-6.6

-9%

Bahrain, Iraq, Iran, Kuwait,

Lebanon, UAE

-4.9

-23%

Middle East excluding the above

-2.3

-9%

Canada, United States

-21.1

-10%

Note: Revenues are base fare revenues for all airlines serving routes to, from and within each country.

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: iata economics

Alexandre de Juniac, head of IATA, outlined a list of aid the group is asking governments to provide, including reduced airport fees, income tax breaks and loan guarantees. He said the cost of such measures could reach US$150-billion to US$200-billion. “We need government to act strongly and quickly,” Mr. de Juniac said from Geneva.

He said the Chinese airline market is recovering as the virus outbreak there subsides, but that all other markets including North America, Europe and Africa are “deteriorating rapidly.”

“Unfortunately, some airlines will be disappearing,” Mr. de Juniac said.

While about 30 of the world’s airlines have emerged from recent recessions and crises to become profitable with low debt levels, three-quarters of the airlines were in a fragile state even before the COVID-19 pandemic, carrying large debts in a low-margin business, Mr. Pearce said.

Canada’s largest airline, Air Canada, had $2-billion in cash and cash equivalents and short-term investments worth $3.8-billion on Dec. 31. The Montreal-based carrier said on Monday it has the financial resources to survive the crisis even as the company’s stock price tumbles along with the rest of the industry’s.

Konark Gupta, a Bank of Nova Scotia stock analyst, has reduced his outlook for Air Canada’s 2020 profit by about 66 per cent. But he said in a research the state of Air Canada’s balance sheet gives him confidence the company will rebound in 2021. “We view the ongoing challenges as transitionary in nature and expect [Air Canada] to survive better than most airlines globally due to its solid balance sheet and pension surplus,” Mr. Gupta said.

WestJet, Canada’s second-biggest airline, was bought by Onex Corp. for $3.5-billion in December and no longer releases detailed financial results. In the third quarter of 2019, WestJet had $1.3-billion in cash and equivalents at the end of the third quarter of 2019.

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