It’s no secret that this spring has been the roughest time in history for the world’s airlines. We went from consistent growth and expansion in the industry to the most rapid shrink in demand and revenues in decades. The coronavirus pandemic has eclipsed both September 11, 2001 and the SARS epidemic in both its speed and severity of financial impact.
With revenues dried up and no rainy day funds, many airlines have had to turn to governments for cash. So far, they have been bailed out around the world, to the tune of $123 billion USD.
Aid Is Massive, But Not Universal
What stood out to me was which airlines have been bailed out and by how much. There are huge regional variations. The U.S. airlines have been offered aid that is approximately a quarter of their 2019 revenue. Other regions have offered carriers far less, with an average of 15% of annual revenue in Europe and just 10% in Asia. South America is offering the least aid to their airlines, which is likely one of the reasons LATAM just entered chapter 11 bankruptcy. This comes on the heels of a large investment by Delta and new prospects for the airline. I hope they survive.
Of the $123 bailout, roughly half will need to be repaid by the airlines. It will likely take them a while to do so, and there is always the chance governments offer them even more relief. In some cases, the government is taking an outright stake in the airline as part of the bailout terms, which is the case with Lufthansa.
Conclusion
Airlines are taking on a massive amount of debt this year, that much is certain. I’d fully expect to see a few more go under, even with the aid that has been offered them. Some airlines weren’t well positioned to begin with, and the pandemic has just made things way worse. What I hope we don’t see are governments continuing to finance airlines that can’t turn their operations around, even when travel begins to normalize. My fear is that it will take too long for the industry to rebound.
H/T: Tech Xplore
LATAM must shut down and go! LATAM is the cheapest quality under WorldOne and Skyteam alliances.
I mean, there isn’t a Latin American airlines with a stellar reputation. They still need all of them. At least they did until COVID-19 hit. We’ll see what emerges from this mess.
All the governments are trying their best to support airline industry so they should become back to normal as soon as possible