Airlines face $314 billion bath as economy dives

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.