Airlines face liquidity crunch amid $250+ billion lost passenger revenue: IATA

Global airlines need around $200 billion financial aid in coming weeks because of the liquidity crunch resulting from the coronavirus pandemic, which will cost the industry over $250 billion in lost passenger revenue this year, International Air Transport Association officials said Tuesday.

IATA more than doubled its estimate of lost passenger revenue — compared with its previous estimate of $113 billion in a worst-case scenario — as more countries close borders, impose flight restrictions and the global economy slides into recession.

The revenue loss is due to a 38% fall in global passenger demand, IATA officials said.

This is “the deepest crisis we have ever had in our industry”, IATA CEO Alexandre de Juniac said in a briefing.

“We have a liquidity crisis that is coming at full speed. We desperately need some cash. We need massive actions very quickly, urgently. Almost half of the companies’ could die in the coming weeks.”

IATA, which represents 290 airlines or 82% of total air traffic, said governments should provide financial relief in any form, grants, loans, loan guarantees, tax relief, cash and equity injections among other tools.

“We have never seen a pandemic coincide with a deep global recession which is now expected,” IATA chief economist Brian Pearce said. “That will almost certainly mean travel recovery, once travel restrictions are lifted, will delay the recovery.”

Cash burn

Airlines have had to lay off staff, ground planes and lower costs as they try to stay afloat.

Airlines in Europe are at most of risk of collapsing because of intensifying flight restriction and border closures, Pearce said.

“The typical airline had about two months’ worth of cash and cash equivalent at the start of the year,” he said. “There is a very large number of airlines, hundreds, which more or less were breaking even or indeed making losses.”

The aviation industry crisis has hit oil and jet fuel prices and demand globally. The outright price of FOB Singapore jet fuel is at the lowest level since March 2002, S&P Global Platts data showed.

Brent, which averaged $64/b in 2019, is currently trading around $30/b as the coronavirus pandemic and the oil deluge into markets from major exporters like Saudi Arabia at a time of weak global demand.

China crisis

There has been an improvement in domestic demand in China as the number of local coronavirus cases drops and travel restrictions are slowly lifted.

There were signs of recovery in the Chinese local travel market, with the load factor in domestic travel around 60% and likely to improve with the lifting of restrictions, de Juniac said.

“China is slowly going back to work and that is an encouraging sign, but that is not improving the international situation because of all the imported cases of COVID-19,” Pearce said.

As oil prices dipped to levels not seen in nearly two decades, US shale operators slashed budgets and rig counts and braced for a hellish few months, if not years. Is even a modest price rebound possible in the near term? Will Saudi Arabia and Russia return to talks over a new supply cut? Has the price collapse forever altered US oil sanctions policy?

On today’s Capitol Crude Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, talks about the path forward for US shale, the potential for a US import embargo and why resurrection of a global supply cut may be possible.

“The question is: Did the Russians know that they were signing up for the current price environment?” Croft asks.

Pix: An international airline