Global airlines are grappling with a severe cash shortage and require urgent financial assistance from governments as the Covid-19 outbreak brings down air travel demand to zero for many operators, the International Air Transport Association (Iata) said.
About 75 per cent of airlines around the world have less than three months worth of cash and cash-equivalents to cover their fixed costs and are now quickly running out of liquidity, Brian Pearce, chief economist of Iata, said on Tuesday.
"We are in a very, very tough liquidity crisis, so we ask governments to act urgently," said Alexandre de Juniac, Iata's director general. "If we want to maintain a strong airline sector able to cope with this crisis and provide resources to ensure the recovery will happen in time, we need governments to act strongly and quickly."
Airlines worldwide shrank their capacity and axed jobs in efforts to preserve cash as the pandemic continues to spread in more countries, forcing governments to shut borders and tighten travel bans.
Iata estimates that airlines around the world will need between $150 billion to $200bn in government aid and financial measures to survive the crisis. This came after trade group Airlines for America called on the US government to provide $58bn in grants, loans and tax relief to US airlines.
However, if the crisis continues at this pace, it will change the aviation industry landscape, with some airlines collapsing, others consolidating and new groups forming, Mr de Juniac said.
In a March 5 report, Iata projected a worst case scenario in which airlines lose $113bn in passenger revenues and see demand shrink 16 per cent this year.
That revenue loss figure is now “undoubtedly too low," Mr Pearce said. The forecast was issued before the suspension of lucrative transatlantic travel routes between the US and Europe as well as other travel bans that diminished air travel demand to zero in many markets.
“The situation is worse than we thought it would be,” he said.
Bankruptcy for many airlines is "clearly a risk" in the short-term as they run out of cash and fail to sustain their operations, he added.
Credit ratings agency S&P forecast a decline of 20 to 30 per cent in the number of global passengers in 2020, compared to a year ago, and expects full recovery only in 2022-2023, it said in a March 17 report.
"This view takes into account the coronavirus's rapid spread to over 125 countries and the severity of lockdown measures to contain the coronavirus, given the risk of contagion," S&P said. "In addition, economic growth is heading sharply lower against a backdrop of volatile markets and growing credit stress."
Iata is calling on governments to support airlines through loans and loan guarantees, support for corporate bond markets, reduce taxes, overflight fees, airport charges and ease airport slot rules.
“We are pretty satisfied at this stage, and it’s an early stage, by the reactions and attitude of governments,” Mr de Juniac said. “We’re pushing hard and governments are listening.”
Meanwhile, Mr Pearce said the current drop in oil prices will save the aviation industry about $25bn to $28bn on its jet fuel bill but is not enough to offset revenue losses.