As coronavirus continues to sweep through several countries, aviation experts have warned that most major airlines in the world may go bankrupt by end of May if different governments don’t quickly intervene.
The warning came shortly before the U.S president Trump said the U.S “may be” headed toward a recession as the economy continues to be battered amid the coronavirus outbreak.
Trump spoke to reporters Monday March 16 at a White House briefing as cases in the U.S. continue to spike.
“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” the Centre for Aviation (CAPA), an international market research firm for the aviation and travel industry, said on Monday.
Airlines around the world have announced drastic reduction in operations in the wake of coronavirus outbreak. For example, Atlanta-based Delta Air Lines said on Sunday that it would be grounding 300 aircraft in its fleet and reduce flights by 40 per cent.
The US has placed restrictions to all travels from China, Europe, UK and Ireland and some other countries to the US.
CAPA said that “By the end of May-2020, most airlines in the world will be bankrupt. Therefore, coordinated government and industry action is needed – now – if catastrophe is to be avoided.”
Cash reserves are running down quickly as fleets are grounded and “what flights there are operated much less than half full”, CAPA stated.
“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon,” it said.
CAPA said the failure to coordinate the future will result in protectionism and much less competition.
“The alternative does not bear thinking about. An unstructured and nationalistic outcome will not be survival of the fittest.
“It will mostly consist of airlines that are the biggest and the best-supported by their governments. The system will reek of nationalism. And it will not serve the needs of the 21st century world. That is not a prospect that any responsible government.
“This is a today problem, not a tomorrow problem,” Airlines for America (A4A) president and CEO Nicholas E. Calio said in a statement. “It requires urgent action.”
The COVID-19 outbreak and the resulting government and business-imposed travel restrictions are having an “unprecedented and debilitating impact on U.S. airlines,” A4A said, adding that demand is “getting worse by the day.”
The group called for grants, loans and tax relief to help alleviate the economic crisis. U.S. airlines directly employ 750,000 people and support an additional 10 million more jobs, according to its data.
In A4A’s “pessimistic” scenario, which it calls “most likely,” it would mean all seven passenger carriers they represent — including Delta, United and American — could run out of money between June 30 and the end of the year.
Even in an “optimistic” scenario, A4A forecasts a 59% drop in net liquidity for the passenger carriers by the end of the year.
The airline and travel industry is among the hardest hit by the COVID-19 pandemic and some airlines have said they will lay off workers due to travel restrictions.
Norwegian Airlines announced last week temporary layoffs of up to 50% of its workforce, adding that this figure may even increase.
United Airlines said in a memo that it has started having conversations with union leaders about reducing payroll expenses, and that furloughs and layoffs were a very real possibility.