Coronavirus is today a threat to the economic growth of the region and the world
Among the industries most affected by this virus that originated in December in China are airlines, due to the decision to suspend flights, in order to prevent further spread. Million-dollar economic losses are expected.
Airlines are beginning to feel the first devastating impacts, the demand for tickets decreased rapidly in both regional and international airlines, as people canceled both leisure and business flights; in addition to entry and exit restriction measures taken by some countries in the world.
The International Air Transport Association (IATA) warned that the industry could need up to 200 billion USD in emergency aid, an idea that was also supported by the Latin American and Caribbean Air Transport Association (ALTA), which maintained that, without help from the governments, companies will suffer a pandemic of bankruptcies.
Notably, the virus outbreak erased 41% (or 157 billion USD) of the market value of the world’s 116 publicly traded airlines and many are consuming their cash so fast that they can now cover less than two months of expenses. Due to this, several entrepreneurs in the aeronautical sector announced the need for measures to help the most affected companies.
Airlines and decisions of some governments
Given this situation, most airlines see their revenues drop dramatically, which is not enough to cover the high overhead costs required to stay operational.
With this scenario, for example, the Italian government announced that it will re-nationalize the airline Alitalia.
The United States Senate will help with 50 billion USD in loans for airlines with money problems, Delta notified the US Securities and Exchange Commission (SEC) that it will cut 50% the salary to its senior executives and will cut its operations to a third of its capacity, while Latam would cut its employees’ salaries by 50% for three months.
The Australian government would refinance and exempt airlines, such as domestic air traffic control fees, from charges of 430 million USD. Notably, Qantas Airways has already suspended most of its employees and canceled all international flights from the end of March to the end of May.
The association that regulates Taiwan’s civil aviation said its airlines could apply for grants and loans with retroactive dates to January 15.
Flybe, the British low-cost airline carried eight million passengers a year between 56 airports in the UK and Europe with more than 210 routes in 15 countries. Due to this crisis, bankruptcy was declared.
Regarding Brazil, the Minister of Infrastructure, Tarcísio Gomes de Freitas, announced a series of measures that aim to alleviate the economic impact that the coronavirus pandemic is having on the different actors of air transport. It should be noted that around 85% of international flights and 50% of domestic flights were canceled in Brazil due to the drop in demand and the border restrictions put in place by various governments in the region and the world. In this way, the ministry assured that they are anticipating the problems that may arise from this crisis.
Complicated situation in the region
Five of the region’s largest airlines, Latam Airlines Group SA, Gol Linhas Aereas Inteligentes SA, Azul SA, Avianca and Volaris have seen 12 billion USD disappear from their market value since the end of January. On average, its shares fell 78% in local currency terms.
Latin American companies, which operate away from China and have almost no direct flights to Asia, were not expected to feel the same massive impacts as in other parts of the world when the coronavirus chaos began earlier this year. The region’s major airlines are now giving in alongside their American and European counterparts, highlighting how quickly the crisis has affected the entire industry. Avianca would be the riskiest company in this regard, considering its high leverage. Bonds expiring in 2023 fell to 30 cents on the dollar and Aeromexico bonds expiring in 2025 were also affected.
The Panamanian airline Copa is the one that is best. The company has less debt and has guarantees to pay a loan, maintains a solid financial position, with low leverage and high liquidity. Likewise, it reduced capacity by 80% for April and does not rule out a temporary closure of its operations.
ALTA expressed concern about the Coronavirus, its impact on airlines and how it can affect regional economies, which are a driver for multiple sectors of the global economy.
The airline industry was growing in Latin America and the Caribbean and, in 2019, reached its sixteenth consecutive year of growth, with more than 300 million passengers carried by airlines in the region. The travel and tourism industry had consolidated itself as an important engine of the economies, representing 15.5% of the GDP of the Caribbean and 9.3% of Latin America, generating 13.5% of jobs in the Caribbean and 8.2% in Latin America.
Due to this pandemic, ALTA asked the region to maintain fluid contact with the airlines to effectively inform and coordinate any entry control measure or health form required by the different States, to make the allocation rules for “Slots” more flexible in Airports as an exceptional measure to ensure that demand drops or flight cancellations do not affect the historical compliance of the airlines necessary for planning the next flight season, generally reducing costs to the industry to mitigate the impact caused by this exceptional situation (taxes, rates and charges) and adjust working conditions as a contingency measure to guarantee jobs in the industry during this public health emergency situation. It is important to highlight that ALTA made itself available to the authorities of the region to evaluate the recommended measures and act on policies aligned with the recommendations of the World Health Organization as urgent measures to minimize the spread of the virus, while guaranteeing the viability of the industry while the stability of operations resumes.
In every crisis there is always an opportunity: private jets
This time it was the turn of private jets, who have benefited in recent weeks due to the number of commercial airline flight closings. The private jet charter operators in the United States, operating under Federal Aviation Regulations (FAR) 135, benefited from the situation, causing their demand to increase significantly: multiplied by 10. For example, flights from Miami to New York, which may be in the order of $ 20,000 on a midsize jet, are being booked in advance and some operators have their planes with reservations booked.
Generally, most of these types of flights are carried out by people of high economic level, although with this pandemic there were cases of people who never flew in a private plane.
As this pandemic continues, the aviation business is expected to worsen.