18 Mar 2020
Posted in Coronavirus
Government intervention needed to stop airlines going out of business, says GlobalData
Travel restrictions are being deployed as a key weapon in the war against the coronavirus (COVID-19). Much publicized bans and restrictions have decimated the airline industry, forcing widespread capacity cuts and leaving many airlines fighting for survival. It is now almost certain that government intervention will be required to stop a number of airlines going out of business, says GlobalData, a leading data and analytics company.
Nicholas Wyatt, Head of R&A Travel and Tourism at GlobalData, comments: “Such a request now looks to be very much a case of when rather than if. Governments will be forced to step in and either bail out airlines directly or extend support by way of ‘time to pay’ and tax relief arrangements. Even if there is public opposition to such intervention, governments will be left with no choice but to intervene and save what is, in some countries, a systemically important industry.”
Despite taking measures such as capacity cutting and asking staff to take extended periods of unpaid leave, the danger is that airlines the world over will burn through cash over the coming weeks and months.
Companies are often under pressure not to sit on large cash reserves but decisions taken by several airlines to buy back their own shares will likely come under serious scrutiny, especially when airlines are forced to ask governments for support.
Wyatt concludes: “In the US the assistance required could exceed US$50bn according to the Wall Street Journal. Despite this, the Trump administration has said it plans to back the airline industry “100%”, illustrating just how grave the situation is. We can expect other governments to make similar noises in the coming weeks as this unprecedented crisis takes hold and which, according to IATA, could cost the industry US$113bn in lost revenues this year.”