With so many airlines asking for government aid at the moment, you’d be forgiven for thinking that many of them were on the verge of bankruptcy before the impact of the outbreak. In reality, most airlines don’t keep much in terms of cash in the bank. So, for the airlines which are now having to refund thousands of customers, cash flow is becoming a major problem. But some airlines have plenty of available cash and are sitting pretty, while some are desperately scraping the coffers for spare change.
According to research published by the Bank of America, Head For Points concluded that both Wizz Air and Turkish Airlines are in the best position when it comes to liquidity. Both airlines have the cash available to refund all sold tickets on canceled flights three times over.
Ryanair is close behind in a strong position. If it was forced to refund all sold tickets for upcoming canceled flights, then just 52% of its cash reserves would be gone.
Middle of the pack
Although not exactly in a comfortable position, IAG is also not shaking in its boots and praying for a miracle. 75% of the group’s cash in the bank comes from booked tickets on canceled flights; that’s around €3.5billion ($3.8 billion) according to their end of year accounts for 2019.
Air France-KLM is also in a relatively strong position in that the group could technically find the cash to refund all pre-booked tickets. But it would wipe out 55% of its bank accounts.
Bottom of the charts
However, not everyone is in such a strong position. easyJet just secured a £600 million loan from the government, and it’s a good job too. easyJet’s sold tickets cost 8% more than it has in cash. No wonder it’s trying to promote rebooking rather than refunds.
Things aren’t looking great for Norwegian either. The airline doesn’t keep much cash and so the potential cost of refunding tickets is almost double the amount of money it has in the bank. Like many airlines that were previously exhibiting financial stress, some ticket sales money may be being retained by credit card companies, and is therefore unavailable to be refunded.
Norwegian Air is Europe’s third-largest budget carrier but has been struggling in recent years. It operates a large number of flights to New York, so recent travel restrictions to the US have been a huge blow for the struggling airline.
What does this mean?
The money raised by ticket sales which goes into bank accounts and is not invested is used to do important things like pay staff members’ salaries and to prepare for moments like these. The fact that airlines are having to refund tickets is why many of them are asking staff to take unpaid leave. Variable expenses need to be minimized. It’s also why airlines are trying to persuade travelers to rebook rather than ask for a refund.
The EU recently ruled against the airlines saying that they cannot offer a voucher for a new flight and refuse a refund. In more bad news for airlines, the court ruled that if a customer does not wish to accept a voucher, the airline cannot force them. This means any airlines hoping to keep already spent cash are out of luck.
The CEO of Wizz Air recently complained that airlines who don’t have the cash to survive the difficult climate should not necessarily be saved by the government. We can only assume he was thinking of Norwegian Air who was struggling before the impact of the virus. However, other airlines that don’t have the cash to survive should not be left to bankruptcy just because they choose to have less available cash.
What do you think? Should all airlines be bailed out by governments regardless of their previous problems? Should airlines be punished for not keeping enough available cash? Let us know what you think in the comments.