U.S. airlines are asking the federal government to help bail them out to the tune of $50 billion following a massive slump in demand. This latest fallout from the coronavirus pandemic comes on the back of the Dow Jones Industrial Average recording it’s biggest-ever one-day loss in more than three decades.
As investors continued what has now become a massive selloff, fearing the consequences of the coronavirus on the economy, airlines led the way. United, Delta, and American Airlines have all seen as much as 20% wiped off their value.
The coronavirus could reshape global aviation
While talking to MarketWatch, J.P. Morgan analyst, Jamie Baker said that he had lowered his target on airline stocks as he believes the coronavirus pandemic “has the potential to materially reshape global aviation, meaningfully more than the events of 9/11.”
In an attempt to get federal aid in the form of grants, loans, and tax relief, trade group, Airlines for America, the body which represents airlines in the United States announced yesterday that they were looking for $50 billion.
If granted this amount would far exceed the $10 billion in loan guarantees and $5 billion in grants that were given to the airline industry following the terror attack on New York and Washington in 2001.
Now following a decade of what for many airlines was years of record profits, airlines suddenly find themselves in a downward spiral with no bottom.
The crisis started in January
The crisis for the airline industry first started in January with the cancellation of flights to China due to the coronavirus outbreak in Wuhan and has now escalated to include a total ban on flights entering the United States from Europe after the virus has forced entire counties into a state of lockdown.
Putting forward its worst-case scenario, Airlines for America said that without the government stepping in, airlines would run out of money in the second half of the year and even sooner should credit card companies withhold cash generated from the sale of airline tickets.
The trade group’s members include the nation’s six largest airlines:
In an effort to stem losses, United Airlines announced late Sunday night that they would be cutting 50% of their capacity in April and May and that it expects what flights it still operates to be only 20 to 30 percent full.
In a letter to the airlines’ employees carried by News4SA United Airlines CEO Oscar Munoz and President Scott Kirby said:
“We expect both the number of customers and revenue to decline sharply in the days and weeks ahead.”
Staff are being forced to take unpaid leave
Along with the grounding of aircraft, airlines are forcing staff to take unpaid leave and pay cuts in an attempt to stay in business.
At the moment, it would appear as if airlines think that the situation will improve by May, but there is still no way of knowing how the spread of coronavirus will play out.