President Trump better fly into the beleaguered airline sector holding a major bailout package or the coronavirus will go down as a killer for some household names — not $100 a barrel oil, as many have speculated for decades.
“This is much worse than 9/11. People were concerned about flying, but they flew. In this situation, nobody is going anywhere,” said Cowen senior analyst covering airlines Helane Becker on Yahoo Finance’s The First Trade. Becker explains that airlines are losing billions of dollars a day as people are canceling trips and not booking them at cheaper prices at a later date. Moreover, the airlines have high fixed costs and expensive employee contracts that also continue to chew up dwindling cash piles.
Becker is unsure how much longer even otherwise strong airlines such as Delta and United Airlines could survive with the global economy pretty much shutdown due to coronavirus quarantines and travel restrictions. Smaller carriers could simply go up in smoke very soon, choked off by inferior balance sheets and no access to capital.
“If you asked me that question one month ago [if strong companies could run out of cash soon] — maybe three weeks ago — I would have said no, these guys have staying power. At this point we are very concerned about it. We think it may be sooner than two months in which they run out of cash if they continue to pay their employees and do what they can to not furlough anybody,” cautioned Becker.
Delta, American Airlines, United Airlines, Southwest and Alaska Air are pushing for a $50 billion government bailout. The Trump administration has shown repeated signs that it’s willing to help shore up the airline sector’s weakening finances. But thus far, no plan has been solidified and the airlines have continued to reel from coronavirus aftershocks.
And when looking at the financial devastation up to this point, one has to wonder if $50 billion would even be enough.
Delta CEO Ed Bastian said this week his airline’s revenue will be down a startling $2 billion in March. Bastian has responded by slashing capacity by 70% and deferring nearly all capital expenditures in an effort to conserve $4 billion. Over at United Airlines, it has said it will cut flight schedules by 60% in April and has begun to consider employee layoffs.
Shares of American Airlines, Delta, United Airlines and Alaska Air have crashed more than 60% over the past month. Southwest has plunged 40%.
“At the risk of being alarmist, the airline industry is on the brink of collapse as governments are quarantining large portions of their populations and closing off borders to foreigners,” said Becker.
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