Bellyhold operations at risk as airlines look to government aid
01 / 05 / 2020
By Rachelle Harry
Aviation associations have urged governments to financially assist airlines on the brink of bankruptcy as they report significant losses due to the coronavirus pandemic.
Throughout the outbreak, supply chains have been maintained largely thanks to airlines’ cargo divisions. In particular, essential cargo such as food and medical supplies has been continuously transported to destinations around the globe — both on freighter aircraft and on special cargo-only flights utilising passenger aircraft.
Going forward however, if large airlines fail to survive the pandemic and their passenger services cease, then so will their bellyhold cargo operations. Ultimately, the break down of supply chains could cause dire consequences for economies worldwide.
As a result of the outbreak, many major airlines are struggling to stay afloat and have announced significant losses.
IAG, parent company of IAG Cargo and British Airways, reported a loss of €535m in the first quarter of this year, compared with a profit of €135m last year.
British Airways also announced that it is preparing to cut up to 12,000 jobs and may permanently cease operations at Gatwick in a bid to save costs.
Stephen Gunning, chief financial officer of IAG Cargo, said: “IAG is not currently providing profit guidance for 2020. However, the Group expects its operating loss in the second quarter to be significantly worse than in the first quarter, given the substantial decline in passenger capacity and traffic and despite some relief on employee costs from government job retention and wage support schemes.”
American Airlines has reported a first-quarter net loss of $2.2bn. It ended the first quarter with $6.8bn of available liquidity and expects to end the second quarter with approximately $11bn of liquidity.
American Airlines chairman and chief executive, Doug Parker, said: “We have moved quickly and aggressively to reduce our costs and bolster our liquidity.
“We have a lot of difficult work ahead of us. And while there is still uncertainty in what’s to come, we are confident that through the dedication of the American Airlines team and our swift actions, we will get through this for our team, our customers and our shareholders.”
Delta Air Lines revealed a loss of $534m in the first quarter. It also ended the first quarter with $6 billion in unrestricted liquidity and expects to end the second quarter with about $10 billion in liquidity.
Air Cargo News sister title FlightGlobal reported that Delta anticipates cutting daily cash burn 50% as the coronavirus pandemic drags into the second quarter, depressing passenger demand to about 5% of pre-pandemic levels.
For the second quarter, Delta Air Lines has a reduced total system capacity of 85%, domestic capacity of 80% and international capacity of 90%. As a result, Delta expects the second quarter’s total expenses to decline approximately 50%, or $5bn.
Delta chief executive Ed Bastian said: “Government travel restrictions and stay-at-home orders have been effective in slowing the spread of the virus, but have also severely impacted near term demand for air travel, reducing our expected June quarter revenues by 90% compared to a year ago.”
“This recovery is going to take several years, it will be multi-phased and choppy along the way, and we will have the opportunity to test out all of those pieces,” he added.
United Airlines reported a loss of $2.1bn in the first quarter after a 17% decline in revenues year on year.
In an open letter written in April, United chief executive Oscar Munoz and President Scott Kirby, warned of potential job cuts. “We have some tough decisions ahead as we plan for our airline and our overall workforce to be smaller than it is today,” they said.
US carrier Southwest Airlines also made losses — of $94m — in the first quarter, FlightGlobal reported. The carrier ended the first quarter with liquidity exceeding $9bn.
According to FlightGlobal, Finnair‘s revenues fell 16% to €142.6m in the three months ending March 2020.
The carrier is expecting to operate its minimum network throughout the second quarter and estimates that doing so will lead to daily losses of approximately €2m throughout the second quarter.
Noting the outlook for the rest of 2020 is “unclear”, Finnair reiterated its earlier profit warning from March stating comparable operating loss “will be significant” for 2020.
In the wake of airlines’ losses, ACI World and IATA have called for governments to quickly grant financial relief to assist airport operators and airlines during the virus outbreak “to support the essential connectivity the industry will provide for economic recovery”.
“With passenger demand plummeting to unprecedented levels, revenues are falling beyond the ability of even the most extreme cost-cutting measures to mitigate,” they said in a statement. “Airports and airlines continue to face a financial liquidity crisis.”
Alexandre de Juniac, director general and chief executive of IATA, said the situation could not be more dire.
“Governments will depend on aviation to be ready to lead an economic recovery when this pandemic is behind us,” he noted. “Governments must act now with financial lifelines that only they can provide for airlines and airports to see them through these extraordinary times.”
“The more financially stable our airport partners are, the more they can help the industry to drive a recovery in air travel that will jump start the global economy.”
Angela Gittens, director general of ACI World, added: “Urgent tax relief and direct financial assistance that is to the benefit of the entire aviation ecosystem is needed to help preserve millions of jobs, protect essential operations, and foster a balanced recovery. Preserving the continuity of operations for airports and airlines and protecting aviation jobs today will result in a faster economic recovery tomorrow.”
Going forward, IATA and ACI world proposed:
• Taxation relief, including alleviation of payroll taxes, corporate taxes, concession fees or other government incomes from the industry;
•Loans, loan guarantees or direct support to maintain financial liquidity across the aviation ecosystem.