U.S. Airlines Could Burn $40 Billion in Cash If Demand Vanishes
U.S. Airlines Could Burn $40 Billion in Cash If Demand Vanishes
(Bloomberg) -- U.S. airlines could burn through $40 billion in cash by year-end if passenger revenue plunges to nothing for the rest of 2020 because of the new coronavirus and operations are shut down, according to Vertical Research Partnership.
“This is a dramatization, but isn’t far from the new reality as each capacity reduction far exceeds the one that preceded it,” Vertical Research analyst Darryl Genovesi said in a report Thursday. His “no-longer-so-extreme” scenario also assumes that bookings dry up and carriers are forced to refund all advance ticket purchases.
Genovesi expects that carriers focused on the domestic market, which so far have cut about 20% of available seats in the next few weeks will slash capacity more along the lines of 70% as Delta Air Lines Inc. already has done.
Passenger revenue could hit zero by the end of this quarter and stay there for the rest of the year, he wrote, with cargo revenue disappearing in the third quarter. Annual operating income would then fall about $65 billion short of what had been expected a few months ago.
Major carriers including Delta, American Airlines Group Inc. and United Airlines Holdings Inc. have halted nearly all of their international operations as the virus’s spread spurred governments to restrict travel. Carriers now are making deeper cuts in domestic operations, parking planes, offering unpaid leaves to workers and securing billions in loans. Congress is considering $58 billion in loans and other financial help for the industry.
Genovesi’s outlook -- which excludes new ticket sales, government aid, new sources of capital secured and about $45 billion in existing fixed financial obligations this year -- would leave Delta and United with negative cash balances in the second quarter. American would follow in the third.
“Government hasn’t completely shut down U.S. air traffic, but it may still,” Genovesi said. “And even if it doesn’t, demand is approaching zero as U.S. citizens are staying home.”
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