US airlines face fresh troubles after failing to win new funds
- 02 Oct 2020
US airlines face a winter test of their finances and question marks over the reach of their domestic flight networks after failing, for now, to win fresh federal aid.
American Airlines and United Airlines began laying off 32,000 workers after a deadline passed with no new help from Washington, but told staff they would reverse this if lawmakers reach a deal on COVID-19 relief.
Late on Thursday, the US Senate adjourned until Monday evening, suggesting no action on any airline assistance was near.
US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke for 50 minutes Thursday afternoon but “distance on key areas remain,” a spokesman for Pelosi said.
White House spokeswoman Kayleigh McEnany on Thursday urged Congress to quickly pass standalone legislation to aid airlines.
US airlines are collectively burning about $5 billion of cash a month as passenger traffic has stalled at around 30% of 2019 levels. After tapping capital markets, they say they have enough liquidity to last them at least 12 months at that rate.
They have argued for another $25 billion in federal payroll aid to maintain their workforce and meet demand as the economy rebounds. Without the money, flight networks could further shrink, hampering their revenue power and shortening their liquidity runway.
Between voluntary and involuntary furloughs, major US airlines’ workforce will shrink by at least 25% in October.
“Airlines quite correctly have been bulking up on cash ... but to be 25% smaller, best case, how are you going to handle the debt service?” asked airline consultant Mike Boyd.
Cities will lose a number of daily flights and non-stop options, Cowen analyst Helane Becker said. “Service to small communities will decline pretty dramatically,” she added.
That threat has resonated with some lawmakers even as the bailout request partly fell victim to broader political turmoil in a bitterly divided Washington.
Some airline officials think if Congress cannot reach agreement now on a broad coronavirus relief package, it may include funding for airlines when it takes up the issue again in the coming months.
But an uncertain recovery has not helped the airlines’ case.
Industry experts expect a slight improvement in domestic demand over the winter holidays from current levels, but it will remain far below last year’s volumes. Meanwhile, higher-margin business and international travel remain severely depressed.
Daily passengers at US airports have swung from record highs in 2019 to dramatic lows in 2020, according to Transportation Security Administration (TSA) data.
“Right now airline traffic is equal to where it was in the 1970s,” said Becker. “And the industry has a balance sheet that is 2019.”
Chief executives acknowledge that pre-pandemic air travel demand is unlikely to return for years, and still unknown is how the pandemic, which has forced drastic changes in habits, will impact travel behavior.
American Airlines, which said in August it planned to end service to 15 smaller airports without additional government assistance, said Thursday it is set to end service to 11 cities on Oct. 7.
The airline remains in talks with local officials about continuing service to Stillwater, Oklahoma and Roswell, New Mexico. In an order issued last week, the US Transportation Department said American could not immediately halt service to Joplin, Missouri and Sioux City, Iowa.
Separately, the dollar climbed on Friday as doubts crept in about the prospects of a new US stimulus package and President Donald Trump entered quarantine after a close aide caught COVID-19, prompting investors to trim bets on riskier currencies.
The dollar index rose 0.2%, though it remains set for its softest week in more than a month as stimulus hopes stoked appetite for riskier assets earlier in the week. It has lost 0.7% since last Friday’s close.
Likewise the risk-sensitive Australian dollar fell 0.4% to $0.7157 on Friday but remains up 1.8% for the week. The euro fell 0.3% to $1.1715 on Friday.
“Wait and hope or wait and worry - the market is hovering between these two,” said Bank of Singapore FX analyst Moh Siong Sim, as the stimulus deal and a Trump virus test hang in the balance, and with crucial US data also due later on Friday.
Trump said on Twitter that he and first lady Melania would go into quarantine as they await their own test results after adviser Hope Hicks tested positive for COVID-19.
Reuters
