- The extreme scenario is highly unlikely, because airlines will probably negotiate better terms on leasing contracts;
- Countries are also devising bailout programs for the industry.
Countries and territories around the world have imposed travel restrictions to curb the spread of the coronavirus. The damage it has brought to airlines at this time is incalculable, but as the pandemic progresses there is a growing feeling that some companies may not survive the crisis.
JP Morgan issued a drastic report on the business viability for airlines in a scenario where 100% of flights are suspended. According to La Republica, in this extreme situation, Latin American companies could survive between 3 and 10 months. The Colombian newspaper cites a liquidity review carried out by the investment bank’s analysts Fernando Abdalla and Guilherme Mendes, first reported by Bloomberg.
This worst case scenario, however, is highly unlikely but capacity cuts should be “massive.”
“The collapse in air travel demand brought on by these severe travel restrictions and the reluctance of travelers to fly has the potential to materially reshape global aviation more meaningfully than the events of September 11th.Jamie Baker, U.S. Airline and Aircraft Leasing Equity Analyst at J.P. Morgan.
Airlines expect to renegotiate better payment terms on their aircraft leasing contracts, and the report points out that it is “very likely” that companies can obtain good terms or postpone all payments for months. Also, countries around the world are devising rescue programs for the sector.
100% grounded flights
In the worst case scenario, without any flights, the airlines could last:
- Avianca (Colombia): 3 months
- Latam Airlines (Chile/Brazil): 4 months
- Gol (Brazil): 5 months
- Azul (Brazil): 6 months
- Copa (Panama): 10 months