The COVID-19 pandemic has hit demand for air travel, tens of thousands of people are already lost their jobs and a recovery, whatever that may seem like is anticipated to take years. However, while smaller suppliers are crashing and taking a big blow, the big names in the corporations that operate and coordinate the air travel industry are somehow surviving. The major credit for this goes to their size and their access to one of the most vital resources i.e. cash.
Cash, Cash, Cash!!!
The major names in the airline industry were hit, registering historic losses, details of which was rolled out last month, during their quarterly earnings calls. Together, the Big Three; United, Delta, and American lost a humongous $10 billion during the second quarter of 2020. JetBlue lost about $320 million, Southwest $915 million, and budget carriers Spirit and Alaska lost $144 million and $214 million, respectively.
All of them are already trying a lot by cutting their costs by retiring planes early and halting most of their routes. However, they are also prepping layoffs and furloughs despite government programs meant to keep those people employed. Out of many billions of dollars, they collected from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, only a portion was utilized to protecting layoffs and people’s jobs. They are running out of that money, leaving the airlines in a spot of widespread cuts unless that part of the government program is further extended.
In the meantime, the major airlines are simultaneously hoarding cash because there is simply a lot of cash available to them. On top of the CARES Act money, interest rates have hit rock-bottom, making it simpler and cheaper than ever for big companies to borrow lots of money. This makes it feasible for these companies to paper over their deficiency of revenue with a little financial engineering.
Steve Priest, the chief financial officer of JetBlue, said his company’s “number one focus is cash” at the time of a quarterly earnings call a few weeks ago. “Cash, cash, cash, cash, cash, as you would expect it to be in this environment.” JetBlue borrowed $936 million in payroll support from the CARES Act; however, Priest said the company has taken a total of $3.7 billion since the origin of the pandemic, $750 million of which the company got by utilizing its slots at JFK, LaGuardia, and Washington Reagan airports as collateral.
Unsurprisingly, the bigger airlines have borrowed much more than that. United Airlines has managed to raise $16.1 billion through a combination of debt offerings, stock issuances, and CARES Act payroll grants and loans, with about $7 billion of that coming from utilizing its mileage rewards program as collateral. American Airlines is borrowing $4.75 billion under the CARES Act, with $1.8 billion slated for payroll help, and it’s utilizing its intellectual property as collateral for an additional $1.2 billion loan from Goldman Sachs. Delta borrowed the most CARES Act payroll funding from the government, $5.4 billion; however, has recently borrowed about $15 billion in total.
In a nutshell, it’s a grim picture. COVID-19 has shattered demand for air travel. Travel restrictions, both in the US and abroad, as well as a resurgence of the virus in the American South and West, are restraining the modest bounce-back in air travel observed at the beginning of the summer.
The major airlines are going through record losses, too. However, for now, at least they’re avoiding this carnage with the help of piles of cash.
Hello, I’m Anna Yeo. If you like my news coverage, please drop a good word in my inbox. I’m journalist by profession and have been part of many major reporting across the globe. I like to write crisp and factual news. I have completed my masters degree in journalism. Feel free to contact me at [email protected]ws.com