US Airlines To Burn Through $40 Billion By Year End If No Recovery

Most Wall Street analysts are predicting a V-shaped recovery for the US economy in the second half (even if it boggles the mind how the US economy can simply spring right back from a -14% GDP depression in Q2 without missing a beat). But if they are wrong, there will be hell to pay. Or at least 40 billion dollars to pay for the US airline industry.

According to a new from Vertical Research, US airlines will burn through $40 billion in cash by year-end if passenger revenue plunges to nothing for the rest of 2020, and there is now second half rebound.

"This is a dramatization, but isn’t far from the new reality as each capacity reduction far exceeds the one that preceded it," Vertical analyst Darryl Genovesi said in a report which was seen by Bloomberg. 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 have cut about 20% of available seats so far, will in the next few weeks slash capacity more along the lines of 70% as Delta has done already.

"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 US carriers such Delta, American Airlines and United have already 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.

In short, all those companies will need to find an additional source of funding or they will have to file for Chapter 11.

“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.”